Africa is on the move – economic growth is robust, foreign investment is growing and its expanding urban middle classes are creating an internal market of global scale. The continent is actively harnessing its natural resources, but Africa is not just about the commodities boom: growth in manufacturing, technology and telecoms, finance and business services, outsourcing, retailing and hospitality are all changing the face of the continent’s cities.
Sub-Saharan Africa’s commercial real estate sector has many of the ingredients for “lift-off”. Unencumbered by a legacy of existing stock, the continent has a real opportunity to leapfrog the normal stages and build high-tech buildings. Africa’s lead in mobile banking illustrates that it has the potential to be a ground-breaker. The reality, however, is that the future shape of Africa’s real estate market will be determined by its ability to tackle poor transparency, which will continue to be a major barrier in this sector.
Which cities offer the best opportunity will clearly vary by industry sectors – but at a composite level my company has identified 10 cities from a list of 40 that are likely to have the combination of critical mass of commercial activity and underlying growth factors to push them to the top of the continent’s city hierarchy.
The 10 African cities on the international radar are:
Mature: Cape Town, Durban, Johannesburg
Emerging: Accra, Cairo, Casablanca, Lagos, Nairobi
Early Adopter: Addis Ababa, Luanda
Looking at the bigger picture, these are the 12 factors that we believe will underpin growth in Africa’s commercial real estate industry:
1. Sustained economic growth
The past decade has been a major turning point for the African economy. Economic growth in sub-Saharan Africa has matched or exceeded 5% for nine out of the last 10 years, and is expected to continue to exceed 5% per year over the next five years as the internal market expands. The balance of economic activity within the continent is shifting southwards into sub-Saharan Africa, home to some of the world’s fastest-growing economies, such as Ethiopia, Ghana, Nigeria and Angola. In terms of economic performance, sub-Saharan Africa holds up well compared to other emerging markets: eight out of the world’s top dozen fastest-growing countries over the next five years are expected to be in Africa.
2. Favourable demographics
Africa is becoming a market of global scale – its population, currently in excess of 1bn, is expected to double over the next 25 years, the fastest growth rate of any continent. Its working-age population is growing especially vigorously, with 70% of the total population aged under 30, delivering a potentially huge demographic boost. By 2040, Africa’s working-age population will be larger than either China or India.
3. Rapid urbanisation
The real estate sector will play a major role in shaping Africa’s urban future as city infrastructures strain under the pressures of “flash urbanisation”. Africa is urbanising more rapidly than any other continent, with its city-based population expanding by 3.5% per year. Some cities are growing considerably faster (such as Abuja at 9% and Luanda at 6% a year). Sixty cities across Africa have a population of more than 1m; a total of 170m city dwellers whose incomes are typically nearly double their respective country’s national average.
The continent is also home to four of the world’s megacities – Cairo, Lagos, Kinshasa and Johannesburg – each providing huge population catchments. Many African cities are showing remarkable economic dynamism. Accra and Addis Ababa are booming, and are among the world’s fastest-growing city economies. Luanda, Maputo, Lusaka, Lagos and Abuja are also expanding rapidly, while Kigali has ambitious plans to transform itself into “the centre of urban excellence in Africa”.
4. Expanding middle classes
Sustained economic growth is creating an expanding urban middle class with growing discretionary income. Africa’s middle classes have been estimated at around 350m people, although a more conservative estimate suggests that the total is closer to 150m. The highest concentrations of middle class populations are in South African cities (Johannesburg, Cape Town and Durban) and in North Africa’s main urban areas – Cairo, Alexandria, Casablanca, Rabat, Algiers and Tunis.
But the most rapid growth in the middle-class population is occurring in sub-Saharan Africa in cities such as Lagos, Abuja, Luanda, Accra and Nairobi. Sub-Saharan Africa has, to date, been “off the radar” of most international groups (with the notable exception of South African retailers); but this is beginning to change as international retailers, developers and investors seek to tap into the fast-growing consumer markets.
5. Commodities and energy resources
Africa has an abundance of natural resources, and the continent will continue to benefit over the long term from the growth in global demand for its oil and commodity resources. But, more significantly, recent evidence indicates that several African countries are capturing greater downstream value from their resources, which will have a more direct impact on the demand for industrial and commercial real estate.
Africa’s proven oil and natural gas reserves have grown strongly. Nigeria, Angola and Algeria top the ranks of oil and gas exporters, but recent finds of offshore natural gas in Tanzania and Mozambique and the development of oil fields in Uganda and Kenya will result in East Africa also becoming a major exporting region.