GRI AFRICA CLUB WHAT’S DRIVING KENYAN REAL ESTATE? Elizabeth Mwangi-Oluoch AFRICAN HOTEL CAPITAL MARKETS: LIQUIDITY ON THE HORIZON Xander Nijnens
AFRICAN AIRPORT CITY INVESTMENT Mirjam Wiedemann
FRANCOPHONE AFRICA AS A NEW REAL ESTATE FRONTIER MARKET Ivan Cornet
EAST AFRICA’S FIRST REIT ANTON BORKUM West Africa GRI | East Africa GRI | GRI Africa Summit
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CONTENT
CONTENT: 4 What’s Driving Kenyan Real Estate? ELIZABETH MWANGI-OLUOCH, CEO, KPDA
8 African Hotel Capital Markets: Liquidity on the Horizon XANDER NIJNENS, SVP, HOTELS & HOSPITALITY GROUP, JLL SUB-SAHARAN AFRICA
14 Expert Analysis: The Nairobi Real Estate Market JAMES HODDELL, CEO of MML
18 The Big Interview with Anton Borkum CEO, STANLIB FAHARI I-REIT
22 Will Airport City Investment in Africa Ever Take Off? MIRJAM WIEDEMANN, MANAGING DIRECTOR, WIEDEMANN CONSULTANTS
26 French-Speaking Africa as a New Real Estate Frontier Market IVAN CORNET, MANAGING PARTNER, LATITUDE FIVE
32 Dakar: Francophone Africa’s Hidden Gem? DICKO BA, CEO, GROUPE ALPHA SUD
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EDITOR’S NOTE
Welcome to the Club
After the phenomenal response we received to our first edition of our Africa GRI Club Magazine, we are delighted to welcome you back. Enjoy the diverse range of issues we cover with some fresh perspectives and opinions from our senior real estate leaders on the African Motherland. In this edition, we take a closer look at the latest happenings in East Africa and also explore the potential that Francophone Africa holds. Mirjam Wiedemann, gives us a facinating insight into Airport Cities in Africa, Xander Nijnens examines African Hotel Capital Markets, Ivan Cornet gives a comprehensive understanding into opportunities in Francophone Africa, while Dicko Ba highlights the major draws of investment into Senegal. James Hoddell weighs up the pros and the cons of the Nairobi real estate market, Elizabeth Mwangi pinpoints the current trends and in our main feature Anton Borkum tells us why East Africa’s first REIT will transform the market in the region. I hope you enjoy our second edition as much as you enjoyed our inaugural Africa GRI Club and if this is something you would like to contribute to, please don’t hesitate to get in touch.
Neall de Beer Director – the Africa GRI Club neall.debeer@globalrealestate.org
Since 1998, GRI meetings provide a forum for the world’s leading real estate players to develop valuable relationships, find new business partners, and strengthen their global networks.
DISCOVER ALL GRI EVENTS Africa • Asia • Brazil • British • CEE • China • Colombia • Deutsche • Deutsche Wohnen East Africa • España • Europe Summit • France • India • Italy • Latin America • MENA • Mexico • Russia • Turkey
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CURRENT TRENDS
WHAT’S DRIVING
KENYAN REAL ESTATE? “The Kenyan real estate market remains strong with a high demand for housing that is not matched by current supply”
BY ELIZABETH MWANGI-OLUOCH, CEO, KENYA PROPERTY DEVELOPERS ASSOCIATION KPDA are an Industry Partner for East Africa GRI
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CURRENT TRENDS
O
ver the past decade, Kenya has experienced increased economic development, leading to an expanding middle class with a higher purchasing power than ever before. This in itself has led to an obvious growth in the real estate industry accelerated by a host of factors. Here are five key trends driving the Kenyan real estate industry.
DEMOGRAPHICS Both the development of the local population towards a middle class, and the increased influx of foreign residents, has contributed to the overall well-being of the economy. The real estate market has vastly benefited from this trend evidenced with an increase in commercial and residential real estate. The median age in Kenya is 19 years, indicating that a large portion of the population is only now entering the working force and gaining the ability to potentially invest in real estate. This also indicates that there is a strong focus on family life within the general population, with a fast-growing young demographic and 3.7% of adults being over the age of 55 which in itself has increased the demand for housing.
FOREIGN INVESTMENT Foreign direct investment (FDI) is a crucial element of any developing country’s future development. Cross-border investment, aimed at obtaining sustainable interest and future growth is valuable to any economy, as it fosters competition and builds relationships across the globe. Kenya has attracted increased foreign capital in recent times with the real estate sector attracting external attention from both expatriates looking to relocate to Kenya, and corporations interested in expanding their operations to Africa. The Kenyan real estate market remains strong with a high demand for housing that is not matched by current supply.
GREEN BUILDING INCENTIVES The construction designs help in conserving resources, controlling climate changes and reducing negative impacts on human health and the environment. Emerging trends have been made popWest Africa GRI | East Africa GRI | GRI Africa Summit
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CURRENT TRENDS
ular by an incentive of a certification that recognizes the efforts of firms which are promoting Eco-friendly designs within Kenya. The certification, Leadership in Energy and Environmental Design (LEED), recognizes best-in-class building strategies and practices and has been adopted by a growing number of commercial developers. In the long run, it is anticipated that the trend will be adopted by more residential developers.
MODERN INFRASTRUCTURE With modern construction of world class roads, most developers have shifted their developments to places where developments were low in number. A good example is the Thika Super Highway which has seen developments coming up along the highway, facilitated by the demand for houses around that area. Construction of the Standard Gauge Railway has also shaped up the real estate industry with most developers focusing on the Naivasha Area.
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TECHNOLOGY TRENDS IN HOUSE HUNTING Research has shown that 82% of all Kenyans own a cell phone and 19% have a smartphone, with which they can access the Internet. Additionally, mobile payments have gained widespread popularity in the country, which can be attributed to its young, agile, and tech savvy population. Analytics have shown that 36.21% of Kenyans searching for property listings are between the ages of 25 and 34, reinforcing the theory that young individuals and families are house hunting online.
INTERVIEW
NEALL DE BEER Project Direct Africa, GLOBAL REAL ESTATE INSTITUTE
Q: What’s GRI East Africa? N.B.: GRI East Africa is a day and a half of intimate networking between real estate investors, developers, lenders, who are actively involved in the East African market. They are also joined by large retail and hotel groups, and major corporate tenants. It’s the most senior real estate meeting in region and a unique platform for international and local players to meet, discuss and identify new investment and development opportunities. Q: How is it different from other African real estate investment events? N.B.: GRI is not a conference. Our format does not have speakers or panels. Instead, those taking part in the event can participate in many small intimate discussion groups, animated by a ‘Moderating Chair’ and a selection of ‘Co-chairs’. The informality and enjoyment of the debates is like an after dinner conversation with friends in your own home. This format allows you to quickly make friends, find out what other people think and immediately identify those 4-5 new potential business partners or investment
opportunities. GRI meetings have been running for nearly twenty years across the world. All of our attendees are considered as ‘members’ of our club. Q: Why East Africa GRI 2016? N.B.: There is a strong interest in East Africa from our international members. However, they have also identified many difficulties in approaching the market. That’s where East Africa GRI comes in. GRI’s two previous annual meetings in Nairobi in 2013 and 2014 were a big success – drawing investors from the US, Europe, Middle East and Asia. Our members’ appetite to invest in the East African market has determined the return of the most senior and diverse real estate event in Africa to Nairobi in 2016. Q: Who will be there in Nairobi? N.B.: There is a ‘magic’ combination of exclusivity and seniority; a maximum of 150 people and all senior decision makers. The attendance is made of balanced mix of investors, developers and lenders, as well as some major hotel groups, retailers and corporate tenants. Of course we
welcome some leading service providers as well. To date we have already confirmed the likes of China-Africa Development Fund, China Citic Bank, Nile Investments, Quantum Global Investments, Actis, Phatisa, Lordship Africa, Rendeavour,and IFC amongst others. The list of participants grows day by day and is available to view on our site. Q: What are the main themes of the 2016 GRI East Africa edition? N.B.: The event will cover pertinent issues and opportunities within the East Africa region. Addressing currency volatilities, the commodity crisis, infrastructure, equity markets and debt finance. Sectors discussed include affordable housing, luxury residential, hotels, offices, retail and mixed-use developments. We will also look at how our international members can enter the market though the availability and transparency of local partners.
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INDUSTRY REPORT
AFRICAN HOTEL CAPITAL MARKETS: liquidity on the horizon By Xander Nijnens, SVP, Hotels & Hospitality Group, JLL Sub-Saharan Africa
H
otel investment volumes globally reached US$ 85 billion in 2015 at a 50% growth over a strong 2014 to reach the second highest volume ever. This year we expect hotel transactions to cool down to US$ 70 billion as there will be less portfolio transactions following a stellar 2015. Cross border capital flows
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reached their highest level yet in 2015 with US$ 40 billion in transactions. Yet these high levels of capital flows are focused on mature markets with emerging markets accounting for less than ten percent of global transactions. With this in mind, what is the outlook for hotel transactions in Africa?
INDUSTRY REPORT
To date global hotel real estate capital has been cautious in flowing into Africa due to perceived high risk and limited investment scale. Despite this cautious approach, hotel supply on the continent has grown by 4.1% annually during the past 10 years, which has been driven primarily by local and regional developers. Global investors are increasingly taking note of the potential of the region and considering their optimal entry strategy into these markets. Their main challenge is achieving meaningful scale, managing investment and execution risk and liquidity.
The current economic growth forecast of 4.2% for 2016 for Sub-Saharan Africa is still well ahead of the global average of 2.9%.
We forecast medium term supply growth in North Africa of 1.5% annually at US$ 855 million and 3.5% in Sub-Saharan Africa at US$ 1.6 billion. This investment is in the development of new hotels only, which is the main investment driver in the region, and excludes ongoing reinvestment in existing hotels or transactions. Liquidity remains limited in the region yet this is improving as more investment grade assets are coming to market in 2016 compared to previous years. Global branded supply in Africa is still at a low 22% which we forecast to increase significantly during the coming decade. The outlook for the hotel sector in Sub-Saharan Africa remains positive with strong underlying long term economic and demographic fundamentals, despite the current slowdown in economies in the region. Many markets remain fundamentally undersupplied in the medium term and several markets are heading into a new supply cycle. In 2016 we expect a moderate year for demand growth in the region with a continued growth in the supply pipeline and an increase in transactions.
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INDUSTRY REPORT
Hotel Supply Distribution
57%
17%
332,000 KEYS
NORTH
101,000 KEYS
SOUTHERN
15%
89,000 KEYS
8%
44,000 KEYS
EAST
WEST
> 30,000 keys 10,000 - 30,000 keys
2%
10
5,000 - 10,000 keys 14,000 KEYS
CENTRAL
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0 - 5,000 keys
INDUSTRY REPORT
Following a strong recent period of economic expansion in Sub-Saharan Africa, we saw a slowdown in growth in 2015 to 3.4% with an outlook of 4.2% in 2016 and 4.7% in both 2017 and 2018 according to the latest World Bank forecasts. Pressure is coming from lower commodity prices, reduced consumption by trading partners, tightening of borrowing conditions, electricity shortages and select political instability. Currency fluctuation and currency access, as well as interest rate volatility have increased investment risk.
consequently hotel profitability and supply growth – yet this is not the only factor. Air access continues to improve through global carriers like Emirates, Turkish Airlines and Qatar Airways, and regional carriers like Kenya Airways and Ethiopian Airlines. Global corporate entry too remains on a generally positive trajectory. Intra-regional trade is growing regional demand whilst leisure demand is increasingly captured by the formal hotel sector.
East Africa will see the further maturation of the hotel Despite this slowdown, Xander Nijnens sector with subthe current economic is a Discussion Co Chair at the East Africa GRI stantial new supgrowth forecast of 4.2% ply coming online for 2016 for Sub-Sahain Nairobi and with Dar es Salaam, ran Africa is still well ahead of the Addis Ababa and Kigali all showing global average of 2.9%. Numerous strong demand growth. Southern markets are expected to show high Africa continues to be dominated by economic growth including EthioSouth Africa and we are at the start pia (10.2%), Cote d’Ivoire (8.4%), DRC of a new, more moderate, (8.0%), Rwanda (7.4%) and Tanzania (7.2%). Economic growth has a direct and amplified impact on demand for hotel accommodation and
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INDUSTRY REPORT
supply growth cycle which will be led by Cape Town. Demand growth in South Africa should be strong in 2016 with the rebound of tourist arrivals following the lifting of restrictive visa regulations and the positive impact on global competitiveness following the devaluation of the Rand. West Africa continues to be adversely impacted by lower commodity prices which have put pressure on hotel demand from resources related industries and the public sector. Notwithstanding this, opportunities continue to exist in various market segments in that region. In the Indian Ocean, Mauritius is coming out of a depressed trading climate and has seen strong demand growth, which should start to result in stronger room rates and in the medium term new supply. Demand growth is buoyed by the safe destination status of Mauritius, yet new air access and tourism promotion should ensure that this growth is sustainable. Several countries in the Sub-Saharan including Zambia, Ghana and DRC have national elections in 2016, which will result in a slowdown in investment flows and hotel demand.
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On the whole we forecast demand growth in the region in excess of GDP growth at 5%-6%. Despite economic headwinds in 2016 the fundamentals remain strong and investment sentiment generally buoyant. Interest from global real estate capital into Sub-Saharan Africa is growing, yet the majority of investment remains local and regional. Investment grade assets continue to remain tightly held and consequently investment opportunities are development focused. In the medium term we see an improvement in liquidity and transparency and a reduction in development cost and risk as the sector matures. In these times it is critical to take a long term view of demand fundamentals and to have a good understanding of where the supply cycle is as markets remain thin. Significant risk adjusted investment returns are on offer in the Sub-Saharan Africa hotel real estate sector yet doing your homework is essential.
J OI N R E A L E S TAT E L E A DE R S I N YOU R R E G ION AT T H E A N N UA L G R I E V E N T S Exclusively senior level attendees
Informal group discussions & interactive format
Unique platform for international investors to meet local developers
18 year track record
Since 1998, GRI meetings provide a forum for the world’s leading real estate players to develop valuable relationships, find new business par tners, and strengthen their global networks.
WEST AFRICA - Lagos - 17-18 February
•
EAST AFRICA - Nairobi - 30-31 May
•
AFRICA SUMMIT - Johanesburg - 20-21 October
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EXPERT ANALYSIS
The Nairobi Real Estate Market By James Hoddell, CEO, Mentor Management Ltd
A bubble about to burst or a healthy market set to enjoy sustained growth?
N
airobi has witnessed sustained growth since the 2002 elections, when Mwai Kibaki came to power. With the new government came an opening up of the market to global trade and investment and the start of a process which would lead to Nairobi taking the undisputed role as East Africa’s regional business hub. Today it has a functioning stock market, a well-de-
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veloped banking and insurance sector and is home to a growing number of international firms and investors seeking a foothold in this relatively stable and well-connected hub. The real estate industry has benefitted from these years of growth and the skyline of Nairobi has been transformed with the creation of important business nodes in Upper Hill and Westlands and
EXPERT ANALYSIS
rapid densification of many peripheral zones. Office rents maintained an average growth of 12% per annum during the period 2009 to 2014 but new supply has grown from around 100,000m² per annum to 175,000m² over the same period. 2015, however, saw delivery of nearly 275,000m² and this is set to continue in 2016. The resulting bulge in supply, often in poorly-designed, under-parked buildings or in undesirable nodes has seen stagnation in rents and will result in an estimated 300,000m² of vacant office space by the end of 2016. The vacancy has partly been driven by a slight slowdown in take-up resulting
from the collapse of the oil exploration market and concerns over security following the Westgate and Garissa attacks. None of the above, however, spells disaster for the office market. Growth continues and there is still limited supply of the more sought-after ‘Grade A’ buildings which come closer to meeting international specifications. Several major banks, as well as telecom companies such as Safaricom, are actively engaged in expanding into new buildings – driven by the underlying growth in their businesses, which has not slowed as it has in more resource-dependant countries. NAIROBI’S OFFICE SPACE SUPPLY VS TAKE-UP
* source: MML West Africa GRI | East Africa GRI | GRI Africa Summit
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EXPERT ANALYSIS
The shopping mall market is following similar patterns. Supply is booming with the delivery of Garden City, East Africa’s largest mall, in mid-2015 and the pending launch of both The Hub and Two Rivers, the latter set to beat Garden City’s record by a considerable margin. By the end of this year modern mall supply will have reached 460,000m² of retail GLA and there is reluctance from many retailers, with sales growth slowing due to a weaker shilling and higher prices for imported goods, to continue to expand at the same pace. Caterers are still performing well and supermarkets are busy expanding, spurred by competition between local champions Nakumatt, Tuskys, FoodPlus and Naivas and the imminent arrival of Carrefour – which has committed to its first store openings in 2016.
While it is doubtful that malls will continue to open 100% leased during 2016, there are as yet no ‘dead mall’ candidates and all the upcoming supply will lease up over time – albeit without the same rental growth that has been witnessed in the first half of the decade. Indeed sizeable gaps still exist in Nairobi for several medium-sized malls which can still be profitably developed. Retail sales growth, leading to increasing imports through the expanding Mombasa Port and Jomo Kenyatta International Airport, has boosted the performance of the many international and local logistics firms. Local manufacturers are also starting to show signs of growth again, assisted by the cheaper Shilling. The existing industrial area and the Mombasa Road industrial agglomeration are now under stress. With in-
NAIROBI’S RETAIL SPACE SUPPLY VS GDP
Space Delivered (sqft)
Cumulative (sqft)
GDP IN USD (Billions)
* source: MML & World Bank 16
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EXPERT ANALYSIS
dustrial land prices at over $250 per yields as low as 7% are understood to m² and limited land availability in have been achieved on a handful of these traditional areas, there is pentwell-let commercial properties. up demand for both modern wareIn summary, there is increasing house space and serviced industrial over-supply in several areas of the sites. Location criteria are challenging, Nairobi commercial real estate marwith occupiers looking for affordable ket. Offices and malls may well exland prices, proximity to customers perience higher levels of vacancy and accessibility for managers from during 2016 as supply continues to the affluent Northern and Western outstrip demand. Barring any exterNairobi suburbs. While developers are nal shocks, higher interest rates and starting to consider the sector anew, developers responding there is as yet no provInvestors, therefore, who do to market dynamics will, en example of occupiers their research and create the however, assist in rebalright product in the right locapaying the required rents tion, will be able to generate ancing the market in the for high-bay, well serviced healthy development profits medium term. Successin all commercial sectors. accommodation. Projects ful developments going are in the pipeline, howforward will respond to ever, which will transform occupiers’ growing deNairobi’s industrial landmand for quality. These scape: hundreds of acres will lease well and sell at a premium are being parcelled up and sold at to the growing number of investors Tatu City and Actis has embarked targeting the Nairobi market. on the development of the region’s first fully-serviced logistics and light Investors, therefore, who do their reindustrial park at Northlands on the search and create the right product in Eastern bypass. the right location, will be able to generate healthy development profits in Meanwhile the investment market all commercial sectors. Those who for quality stock is strengthening with have not done their groundwork, the establishment of the first REIT and however, may have sleepless nights the arrival of several SA investors seekas they struggle to find occupiers in ing Grade A assets. Although there the short-to-medium term. are few transactions and limited data,
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BIG INTERVIEW
Big Interview with
Anton Borkum CEO of STANLIB FAHARI I-REIT
GRI Club Africa met up with Anton Borkum, CEO of STANLIB Fahari I-REIT, Kenya’s first Real Estate Investment Trust, to find more about this newly launched investment vehicle and just what this means for the Kenyan and East Africa market.
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BIG INTERVIEW
Q: Why Kenya? Why now? A: STANLIB has on the ground operations in 10 African countries and will consider opportunities where they make sense for our customers. As we expand our businesses across Africa, we aim to focus on alternative assets and transactions that make a real difference in regions where we operate. The STANLIB Fahari I-REIT is the first publicly quoted Income Real Estate Investment Trust (I-REIT) in East Africa. It is managed by STANLIB, and was listed on the Nairobi Securities Exchange (NSE) in November 2015. STANLIB’s move to list Kenya’s first I-REIT comes at a time when the Kenyan economy is reflecting the benefits of several years of sustained 5% + GDP growth. The Economist predicts Kenya’s real GDP at 5.4 percent in 2015, and around 6 percent in the medium term thereafter1 . This economic growth is further stimulated by a population that is rapidly urbanising. In 2010 it was estimated that 22 percent of Kenya’s population lived in urban areas and this is expected to rise to 51.9 percent by 20502 . 1-EIU Country Report, Kenya October 2015 2-World Bank 2011 Report- Developing Kenya’s Mortgage Market 3-Hass Consult/KPDA State of Development Report Q4 2013 4-Kenya Market Update – Knight Frank (2H: 2014)
A 2013 report by the Kenyan Ministry of Housing estimated annual demand at 200,0003 units against supply of 35,000 units annually. In addition to urbanisation, the influx of expatriates working in Kenya for international firms as well as a growing middle class population have spurred a significant rise in residential house prices. By 2014 the contribution of real estate to the Kenyan economy had grown to such an extent that real estate was the fourth largest contributor to the Kenyan GDP4 . Q: How much red tape is involved in establishing a REIT? A: As with any new venture in a market, there is a requirement for regulatory engagement to ensure that the appropriate product is developed, in line with prevailing legislation and that country’s economic objectives. Once the enabling legislation had been promulgated, this was followed by a “build” of the REIT framework and structure. We then entered into an Initial Public Offer (IPO) process, which culminated in the listing of the STANLIB Fahari I-REIT. This listing, in turn, heralded the launch of the REIT sector on the Nairobi Securities Exchange.
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BIG INTERVIEW
Q: What kind of investors should be interested? And what are the potential benefits? A: STANLIB Fahari I-REIT provides both retail and institutional investors with a transparent, well regulated, tax efficient investment structure, offering income and capital returns as well as an opportunity for diversification into a new asset class (listed real estate). For international investors, STANLIB Fahari I-REIT offers exposure to the growing Kenyan economy with specific tax dispensation from the Kenya Revenue Authority, a transparent investment vehicle allowing investors to understand what they have invested in, accessibility, liquidity, returns from net rental income as well as capital gains and a regulatory oversight of the Kenyan Capital Markets Authority. Q: How do you see REITs impacting the market? A: Investors will enjoy the benefit presented by an opportunity to invest in a new asset class, and diversify their portfolio holdings. REITs provide a mechanism for aggregating large pools of capital (on behalf of investors), which can then be deployed into real estate invest-
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ments. In this manner they deepen the Capital Markets in which they operate. They provide price disclosure in terms of buying and selling prices of their assets, and as more REITs are listed, it is anticipated that the market will benefit from greater trading activity in Real Estate assets, and the universe of publicly available data will grow. Q: Kenya is the fourth African country to establish REITs as an investment vehicle, can we expect to see other African countries following suit and how long do you think this will take? A: In Africa, the pace of growth in the REIT sector has been determined predominantly by the timing of promulgation of enabling legislation. A REIT sector has been active in South Africa for a while, Ghana has had access to REITs since 1994 and Nigeria 2007. Kenya is the fourth African country to establish a REIT market. We do know of several African countries, which are in the process of considering enabling legislation and / or regulatory amendments which will facilitate investment in REITs.
AFRICA GRI CLUB MAGAZINE
EAST GRI AFRICA 2016
Connecting senior Real Estate Investors, D evelopers and Lenders active in East Africa
N A I R O B I | 30 - 31 MAY
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MARKET REPORT
Will
Airport City Investment in Africa Ever Take Off?
By Mirjam Wiedemann, Managing Director, Wiedemann Consultants
A
fter large investments in aviation infrastructure in China and India, with both countries planning or building several hundred new airports, Africa seems to become the next big shot for investments in aviation infrastructure. While 15% of the world population lives in Africa, African air traffic counts only for around 3% of the worldwide air traffic. Nevertheless, IATA predicts that air traffic in Africa will grow strongly in the period until 2034, on average 4.7% annually. Restrictions and regulation for air traffic routes inside of the African continent, constrained significantly the growth in
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this sector in the past. Implementing Open Skies as described in the Yamoussoukro Decision would surely help growing air traffic and with that foster tourism and economic development. An independent report found that the liberalisation between 12 key markets would provide 155,000 new jobs and $1.3 billion in annual GDP. All said that, new airport developments are already under way to foster for growing air traffic in the future. New airports are under development, for example in Sudan, Togo, Djibouti and Senegal. Ethiopia just announced to build a mega hub for more than 100 million passengers.
MARKET REPORT
As governments worldwide struggle to finance new infrastructure, public-private-partnerships and private investments in general are in favour in the aviation area. Realising that unused land in the airport precincts could be used for real estate developments, airports and governments globally started to build so called “Airport Cities�. The purpose of these developments are to increase non-aviation related revenues to have a second revenue stream that is more or less independent from crises on the aviation-related side such as the Ebola outbreak last year. Spanning off from the terminal, airport owners or operators increase retail areas inside and outside of
the terminal and develop all kinds of facilities on airport land. Developments can include, for example, hotel and conference facilities, shopping malls, education, health and recreation facilities. A whole range of financing options are available for these facilities, ranging from a private developer to private investors or being developed by the airport itself. The developments around the airport and air traffic are stimulating each other: with growing numbers of developments and with that a growing number of businesses locating in the region, the demand for air traffic is growing as a result of an increase need of transportWest Africa GRI | East Africa GRI | GRI Africa Summit
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MARKET REPORT
result of an increase need of transporting products and people. On the other hand, growing air connectivity together with numerous other factors, are an incentive for international companies to locate in the Airport City. Some regions have understood that cluster certain developments around an international airport can be used as an economic development tool and have joined forces. Stakeholders of the airport precinct implement the Airport City concept on a much bigger scale with new developments reaching far into the region. In that case, an Aerotropolis is established. Worldwide, more than 30 Airport Cities
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are operational or under construction and more than 50 Aerotropoli are operational or under development. In Africa numerous Airport City or Aerotropolis developments are under way. The two best-known and most mature examples are the Aerotroplis around the Durban International Airport and the Aerotropolis that includes Johannesburg International Airport in South Africa. A newer development is the Cairo Airport City in Egypt that will offer numerous office blocks and health, education, retail and hotel areas. A bidding process is currently executed for an Airport City in Nairobi in Kenya. Like-
MARKET REPORT
wise, Nigeria has plans for an Airport City in Abuja. While the government in Mauritius implemented a Smart City initiative to boost sustainable economic development on the island, the smart city development around the international airport has a classical Airport City layout. Taking the size of the island into account, all new developments could be also described as an Aerotropolis approach. Precincts of International Airports are great locations for real estate developments. Nevertheless, investors should look out for a customised strategy for the Airport City or Aerotropolis and seek advice from specialised consultants. Way too often current master plans are copies of more or less the same blueprint without taking regional, economical implications and cultural circumstances into account. As first failed examples are showing, these developments are not quite ‘take off’. However, with so many exciting developments in the area of Airport City and Aerotropolis under way on the African continent, investors should have no difficulties to find profitable opportunities in the precinct of international airports. Taking the increasing air traffic liberalisation and the general growth of around 5% of GDP into account, investments in Airport Cities or Aerotropoli should be on the top of the list of African investors.
The 4th Annual
GRI AFRICA
SUMMIT2016 Connecting senior Real Estate Investors, D evelopers and Lenders active in Sub -Saharan Africa
J O H A N N E S B U R G | 20-21 O C T
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OPINION PIECE
FRENCH-SPEAKING AFRICA AS A NEW REAL ESTATE FRONTIER MARKET By Ivan Cornet Co-Founder & Managing Partner Latitude Five
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Similar trends are emerging across capital cities of Africa, whether French, English or Por tuguese-speaking, including strong and sustained economic growth, an emerging middle class and rapid urbanisation.
OPINION PIECE
Supporting this is also the realisation by new investors and operators that integration mechanisms across a number of French-speaking countries provide stability for businesses as well as access to larger markets. Integration is political and economic, as is the case for the West
“
Africa Economic and Monetary Union (a subset of ECOWAS, better known by its French acronym UEMOA), or the Economic and Monetary Community of Central Africa (CEMAC, its French acronym): both have a CFA franc as common currency (XOF for West Africa, XAF in Central Africa), pegged to the Euro with the same fixed conversion ratio. This creates very significant investment and trade zones with fairly harmonised regulation, and facilitates financing to some extent, in comparison with other African markets plagued by high currency volatility. Another aspect of this integration is legal, as 18 African countries, most of which are French-speaking, now apply a harmonised set of business laws, including as concerns security interests: again, this facilitates financing with many international and regional institutions relying on streamlined structures and transactions.
“
H
owever, French-speaking African real estate markets have too often been overlooked to date, despite showing strong potential or growth and exciting investment opportunities. Economies like DRC or Côte d’Ivoire have grown at a faster pace over the last years than most of the other countries in Africa; and many French-speaking countries show potential for higher returns on investments than other, more advanced, African markets. As a result, investor and operator perception of these markets is now evolving rapidly.
French-speaking countries show potential for higher returns on investments than other, more advanced, African markets.
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OPINION PIECE
Because French-speaking Africa was overlooked until recently, few international investors are already active in these countries. Most real estate investment to date is completed by local private or institutional investors, including insurance companies or pension funds. We expect this to change in the short term as many international players are currently analysing French-speaking African markets and often have a clear mandate to invest and develop their activities in the most promising ones. Although most of these are currently
European or South African firms, we are noting growing interest from regional investors such as Ghanaian and Nigerian firms, crossing into French-speaking African countries where they had previously shown little interest. Chinese and Moroccan firms, often with strong political and economic government backing, are also entering the market for large projects such as the development of the new city near Dianmiadio in Senegal or the redevelopment of the Cocody Bay, in the middle of Abidjan, in Côte d’Ivoire.
Major challenges however remain, as anywhere else in Africa: lack of transparency, insufficient financing and low levels of local expertise are key among those. Such challenges can be overcome through appropriate structuring and in-depth knowledge of local markets and the investment environment, either through effective local presence or a strong relationship with a trusted local player. Due diligence is as always a key part of any investment decision: it is paramount in these cases to seek a real
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OPINION PIECE
understanding of local realities, rather than the reassurance of a cursory overview, and to compare and contrast information from all aspects of the sector, including developers, owners/operators, investors, consultants, lawyers and bankers. Information is rare, non-transparent and often inconsistent, and despite their apparent similarities, each country and even each city, presents specificities which cannot be ignored. Local services focusing specifically on real estate are emerging, in a bid to ad-
dress the requirements of international and increasingly sophisticated local or regional investors. This is case for example for local commercial banks, which are putting together specialised real estate teams with a better understanding of real estate development and investment structures. New asset and property management firms are also being established. The availability of skills is a factor in this growth, and certain hubs are already attracting high-quality professionals, depending on the ease of
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OPINION PIECE
establishing and running services firms and the envisaged growth in the sector over the coming years. In French-speaking Africa, Abidjan, economic capital of Côte d’Ivoire and a leading regional hub, is probably the city with the highest potential. This is due to its geographic location, its history as financial and economic centre for French-speaking West Africa and a clear drive by Government, benefiting from renewed political stability, to make Côte d’Ivoire a growth and excellence centre in Africa. The Ivorian growth sto-
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ry is based on strong fundamentals: a liberal economy, developed infrastructure, including in the energy sector, and a well-educated workforce. The recent development of PPP’s is also a powerful lever of growth in the real estate market, as is evidenced by the current redevelopment of State-owned high-rise towers, landmarks in the central business district of Abidjan, Plateau. With the urbanisation of African cities and the growth of the middle class, shopping centres are attracting attention from many international investors.
OPINION PIECE
Many such development projects are already on-going, in particular in Abidjan with the recent entry and strong development strategy of retail giant Carrefour. Other asset classes should not go unnoticed: even if these are more the focus of local developers to date, with high demand and low supply, residential real estate, whether luxury or economic, can provide significant returns. Social housing is an area of focus for most African governments, which offer significant tax breaks and incentives to develop this sector. Similarly, with high economic growth attracting many international companies, the dearth of grade-A office space should attract investment in the shortterm, as is already the case in English-speaking Africa. With its strong correlation with economic growth, the hospitality sector is already booming in many French-speaking countries with the entry or the strong development of regional and international brands.
WEST GRI AFRICA 2017
Co n n e c t i n g Afri ca n a n d Gl o b a l R e a l E st a te Lea d er s
L A G O S | F E B R UA R Y
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OPINION PIECE
Dakar:
Francophone Africa’s
Hidden Gem? BY DICKO BA, MANAGING DIRECTOR, GROUPE ALPHA SUD
Senegal’s capital, Dakar, is in the midst of a property boom as the market flourishes with hotels, shopping centres and luxury villas popping up everywhere. However, Senegal is still considered to be some what of a hidden gem in a market still little-known to large institutional investors, who have yet to take advantage of the sizeable yields that seem to be on offer. Many expect Abidjan and the Ivory Coast to take the lead in terms of investment into Francophone Africa. But Dicko Ba, CEO, Alpha Sud S.A, one of Senegal’s leading property development companies, feels that Dakar might be a wiser bet.
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Dakar is seen by many as a safe investment city thanks to its political stability and democracy.
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OPINION PIECE
Real Estate Projects and Investments in Francophone Africa are generally set up for a minimum of 18 months depending on political, economic and business environment factors. Unlike speculative investors, most investors need a sustainable and stable environment. The most stable and economically dynamic countries will take over. Historically, Abidjan has been the leader, but Dakar is seen by many as a safe investment city thanks to its political stability and democracy. The presence of International Investors and big companies in Dakar is leading to a virtuous circle of attracting investors. There are investment giants like Carlyle or Blackstone as well as smaller companies (Amethis, Actis, Ethos, Abraaj) and Sovereign funds. Also, there are more Africans choosing to invest directly in African companies.
Investment companies should focus on the acquisition of stakes in African companies or bonds instead of focusing on project financing only. Financings should be available in the medium / long term and not only over the duration of projects. African companies need us to believe in them in the long term so they can be viable and efficient. However, Francophone Africa still has a long way to go in overcoming obstacles like poor governance, instability and insecurity in order for business to flourish in the region. Issues like the rising costs of hiring quality employees and corruption are slowing down a number of projects in the region significantly.
The biggest opportunities for investors currently lies in infrastructure and social housing, which West African governments are focussing on at the moment, as half the African population still live in urban areas and the cities still require a lot of work. However, potential returns in West Africa are up to double of that in developed economies.
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FUTURE DEVELOPERS
Developer: Eko Development Company
Eko Energy Estate, a project undertaken by Orlean Invest within the Eko Atlantic City proposes to be a futuristic model estate where both offices and residences will be set in a secure, efficient and family friendly environment. Sitting on approximately 450,000sqm, the estate offers everything a resident would need and will be one of the most important developments undertaken in Nigeria. The project construction is divided into phases. Phase 1 consists : 3 towers with G+19 floors totalling 114-456 apartments (1-4 bedrooms) Leisure facilities: pool + pool bar, 2 tennis courts, landscaped garden, gym, 3 roof terraces with 2 bars each Parking Service facilities Work is currently ongoing 24hrs a day, expected completion of this phase is mid -2017.
Developer: Rendeavour
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Azuri Peninsula is billed as the premier residential and retail development being built on The Marina District, Eko Atlantic City, Lagos. With architecture by award-winning, global design firm Gensler, Azuri Peninsula offers distinctive harbour-side homes, with many residences having stunning waterfront views. Eko Development Ltd have formed a partnership with ITB Nigeria, one of Nigeria’s leading building and civil engineering companies to guarantee truly exceptional residences. Phase one consists of three outstanding residential towers, marina town house apartments and retail spaces. The luxurious amenities, , will include 24 hour concierge service, an outdoor swimming pool, gym, games rooms and valet parking and more. Residents will enjoy a sophisticated, urban lifestyle within the exclusive environment of the Marina District.
Developer: Orlean Invest
Appolonia, City of Light, is a 941-hectare, mixeduse and mixed income urban development carefully planned for residential, commercial and light industry purposes - in a space integrated with schools, retail facilities, family parks and much more under the concept of live, work and play. Located 30 minutes from the Tetteh-Quarshie roundabout, 13km from Kotoka International Airport and 20km from Tema Habour, Ghana’s largest port. The development will ensure a calm, serene and sustainable environment within a commutable distance to Accra Central. This comes following the completion of procurement for water and electricity from the Ghana Water Company and the Electricity Company of Ghana, respectively. All local and national regulatory approvals have been met and a full land title certificate has been granted.
EAST GRI AFRICA 2016 30-31 MAY • NAIROBI
GRI AFRICA
SUMMIT2016 20-21 OCTOBER • JOHANNESBURG
WEST GRI AFRICA 2017 FEBRUARY • LAGOS
Connec ting African & Global Real Estate Leaders
+44 20 7121 5060 | andreas.schonning@globalrealestate.org | www.globalrealestate.org/Events
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