Nigeria’s real estate market stirs fresh interest in foreign investors

UNPRECEDENTED liquidity in global capital markets is fueling investors to seek out new real estate markets and it is beginning to find its home in Sub-Saharan Africa (SSA), especially Nigeria, according to JLL’s newly released “Emerging Beyond the Frontier” research report.

JLL’s report reveals that sustained economic and demographic growth in SSA countries are combining to create urban markets of global scale, which is generating a need for significant investment in the region’s urban infrastructure. As demand from corporations and consumers for modern office, retail and commercial infrastructure increases; SSA is entering a high-growth period of development.

A joint report of the African Development Bank (ADB), the United Nations (UN) and the Organization for Economic Cooperation and Development (OECD), recently stated that the inflow of foreign investments into African economy was $ 84.3 billion in 2014, which set a record in its history. African economy grew by 4.8 per cent in 2014 against 3.9 per cent rise of the previous year. The projected acceleration of growth for this year is up to 5–6 per cent, the same as during the pre-crisis period.

“As home to some of the world’s fastest-growing city economies, with rapid rates of urbanisation and burgeoning middle classes, Sub-Saharan Africa is now firmly on the radar of a number of multinational corporations, hotel operators and investor groups,” according to Mark Bradford, Chairman Sub-Saharan Africa at JLL. “Investment is still not without its risks; however those maintaining a long-term view and willing to take on strong partnerships to manage and mitigate the challenges could find themselves reaping big rewards in the long term.”

As the more established markets become saturated and yields hit record lows, international investors are being drawn to the growth story in SSA, and as market transparency and liquidity continues to improve, the potential return premium over more established markets is making a compelling long-term investment case for the region.

The regional fund platforms and international investors making their first acquisitions in Sub-Saharan Africa are targeting core locations and sectors (office and retail) in the commercial capitals that have scale and growth potential. Over time, as markets mature, it is anticipated that these groups will broaden their search.

The top five markets in Sub Sahara Africa showing greatest improvements in transparency are; South Africa, Zambia, Nigeria, Ghana and Kenya.

The 10 cities in Sub-Saharan Africa that will attract the majority of international capital flows and, consequently, development and investment activity include; Abuja, Addis Ababa, Dar es Salaam, Kampala, Kigali, Lagos, Luanda, Lusaka, Maputo and Nairobi.

There has been an acceleration in the number of new real estate fund platforms created to focus on the Sub-Saharan African (SSA) commercial real estate market, and there is also a broad range of new equity sources including private equity, sovereign wealth and pension funds, REITs and institutions which are becoming increasingly available and active. Of these JLL estimates that 20-25% of equity commitments are from North American sources and 15-20% are from European sources.

“While the region’s rapidly-expanding economies have much to offer, significant challenges to investing in Sub- Saharan Africa’s real estate remain – for now, investment-grade stock is still limited, and the lack of liquidity, low transparency and short-term uncertainties in many markets may deter investors with limited appetite for risk.” explains Anthony Lewis, Director, Capital Markets JLL Sub-Saharan Africa.

“Nevertheless, there is tangible progress and momentum as developers respond to the urgent need for modern commercial real estate, and political and economic governance continues to selectively improve across the region.”

Recently, experts reportedly said that the legislators across the continent have focused on the development of extremely transparent laws for the protection of property rights in order to make the growing cities in Africa meet the international interests and their own ambitions.

The Director of Knight Frank (the research department for real estate markets) James Roberts, said: “The volume of investments in world office real estate was $ 202 billion in 2009, and we expect it to grow to $ 606 billion in 2015. As part of this global trend of rapid progress, office markets of developing African countries will also be dynamically expanding in terms of investment activity, among which are particularly noteworthy Kenya (particularly Nairobi), Botswana, South Africa and Nigeria. Cape Town, Johannesburg, Lagos and Dakar, as well as Dubai, which caters to the growing African investment flow of capital, are strategic hubs of the continent”.