Since the publication of our Africa Horizons 2021 report in April, the global economy has begun to regain its vigor. As Covid-19 restrictions ease in various countries, life is slowly returning to normal. This resurgence has reignited the global real estate market, with a particular focus on the quality of office spaces. Businesses are now prioritizing factors such as ESG (Environmental, Social, and Governance) and talent acquisition, which are driving the demand for top-notch office accommodations.
Across Africa, this trend is even more pronounced, with cities like Lagos and Nairobi experiencing an unprecedented surge in demand for high-quality office spaces. Post-pandemic, the trend toward quality is transforming these markets into two-tiered systems.
Simultaneously, the logistics sector is witnessing a surge in demand for quality warehousing spaces. This increased demand is fueled by factors such as e-commerce, infrastructure development, and government industrialization policies following the pandemic.
In the residential sector, the pandemic has sparked a shift in buyer preferences. With remote working becoming more prevalent, first-time buyers and existing homeowners are gravitating towards larger homes with access to green spaces and reliable, high-speed digital connectivity.
What's Behind the Changes in Africa's Property Market?
Office Markets
Prime office spaces are making a strong comeback across the continent. The latest edition of our Africa Offices Dashboard reveals that many postponed office lease deals have been reactivated. Prime rents remain stable across most African cities, indicating a return in business confidence. For instance, Nairobi experienced a 64% increase in prime office absorption, reaching 202,000 sq ft. in the first half of 2021 compared to the same period last year.
Today, real estate is viewed as a strategic tool by many businesses. Factors such as corporate branding, cost reduction, and employee well-being are driving the flight to quality across Africa.
Residential Markets
Our Global Buyer Survey indicates that one in four people plan to move homes in the coming year. Flight to quality continues to drive this demand across Africa, with factors such as proximity to green spaces, good healthcare, and air quality influencing location decisions for prospective buyers. Remote working has also had a profound impact, as access to high-speed broadband and home study offices are now prioritized by buyers.
In response to these shifting dynamics, prime residential property supply is increasing. Markets like Kampala are witnessing a rise in the availability of quality homes. Additionally, the pandemic has amplified the demand for affordable homes in suburban areas, with 57% of African homebuyers preferring to live in the suburbs compared to just 33% globally.
Industrial and Logistics Markets
Although not covered in the Africa Horizons report, the industrial sector remains a significant area of interest. The rising demand for quality warehousing spaces, driven by trends like e-commerce, has led to attractive yields for industrial assets across Africa. On average, these assets command yields of approximately 12%, outperforming the retail, office, and residential sectors. However, limited stock options have prompted developers to act swiftly to meet the demand, especially in markets such as Nigeria, where there is a deficit of 1,000,000 sq m.
Alternative Asset Classes
Beyond the mainstream residential and commercial markets, data centers present a growing investment opportunity in Africa. Johannesburg leads the way, with 80 MW of new supply added to the market in Q3 2021. The take-up rate tripled compared to the previous year, showcasing the sector's vibrancy. Similarly, data regulations in Nairobi have fueled demand, positioning the city as a significant hyperscale region. Operators like IX Africa are expanding their capacity in the city.
Lagos is also undergoing significant expansion, with a total supply of 80 MW. With new fiber links and an increasingly connected population, communication infrastructure is becoming crucial to Nigeria's economy. Key operators such as Africa Data Centres, MainOne, and Cloud Exchange West Africa are investing in the development of over 20 MW of IT power in the city.
Conclusion
While our outlook for 2022 remains positive, differing approaches by African governments to recurring infections may lead to a mixed economic outlook. This uncertainty could deter occupiers and potentially slow down the recovery momentum built throughout this year. However, cities like Nairobi, Dar es Salaam, and Lagos are showing signs of a gradual return in business confidence, which we anticipate will drive increased occupier activity throughout 2022.
Download the Africa Horizons report here.
