Africa Growth – API conference overview

by Chinwe Ajene-Sagna

October 3, 2017 | 12:45 am
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Chinwe Ajene-Sagna, Head, West Africa, JLL unpacks some key learnings from the Africa Property Investment Summit, held in Johannesburg at end August, with emphasis on the retail and office markets response to the prevailing economy.

API is an important forum for the real estate sector across the continent, with conversation around the impact of global trends on the African real estate space, as well as new opportunities, development, risk mitigation and capital raising.

The new Africa darlings?
The power houses of Africa have been behaving badly. According to Michael Kafe, an economist responsible for Africa Research at Standard Bank, countries like South Africa, Angola and Nigeria are suffering from the “Big Boy Syndrome”. They have implemented poor economic policies which have in turn impacted negatively on investor sentiments and the continent as a whole.
Nevertheless unique opportunities in various other countries still exist as evidenced by GDP growth projections. In the East African countries of Kenya, Tanzania and Uganda for instance, GDP growth is expected to be 6-7% for the next couple of years. In the Southern African region (South Africa excluded), GDP growth of between 2-4.5% is projected for Malawi, Zambia, and Botswana. The focus in West Africa is on the Francophone country of Ivory Coast and Ghana for the Anglophones. Again, GDP growth in these countries is anticipated to be between 6-7.5%. Kafe argues that if you take the big boys out of the equation, Africa is not looking too bad. Overall, a second growth spurt is expected for Africa, averaging at 3-3.5% without the large countries and 2-2.5%if you include them.
Kanna Lakmeeharan, a partner at McKinsey, agrees with this assertion. The slowdown has been limited to the Big 6 countries in Africa due to challenges such as the oil crisis, Arab spring, etc. and looking forward, growth is still forecast for all of Africa. Consider that over the next decade, 160 million people will be living in African cities with the continent predicted to have the largest working population in the world by 2030. Add growing innovation, particularly in digital, telecoms and solar, and the face of the continent is expected to change.

What about the Nigerian story?
The general sentiment expressed at the conference is that one of Africa’s largest economies, Nigeria, is turning the corner. The country has bottomed out in terms of recession and there are positive indications of recovery, however slow. Expected GDP growth for 2017 is at 1%. Oil prices have begun to stabilise with some increase in production. There are also signs of improvements in terms of liquidity, transparency and a more open market, as active steps are being taken to improve the current situation. It is anticipated that the Nafex forex trading platform will further increase liquidity and there are improvements in foreign reserves. More poignant is the convergence of the official and parallel market foreign exchange rates. Late last year to early 2017, the differential between the two was as high as 60-70%! This has now been reduced to 20% and even less. There is also a 30 billion Naira infrastructure spend announced by the government, though the timing of disbursement is still unclear.
Nonetheless, Nigeria is not completely out of troubled waters. The retail and office market is still under stress, and weary investors remain on the sidelines. Not much activity is expected from international investors coming into Nigeria – at least not until more sustainable progress is made regarding the FX situation.

Time to sharpen your pencil as retail and office shifts:
The economic down turn has resulted in strategic shifts in assets classes, particularly in the retail and office space. In retail, requirements are leaning towards smarter convenience centre models vs. the mega malls. There is also less emphasis on high-end fashion stores. Instead the focus is now on local retailers, with a food court and entertainment mix as well as a grocery shop anchor tenant. Store size adjustments have had to be made and developers are embracing the pop-up store concept and down-grading building specs to better manage costs.
These adjustments are a direct result of the impact of the economy on rentals. Increasingly, retail property owners have had to step in to support their tenants with assistance, both in terms of marketing and in rentals. To weather the storm, concessions such as rental reductions, acceptance of payments in local currency, loan assistance, rent-free periods, extended payment terms and turnover rental are being offered as short-term solutions. Landlord rental margins are naturally affected, with further impact by local currency depreciation.
The office market is experiencing similar shifts and landlords have responded with related approaches. Rent-free periods, free parking, quarterly rental payments, rents in local currency, free beneficial occupation periods are some examples of concessions on offer to attract new tenants or retain existing ones, particularly those with strong covenants who are highly sought after.
To address these issues, existing developers are now contemplating diversification strategies. Consideration is being given to other sectors, like healthcare, manufacturing, housing, and financial services seeking assets other than Class A offices (as anchor tenants). These sectors are expected to experience growth in the coming years and as such will require the appropriate real estate infrastructure.
Yes, we are in a period of uncertainty. Nevertheless, opportunities still exist for creative developers prepared to meet the unique needs of tenants. A sharpened pencil approach is now a necessity for success.


Chinwe Ajene-Sagna

Chinwe Ajene-Sagna holds an MBA from Harvard and is Head of West Africa for JLL. JLL is a global full service real estate firm (Fortune 500, S&P, $5Billion revenue, 66,000 employees and 225+ Corporate offices

by Chinwe Ajene-Sagna

October 3, 2017 | 12:45 am
12893  |   93   |   0  |   Start Conversation

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