Investment managers and institutional investors are starting to warm to the opportunities in Africa’s real estate market in sectors such as retail, heard delegates at the PERE Growth Forum held in Dubai.
“Institutional investors within Africa like insurance companies and pension funds are growing their balance sheets and looking at mature assets to deploy that capital,” said Xavier Atieh, managing director, Lazard, a global financial advisory firm. “We are also starting to see a lot of institutional investors from Europe and the US looking to invest in higher-yielding assets in Africa. They haven’t taken that leap of faith yet but it is in the making.”
Atieh talked about the scope of investing in the development of retail malls and shopping centres in the region. In Lagos, Nigeria, for instance, there exists 699,654 square feet of investment grade retail space.
“There is one mall for around two million people in Lagos and one mall for around 50,000 people in Johannesburg. There is a lot of ground that will be covered over the next few years,” he said.
Morocco too has become an attractive investment destination for fund managers looking to invest in the commercial and retail sector, according to the panellists. Delta Africa is a pan-Africa listed real estate fund focused on investing in markets outside of South Africa. In July this year, the fund acquired a shopping centre in Morocco, making it the first regional vehicle to invest in the North African country. “We are seeing a huge interest from retailers in the continent and they are using Morocco as a conduit to make their entry,” said Bronwyn Corbett, chief executive officer of Delta Africa.
One of the draws for investors is the yields currently being generated for the commercial sector in the region. According to Michael O’Malley, director at RMB Westport, a development project yields around 11 percent to 13 percent while exit yields are somewhere around 8 percent to 9 percent. RMB Westport raised a $256 million private equity real estate fund to invest in West Africa and is now in the process of launching a successor fund.
However with most currencies in the African continent having depreciated drastically against the dollar amid an environment of low oil prices, the panellists agreed several challenges continue to act as barriers to entry.
“The challenge with retail is that a sense of false security can get created with dollar leases,” explained Corbett. “If you are not able to keep tenants at the dollar leases and you need to reverse back to local currency, the whole valuation exercise of the continent changes. One needs to also take some local currency exposure.”
James Mworia, chief executive officer of Centum, an East African investment company, spoke of the need to demystify the risky perception about investing in Africa. A retail operator he once met showed reluctance to open up shop in Kenya even though he was running operations in other volatile regions including Iraq and Libya.