Commercial News

Africa property: Back to the drawing board for investors

Adriaan Otto, head of JHI’s African operations
Adriaan Otto, head of JHI’s African operations

Shopping mall developers, retailers and property funds still keen to enter the rest of Africa will have to be more cautious as the continent hasn’t turned out to be as lucrative a real estate destination as was widely expected five years ago.

Back then, Africa was being punted as the world’s next big growth story. Many climbed on the bandwagon to build formal shopping centres across sub-Saharan Africa to serve a seemingly strong and growing middle class.

But only 25% of all the development projects envisaged for the region in 2011 have come to fruition, says Dirk Prinsloo, CEO of property research group Urban Studies. Moreover, some of the newly opened malls in places such as Lagos, Nairobi and Accra haven’t lived up to expectations, with turnover and footfall figures well below projected targets.

Prinsloo says the fact that some new centres have underperformed, coupled with the significant shift in Africa’s economic growth outlook following last year’s oil and commodity price slump, local currency volatility and slowdown in demand from China, has led to many proposed projects being placed on hold.

However, it’s not just the changing economic landscape that’s compelling developers and retailers to reassess their African business models.

Adriaan Otto, who heads property management group JHI’s African operations, says it’s becoming increasingly clear that developers and retailers don’t yet fully understand the African consumer market. “Loads of research on African shoppers still needs to be done — not just about how much they have to spend but also what they want to buy and when.”

JHI, which has a presence in 17 African countries, last week launched the Africa Property Report 2016 in partnership with Urban Studies. The report provides an overview of the property markets of 12 sub-Saharan countries, including Angola, Ghana, Kenya, Nigeria, Tanzania, Zambia and the Democratic Republic of Congo (DRC).

The report reveals that developers and retailers have typically overestimated catchment areas and spending potential. “As a result, some of the new malls are simply too big,” says Prinsloo. He notes there has been an overemphasis on Africa’s growing middle class, which may have supported the view that one could successfully replicate SA’s shopping centre model elsewhere in Africa.

“But the middle market doesn’t even exist in many sub-Saharan countries.” In fact, Prinsloo says, African consumers are much poorer than initially thought, with up to 60% of the urban population still living in slums with no access to basic services and infrastructure.

He notes that though countries like Nigeria and Angola earn 80%-90% of their GDP through oil exports, very little of this money has filtered through to the lower and middle segments of the population. “In Nigeria, 85% of the population still live on less than US$2/day.”

Marna van der Walt, CEO of JHI holding company Excellerate Property Services, says despite the headwinds faced by many African economies there are still growth opportunities in select markets. However, developers should adopt a far narrower approach.

She says that instead of looking at a region or a country as a whole, the focus should be on individual cities as well as on nodes within cities, as every city in Africa has a different nuance.

JHI and Urban Studies single out three markets in the Africa Property Report 2016 that they believe offer the best potential returns for shopping centre and housing developers on the back of urban growth expectations: Kinshasa (DRC), Lagos (Nigeria) and Dar es Salaam (Tanzania).

A number of SA companies have already cut back on their exposure to the rest of Africa — Nigeria in particular — including Truworths, Mr Price and Resilient Reit.

Industry players say the sharp drop in the oil price and the Nigerian government’s subsequent attempts to limit the depreciation of the naira against the US dollar by, among other things, introducing wide-ranging import controls have left a number of the large clothing retailers without any stock.

Resilient, one of the listed property sector’s early movers into the rest of Africa, announced earlier this year that it had put on ice its plans to build 10 shopping centres in Nigeria as the risks in that country outweighed the potential returns.

Resilient entered Nigeria in 2012 through a joint venture with Shoprite. To date, only one shopping centre, Delta Mall, has been completed. Two others are under construction — Owerri Mall and Asaba Mall. Both have been reduced in size.