Published March 21, 2015
Global megatrends, such as rapid urbanisation and demographic changes, will drive growth opportunities in the real estate industry across Africa over the next five years.
“The pace of change in the world is accelerating, with a series of transitions, known as global megatrends, transforming the way in which business and society operate,” says Ilse French, Real Estate Leader for PricewaterhouseCoopers (PwC) Africa. “More and more, investors around the world are seeing the growth potential of Africa, in particular its substantial demographic edge. Economic growth, improving political stability and ongoing investments in infrastructure are opening up previously inaccessible markets.”
PwC’s inaugural publication entitled Real Estate: Building the future of Africa considers the impact of global megatrends on the African continent, provides an assessment of the current state of the real estate industry across Africa and demonstrates how the megatrends will drive growth opportunities in key African markets.
The report also considers the real estate market in ten selected countries in sub-Saharan Africa (SSA). These country profiles provide insight into the local, regional and global influences on the real estate markets of individual countries, providing an illustration of the effects of the trends being felt at a national level.
The report shows that the opportunities across the African continent are significant and span every sector. In almost all markets the demand for high-quality retail, office and industrial space continues to outstrip supply as international and local occupiers respond to new economic opportunities. Huge shortfalls in residential property across the continent will give rise to private investment on a grand scale.
Furthermore, a lack of local funding for infrastructure projects provides a platform for new private partnerships with the public sector. Shifting demographic trends and changes in consumer behaviour are also likely to create a huge demand for new and different real estate by 2020 and beyond.
More specialist investors will enter the market that has projected forecasts of 20% net annual returns from investing in shopping malls, office blocks or industrial complexes in countries across the continent that continue to draw in new investors.
PwC’s report identifies eight drivers for growth:
1. Africa’s young population will drive the demand for real estate and different types of real estate. Across Africa there will be continued urbanisation, an expansion of current cities and the rise of new cities.
2. Industrialisation will continue across Africa and will be accompanied by a rapid growth in the retail sector.
3. The export of natural resources and agriculture will remain key sources of economic growth, but will expose certain countries to increased risk.
4. Infrastructure shortages will create opportunities for investment.
5. The influence of government policy and legislation on the decision to invest will increase, while local partnerships will become increasingly important.
6. Continued advancement within pension fund, stock exchange and banking regimes will facilitate investment, and an increased range of investors will drive demand for real estate investment opportunities.
7. Technology will impact business and building practices, as well as consumer behaviour.
8. Sustainability will become entrenched in building design and occupier requirements, with Africa’s most ambitious countries changing city design and building practices.
The specific risk factors underlying the development of Africa include the impact of political instability and changing government policy; complex legal regimes; the volatility of local currencies; and the timeframe of investments and restrictions on possible exit strategies.
Despite these risks, real estate investors and developers continue to see the African market as a huge opportunity.
French says: “Our research suggests the impact of global megatrends on Africa will be huge. This will create a diverse range of opportunities for the real estate industry Africa – opportunities that often differ from those available in more developed markets.”
The global impact of these trends are supported by the findings of PWC’s second report, Global Emerging Trends in Real Estate 2015, which is an annual forecast of global real estate investor sentiment published jointly by the Urban Land Institute (ULI) and PwC.
The report, based on the views of senior global property investors, identifies several ‘megatrends’ affecting markets around the world, each of which has implications for development and investment: increasing urbanisation (the majority of the world’s population now lives in urban areas); demographic and social changes (including a significant rise in the number of older and elderly people); technology advancements; the rise of economic power in emerging markets (due largely to an expanding middle class); and climate change.
Kees Hage, PwC Global Real Estate Leader, says: “There is a wall of capital targeting real estate opportunities in many markets across the globe. The search for better yields has taken some investors into development and secondary markets, moving them up the risk curve. But investors must strike a balance between the need to deploy capital and the ability to achieve good returns, at a time when there is such a difference in the economic conditions across the globe. Real estate investors have a wide range of issues to consider when making investment decisions. What is clear is that they may have to approach those decisions in a completely different way in the future. Capital allocations may need to be made to a wider range of asset types than ever before, ranging from retirement and student housing to data centres and self-storage.”