An emerging economy, a growing tech sector and middle class, vast swaths of land for development: for real estate investment this means that Africa may be the next great frontier, according to “Africa Horizons: A Unique Guide to Real Estate Investment Opportunities,” a recent report from Knight Frank.
“Economic growth is forecast to accelerate to 4% this year, up from 3.5% in 2018, according to the African Development Bank. This is a significant rebound from 2016, when growth slowed to just over 2% following sharp commodity price falls,” wrote chief economist James Roberts in the report, the first about the continent from Knight Frank. “Africa is gaining significant economic momentum, and this is set to continue.”
A combination of trade agreements, foreign investment and a young population will spur demand for consumer goods and services, itself boosting demand for hotels, retail, office and logistics projects, said the report.
“The [future] African Continental Free Trade Agreement [AfCFTA], which will remove 90% of tariffs on goods moving between 49 countries, will ensure this economic expansion continues,” wrote Liam Bailey, global head of research. “By 2023, almost half of African households will have an annual income exceeding $5,000.”
On May 30, the agreement officially went into force, signed by 52 of Africa’s 55 nations, establishing the largest free trade area in the world since the 1995 creation of the World Trade Organization. Its main goals are to encourage African nations to trade with each other rather than export to Europe or the U.S., and to boost the sale of industrial goods beyond oil and minerals. However, the absence of Nigeria, the continent’s most populous country and largest economy, could hinder success as the agreement is implemented over time, observed Kanzanira Thorington, a research associate at the Council of Foreign Relations, in a blog.
“While Nigerian President Muhammadu Buhari is reconsidering Nigerian membership, Nigeria’s actions reflect larger concerns that protectionism could hinder the effectiveness of AfCFTA,” Thorington wrote. “Despite the remaining hurdles, AfCFTA’s potential impact should not be diminished. With free trade under attack in much of the developed world, Africa is forging a new path for itself to foster sustainable wealth and development for the continent.”
Foreign investment in infrastructure, especially from China, is also encouraging a second look at the continent. China has spent billions in road and rail construction in Africa, including Nigeria’s $6.7 billion rail contract to link Lagos to Kano and Egypt’s $3 billion contract for Cairo’s new CBD, which will include the continent’s tallest skyscraper, the Knight Frank report observed.
However, domestic investment also is picking up, the report noted.
“The rise of real estate investment trusts (REITs) has begun to provide additional transparency in some markets,” wrote William Matthews, head of commercial research. “With around 30 vehicles, South African REITs are a key source of investment demand, both domestically and across the continent.”
Meanwhile, corporations are establishing locations in various parts of the continent, and entrepreneurship is on the rise: Earlier this year, Google opened an artificial intelligence laboratory in Accra, Ghana, with a Launchpad Accelerator program offering support and advice to start-ups in 17 African countries in 2019. Fellow Alphabet company Csquared has been constructing fiber optic networks in cities including Accra, Entebbe and Kampala, Uganda and Monrovia, Liberia.
“These tech innovations have the potential to transform all aspects of business and daily life,” Roberts observed.
Opportunities vary by geography, the report noted. Historically heavily reliant on oil revenues, Western African nations are looking to diversify into telecommunications, beverage, automobile construction and other manufacturing. Eastern Africa is dominated by logistics companies based in Kenya, but it too is looking to increase its manufacturing base.
“East Africa will see the strongest growth at almost 6%, extending a prolonged period of outperformance by the region, where economic success is led by diversification,” the report noted. And agriculture is attracting local and international investment.
With the exception of certain regions, such as heavily developed South Africa, hospitality, housing and healthcare will be growing sectors. As the continent attracts both new businesses and tourism, hotels are being developed. As affluence increases, there is increasing demand for middle income housing, especially in urban areas. With more people moving to cities, older citizens may not be able to count on children or grandchildren to care for them as in generations past. Gated retirement communities are on the rise.
And healthcare is sorely lacking outside the largest cities.
“There is an acute shortage of healthcare facilities across Africa, and much of the current supply can be classified as basic when compared with the developed world,” wrote Shehzad Jamal, head of healthcare and education, Knight Frank Dubai. “With such an open canvas, there is an opportunity for both small and large market participants, such as private investors, institutional funds, real estate developers and healthcare operators, to enter the sector.”
Just in Nigeria, bringing the hospital bed to population ratio in line with the global average would require 32 million square feet of new medical facilities, representing an investment of more than $82 billion, the report said.
Perhaps the greatest attraction of the continent is its people: 80% of the African population is under 40 years old, the report said.
“One of the great business attractions of Africa is its dynamic, young population. As workforces around the globe continue to age, and while the tech savviness and creativity of youth remains in demand, we anticipate that corporate occupiers will increasingly seek to source such skills from the African continent,” the report said. “Consequently, the amenity-rich, vibrant workplaces that have come to characterise global tech occupiers will become a strong feature of African occupational markets.”
Despite the opportunity, Africa is an investment for the brave. Nearly 600 million Africans lack access to the electrical grid, according to the Brookings Institute, and poverty remains exceptionally high.
“Inevitably, challenges remain, particularly for those investors who rush in unprepared,” Shirley wrote. “However, for those armed with the best insight and advice, their future investment strategy in Africa can be very rewarding.”
