The property market has long received attention from Africa’s institutional investors, being the most available alternative asset class available to them. Pension funds in countries with relatively small and under-developed capital markets have invested in real estate to fulfil the required local allocation. This has caused concerns about oversupply in several markets for many years.
Investment in the property market peaked around 2016 and has since tapered down. As shown in the graph, there has been an average decrease in market values over the 2015-2017 period in reaction to a lower rental environment.
Changes in yield and the cause
Even though many international companies have looked to expand into Africa in the last decade, the uptake of physical offices was slower than some may have hoped. Many new A-grade office buildings have come up in recent years and this area of the market has become oversupplied, pushing down rental rates and with them, the market value of properties.
Office: Prime rental rates
Source: Knight Frank Africa Report (2013, 2015 and 2017), RisCura analysis
Most major cities in Africa have seen a decline in rental rates over the two years from 2015 to 2017, with Nigeria’s Abuja (-45%) and Lagos (-21%) being the most severe. Addis Ababa has bucked that trend, with an increase in demand from local companies pushing up rental rates. International participation is limited, however, due to the country’s restrictions on foreign investment in key sectors such as banking, financial services and telecoms. Abidjan, however, has had the fastest rental growth rate in Africa over the past four years, with a significant increase in international interest in recent years.
Abidjan, however, has had the fastest rental growth rate in Africa over the past four years, with a significant increase in international interest in recent years.
After the end of the civil war in 2011, the Ivory Coast’s GDP rebounded swiftly to 11% in 2012. The return of the African Development Bank’s (AfDB) headquarters to its previous location in 2013 further supported the economic recovery of the country, and real growth has remained above 7% annually since then.
The arrival of international companies to Abidjan over the past five years caused an increase in the demand for A-grade office space. This has required the investment in new, high-quality offices, but is also being met through the rehabilitation of older buildings. Companies with a long-term outlook for their businesses within the region are finding it more suitable to build new office buildings to the standards they require. Ecobank built their new headquarters in 2015 and FIBA, the International Basketball Federation, did the same earlier this year.
Independent developments in Abidjan include the Green Buro, which was leased to international tenants including Pfizer, GE and ExxonMobil in 2016 (Source: Knight Frank Africa Report, 2017) at unparalleled rates, setting a new benchmark for rental rates in the city. Actis has partnered with local government to develop the Renaissance Plaza in Abidjan’s Plateau business district, but to date there have been some delays in getting the project into construction.