Investment challenges and opportunities in west African markets

Accra, Ghana

Accra, Ghana

In most economies in west Africa, the effects of the economic downturn has filtered into the real estate markets currently experiencing downward pressure on rentals, high vacancy rates and significant increases in the maintenance of commercial buildings.

Currently, most countries face challenges including sharp currency depreciation, deteriorating macroeconomic imbalance, rising inflation and interest rate hikes.

“Oil-producing countries in the region face fluctuating oil prices with the resultant effect of revenue shortfalls,” says Kofi Ampong, Broll Ghana CEO.

Ampong says the major risk for developers and investors is no longer political instability in west Africa, but rather access to title deeds, access to capital, the procurement of building materials, lack of depth and quality of tenants, lack of experienced professionals in retail management and high rentals in some cases coupled with increasing high operating costs.

Despite these challenges, west Africa is still regarded as an investment location offering investors a number of opportunities in various markets and sector segments. He notes that although development opportunities are enormous, many foreign investors seem to focus on anglophone countries compared to francophone economies.

“There are unlimited opportunities in the office, residential and retail sectors and to a lesser extent, industrial parks in francophone countries and the language barrier should not be a hindrance or obstacle. Currently countries like Benin, Togo, Niger and Burkina Faso do not have modern shopping centres hence this would be an ideal opportunity for retail investors,” according to Ampong.

“We believe that liberal government policies in many west African countries where dividends and profits can easily be transferred have helped fuel growth in office and retail developments.”

Furthermore, encouraging disposal incomes of middle class populations as well as rapid urbanisation has added to this positive growth.

“With upcoming elections in December 2016, the remainder of 2016 to the first quarter of 2017 will be tough for the commercial property market in Ghana. We expect that a peaceful election will bring back confidence into the market and lately, we have witnessed a slowdown of enquiries from multinational and large local organisations looking for office access exceeding 1,000m²,” notes Ampong.

Achieved rentals declined by around 6% and are currently between US$32 – $35 per m² per month, primarily due to the challenging economic environment and oversupply.

“Nigeria reports significant increases in the cost of maintaining and operating commercial buildings due to the soaring inflation and foreign exchange challenges in the market. In addition, there is a widening gap between asking and achievable rents due to the downward pressure on achievable rents resulting from oversupply of office space and low tenant demands,” he says.

Ampong adds that stable economic dynamics are required to get business confidence to further stimulate growth in the real estate sector.