HOT MARKETS: Developers needed

Sub-Saharan Africa’s rapidly expanding cities, growing middle class and GDP growth rates often exceeding 5 percent have led to a strong demand for high-quality commercial and retail real estate. With international investors targeting Africa for expansion and growth opportunities and less than 2.5 million square meters of Grade A commercial and retail space available across the sub-continent (excluding South Africa), an urgent need for top-end developments has emerged.

Though the operating environment can often be challenging, the rewards are enhanced by the growing demand from businesses and consumers for modern real estate infrastructure, severe undersupply and a lack of experienced local developers. Demand for high-end space comes from global retailers, finance companies and those involved in oil and other resources, as well as hoteliers, all of which have identified sub-Saharan Africa as a high-growth region.

High regional GDP growth rates are only part of the reason for the great African real estate supply/demand mismatch. The phenomenon also can be attributed to the increasing urbanization of Africa’s youthful population, which has led to growing consumerism. Furthermore, investment from global companies has been spurred by a concurrent improvement in transparency and democracy across the continent in recent years and an increasingly favorable property rights regime in a number of jurisdictions.

Positive demographics 

According to United Nations statistics, more than 40 percent of Africa’s population currently are urbanized, with expectations that, by 2050, the continent’s city dwellers will number more than 1.2 billion. Africa’s largest cities, Lagos and Cairo, have the largest metropolitan populations – exceeding 20 million – while others, such as Nairobi, Abidjan, Kinshasa, Khartoum, Luanda and Dar es Salaam, are poised for significant growth in the coming decade. Africa’s city dwellers generally earn more and spend more than their rural counterparts, and the urban middle class is growing across much of the continent. The African middle class, with high spending patterns and increasing demand for consumer goods, is leading the charge, boosting the demand for Grade A real estate in these cities.

The African Development Bank defines the continent’s middle-class as consumers who spend between $2 and $20 per day. Whereas this absolute level may be modest, Africa’s middle-class currently is the fastest growing in the world.  About 34 percent of the continent’s population fell into this category in 2010, a 100 percent increase compared to 1990. According to the World Bank, their consumption accounts for 60 percent of sub-Saharan Africa’s economic growth. Forecasts suggest that 42 percent of Africa’s population will be classified as middle class by 2060.

The rise of Africa’s middle-class is a result of the impressive GDP growth witnessed on the continent for the past decade, which is trickling down to greater disposable income for a greater number of African consumers. Indeed, according to the World Bank, seven of the 10 fastest growing economies in the world are in Africa.

Africa’s young people are the fastest growing consumer segment on the continent known for its burgeoning and youthful population. Given that 62 percent of Africans are under the age of 25, building up a loyal consumer base now secures brand revenues well into the future.

Polled as being generally optimistic on their future, Africa’s youth tend towards aspirational purchases, which suggest a disproportionate amount of discretionary spend on non-food retail items relative to conventional expectations of the target market. Thus, as the developed world ponders the challenges of an aging population, Africa’s challenge is the opposite, harnessing the demographic dividend for sustainable growth into the future and keeping up with growing demand.

Linked to the so-called ‘youth bulge’ is the challenge of infrastructure and utilities provision, which struggles to keep up with the continent’s rapidly urbanizing population. The lack of electricity and transport infrastructure creates a very real obstacle to investment, particularly in real estate. This increases the cost of property development as projects almost always need to be self-sufficient in terms of utilities, with their own generators and water sanitation plants, thus raising the investment barriers to entry.

Opportunities in retail 

Despite the challenges, African retail markets continue to develop as the demand for consumer goods grows. North African countries in the Sahel region already have a fairly sophisticated retail market, with several shopping malls between 50,000 square meters and 200,000 square meters constructed. Further south, South Africa, with a population of 54 million, boasts more than 21 million square meters of retail. The sweet spot for developers, however, is West, Central and East Africa. Perhaps because they are the most dynamic on the continent in terms of economic growth as these countries’ populations play catch-up, they also manifest the most pronounced cases of real estate supply/demand mismatch.

Nigeria’s commercial capital Lagos, with a population estimated between 12 million and 20 million, saw its first modern shopping center, The Palms, open in the Lekki region in 2006, followed in 2011 by Ikeja City Mall in Alausa. Accra Mall, Ghana’s first Grade A shopping center, opened in 2008. Westhills and Junction Mall are both due to open in November 2014, but even these new additions mean there are only 60,000 square meters to serve the Ghanaian capital’s population of more than 2.5 million. Angola, whose fairly modest population of approximately 18 million punches above its weight with a GDP per capita of $7,500, to date has only one completed modern shopping mall, Belas Shopping, which opened in 2007 in the capital of Luanda, a city of more than six million people.

Unlike other markets, African retail developments are most successfully anchored by food retailers. South African grocery chains such as Shoprite, which is active in 16 African countries, are leading the charge in terms of an African expansion strategy from the south. From Kenya, grocery franchise Nakumatt has stores in neighbouring Uganda, Rwanda and Tanzania. Fashion retailers are following in their wake. Increasingly, international brands have taken an interest in Africa. For example, French retailer Carrefour has announced its intention to open in eight African countries by 2015.

Increasingly, African consumers are demanding better products, a greater variety of brands and better service, manifested by more global spending patterns. The sophistication of the consumer market in countries like Angola and Nigeria routinely is under-estimated by outsiders not familiar with these markets. Indeed, the elite in many African markets already shop in London, Paris, Dubai and New York, so it is a question of capturing this spend for the domestic market by bringing the brands directly to them. The visible success of TM Lewin’s store in Nigeria’s Ikeja City Mall is testament to the eagerness of this market to embrace international brands sold locally.

The advent of shopping centers in these markets also is contributing to the formalization of the local economy. A significant proportion of line shops and restaurants of successful malls in Africa are home-grown brands and franchises to impart local flavor to the retail center.  Part of the project development process is guiding these local tenants in the set-up and sustainable expansion of their businesses. 

The dynamism of Africa’s consumer markets is not just an opportunity for retailers seeking market expansion. As the developed world slowly drags itself out of the financial crisis, pioneering investors seeking project yields increasingly are coming to the realization that the road to success in Africa is no longer merely through investment in the continent’s natural resources, but through the sizeable and growing consumer market it represents. The lack of supply of quality real estate means there are attractive opportunities for those who are able to deliver on projects.

About the Authors 

Alan Wilson is the chief financial officer of RMB Westport. He is a South African chartered accountant and CFA charterholder. He can be reached at +27 11 282 1577 or via email at 

Lucy Corkin is a political economist with a PhD from SOAS, University of London. She acts as an advisor to RMB Westport’s various project companies. She can be reached at +27 11 282 1866 or via email at

About the Firm  

RMB Westport is a real estate investment management and development firm focusing on property developments in sub-Saharan Africa. It currently develops and manages both commercial and retail property assets in Angola, Ghana and Nigeria.