African real estate market remains largely resilient amid crippling economic challenges across the continent, particularly in Nigeria which prides itself as the largest economy on the continent.
Capital trends, however, show that both investment and the markets have seen considerable shifts as investors have, in the last six to 12 months, started transitioning away from build & flip private equity strategies. They are embracing new strategies.
These new strategies are more pronounced among institutional investors who were used to standard build, stabilise, and exit, private equity initiatives. This headlines findings by Estate Intel, an online property research platform, in its recent report.
According to the report, these institutional investors are replacing the old strategy with another that is more centered around existing income-producing assets.
“The transition was led by slow growth in secondary market activity and the realisation that the volatile nature of African real estate markets requires longer holding periods to extract inherent value,” Dolapo Omidire, Research Director at Estate Intel, explained.
Omidire, added that these investors are switching to income fund strategies, searching for a partial exit and the capacity to hold onto assets for longer.
In a statement made available to BusinessDay at the weekend, Linah Amondi, a research analyst at Estate Intel, highlighted, in summary form, some of the key findings of the report titled ‘African Real Estate Capital Trends Report 2024’. She noted that:
Green & ESG-linked property finance has grown by 41 per annum since 2018.
ESG agenda has played an increasingly prominent role in shaping the African real estate capital landscape. We have seen the provision of green & ESG-linked financing for real estate transactions grow by an annual average of 41 percent since 2018, bringing us to a cumulative total of US $4.2billion in mid-2024.
“With over US $1.3billion announced year to date, 2024 has seen record-breaking green and ESG-linked property financing activity. Estate Intel is forecasting that this will cross the US $2billion mark before the year runs out as ESG themes become increasingly popular among institutional investors,’’ Omidire said.
Amidst exit struggles, debt payment is being used as a proxy for acquisitions
We typically wait for at least three events to call a trend, but in the two interesting examples we highlighted, debt payment is used to help close a sale where a standard sale failed and was too good to ignore. The case studies in question are in Nigeria and the retail sector linked, with one of the examples being Gruppo’s plan to settle a US $25million senior debt using Ikeja City Mall sale proceeds.
Precisely, the firm announced plans to dispose of its 75 percent interest at Ikeja City Mall to Actis through its NREIF fund in November 2020. As such, Actis will own 50 percent of the resultant shares and shareholder loans in it, and advance a shareholder loan to Gruppo for an aggregate consideration amount worth US $25million, which Gruppo intends to use in settling its senior bank debt.
Institutional interest is strongest in the hospitality market
Strong institutional interest has historically been witnessed in the hospitality, retail, and office sectors, with the overall growth rate averaging 23 percent per annum across the market. The hospitality sector, in particular, has recorded the highest deal volumes and value worth over US $2.5billion (exclusive of South Africa), with the post-COVID-19 period realizing the highest activity. This is on the back of tourism resurgence and increased investor interest in smaller and Francophone countries such as Senegal and Côte d’Ivoire.
Industrial and hospitality assets consistently offer keener yields
Transaction yields on average have remained relatively stable at 8.7 percent since 2014. Notably, the hospitality and industrial markets registered yields lower than the market average at 7.5 percent and 8.1 percent, respectively, citing attractive transactions to investors. On the other hand, the retail and office transactions recorded yields averaging 9.3 percent.
As expected, the biggest markets offer the most exits
Estate Intel data shows that up to US $30billion worth of transactions have been undertaken in Africa over the past two decades. Key cities in South Africa, Nigeria, and Egypt have led the charge, with the overall attraction underpinned by their robust property markets, popularity as Africa’s business hubs consequently attracting investment, and specifically South Africa’s robust capital markets supporting its investments.
