The industrial sector – particularly warehousing & distribution facilities – has been largely overshadowed by office and retail development in SSA, but now appears to be emerging as a seam of opportunity. Driven by the exponential growth in Africa’s global trade and more recently intra-Africa trade, we are aware of growing demand from international retail, pharmaceutical, FMCG and electronics groups that are grappling with the lack of suitable logistics facilities and supply chains for the distribution of their products across the continent. We are also seeing developers and logistics operators trying to respond to the opportunity. The challenge will be in delivering the product and solutions that are to some extent reliant upon improvements in key African ports and transport infrastructure.
2. Investors seem to be on the lookout for institutional grade assets and portfolio deals in the region. Do they exist?
Despite the significant increase in development activity over the last decade, the SSA real estate investment market is embryonic by reference to global markets. We estimate the current stock of investment grade assets across Sub-Saharan Africa (excluding South Africa) to be in the region of USD6bn, with less than USD300m trading in 2014. So whilst SSA is currently a very small market in the global context, with low transaction volumes and pricing transparency, there is a large development pipeline under construction and we expect to see availability of investment grade stock increase significantly over the next 3-5 years. Over time we would also expect to see corporate owner-occupiers responding to increased liquidity and transparency in the real estate capital markets, resulting in more sale & leasebacks and portfolio sales.
3. Are international investors increasing their appetite and allocations to real estate investments in the region?
Anthony Lewis: Yes, the global hunt for yield is driving more international investors to seek investment opportunities in SSA markets. A number of the established regional development fund platforms appear to be succeeding in raising fresh capital, particularly from the America’s. Middle Eastern investors also appear to be increasing their exposure, albeit more through direct investments in large scale projects. The Chinese continue to focus on state-sponsored infrastructure development and resources, with relatively little investment in pure-play commercial real estate projects. South Africa remains the largest source of capital for real estate development in SSA, with many of the REITs on the JSE having significant allocations for dollar-denominated (rand-hedge) investment outside SA. However we understand that a large proportion of these allocations to SSA are yet to be deployed due to the challenge of identifying suitable opportunities that match the investment criteria of these funds.
Anthony is featured on the Africa GRI 2015 program by co-chairing a discussion on “PAN-AFRICA EQUITY MARKETS: are foreign investors still window shopping? And what are the most immediate opportunities?” see full program here.