Africa currently makes up less than 0.5% of commercial real estate investments, but international capital is beginning to move in as investors seek to access the continent's growth prospects.
French cement maker Lafarge is merging its South African and Nigerians units to create a USD 1.25 billion builder to take advantage of rising construction opportunities across Africa. The new entity will have cement capacity of about 12 million tons per year, as well as operations in aggregates, ready-mix and fly ash products.
"It [the merger] will provide access to growth in two of the largest economies on the continent," said Olusegun Osunkeye, chairman of Lafarge WAPCO.
Africa is in the midst of a construction wave and real estate companies are competing hard with international players to increase their order books. Just over USD 222 billion is being invested in 322 African projects (with a value of at least USD 50 million each), according to Deloitte.
As much as 56% of the projects are owned by governments, with 39% by the private sector, while a mere 4% is jointly owned by governments and industry in public-private partnerships.
And despite the hype of BRIC nations dominating Africa's investment landscape, half of the private sector projects are in fact owned by European and American investors, while developers from Brazil, Russia, India and China own roughly 10% of the projects.
Development financial institutions such as African Development Bank and the World Bank are financing 36% of the projects, with domestic African government funds funding 8% of the projects.
"European/US contractors are building 37% of projects and Chinese construction corporations are building 12%," said Deloitte. "The balance of contracting parties is private domestic companies and contractors from countries such as Japan, South Korea, Brazil, Australia and South Africa."
Private investors Atterbury Property Holdings in South African and Sanlam Financial Services are actively looking at development of office and retail projects in Ghana, Nigeria and Angola.
Private equity firms Actis and the Russia-based Renaissance Group are the best known of a small number of emerging market specialists from outside Africa that are actively developing and investing in property in the continent, according to real estate consultants Knight Frank.
These projects are among a wave of ambitious satellite towns that are either under construction or planned by private property developers on the outskirts of existing large cities. Other examples include the Eko Atlantic project on Victoria Island in Lagos and La Cité du Fleuve in Kinshasa, said Knight Frank.
"Most of the current batch of new urban developments are still at very early stages, some have already experienced delays to their construction, and it remains to be seen how many of them will be fully realized," Knight Frank noted.
A number of real estate funds have been created to focus on the commercial property market, such as the USD 250 million RMB Westport Real Estate Development Fund. It has stakes in Ikeja City Mall in Nigeria, Accra Financial Centre in Ghana and Muxima Shopping Centre in Angola, among others
Actis, Sanlam and Delta Property Fund all have either actively managed real estate funds or developing new investment vehicles.
CHANGING URBAN LANDSCAPE
Cities such as Accra (Ghana), Addis Ababa (Ethiopia) , Kigali (Rwanda), Luanda (Angola), Maputa (Mozambique), Lusaka (Zambia), Lagos and Abuja (Nigeria), Kinshasa (Democratic Republic of Congo and Dar es Salaam (Tanzania) are all experiencing GDP growth exceeding 6% and have huge demand for real estate as their populations explode.
The real estate sector will play a major role in shaping Africa's urban future as city infrastructures strain under the pressures of 'flash urbanization'," said JLL.
"Africa is urbanizing more rapidly than any other continent, with its city-based population expanding by 3.5% per year. Some cities are growing considerably faster (such as Abuja at 9% and Luanda at 6% a year)."
Indeed, close to 60 cities in Africa have a population exceeding 1 million each, with 170 million city dwellers with disposable incomes that are nearly double their country's national income levels.
Sub-Saharan Africa's commercial real estate sector is in an early, high-energy phase of development as the industry starts to respond to rapid urbanization and strong demand from businesses and consumers for a modern real estate infrastructure, notes Jones Lang La Salle.
"Nonetheless, the continent remains severely undersupplied with high-quality commercial space, and a lack of experienced local developers will create opportunities for international players," the consultancy said.
Retail developers should also take note, although the continent's retail space capacity of Grade A malls is less than that available in Hungary.
"Nonetheless, shopping mall construction is poised for 'lift-off' as developers and retailers respond to the severe supply-demand imbalance. The stock is rapidly expanding at a rate of over 20% a year, spearheaded by Cairo, Casablanca, Lagos and Nairobi," JLL said.
Key sectors include energy and power, transport, mining, water, oil and gas and real estate, especially as demographics spur demand.
"Development is strongly concentrated in Southern and East Africa," said Deloitte in a report. "In terms of the number of projects underway, Southern Africa leads with 38% of projects, followed relatively closely by East Africa with 29%. West Africa has 21% of the total number of projects while North Africa and Central Africa lag at 7% and 5% respectively."