January 24, 2020

How to build the ideal pan-African Real Estate Service business

Dolapo Omidire

Background
Business activity within the last decade has shown us that African real estate service businesses are rather difficult to build. Advising clients on the best brokerage deals, giving tenants good representation and providing value-adding portfolio management services, requires in-depth knowledge and a thorough understanding of local markets. For a pan-African or international business looking to operate at scale on the continent, this can be achieved by building a business from the ground up, entering a joint venture or partnering with existing players, making an acquisition or even a franchise agreement. Since the 1960s, we have seen each of these strategies executed by the largest global and African commercial property services companies as they work towards cementing a position in a fast-growing real estate market. In this note, we take a look at the history of global and pan-African real estate businesses that have set sail for domination in Africa and discuss how successful their strategies have been. 

Strategy Summary

From the analysis completed, it is clear that the option of establishing new offices has been the most popular choice for companies looking to expand across the continent. From 1960 – 2010, 59% of all pan-African expansion strategies were completed via new office establishment, this reduced to 32% in the decade ending last year as market players diversified their strategies and opted for franchise agreements, acquisitions and partnership/affiliate agreements. 

How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.
How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.

As company-specific financials or staff strength data is difficult to access, office shutdowns or rescinded partnerships were used as indicators for failure. While the sample size is small, the acquisition and office establishment route proved to be the most successful as it enabled service providers have intimate and quick access to local knowledge and the ability to hit the ground running in terms of ability to service clients. As the graph below shows, the route for partnerships was regarded as less successful because of the churn that has been noted in recent years as a result of misaligned objectives among other issues.

 

How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.
How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.

 

It is important to note that the delivery of quality real estate assets from best in class institutional investors typically drives a greater need for better quality service providers in the agency, property management, facility management and valuations space. This is why Actis’ break out from CDC in 2003 following a corporate restructuring was a crucial event for the African real estate market. The private equity firm began investing from its first general fund and subsequently raised its first African real estate fund, backing numerous flagship developments across the continent and paving the way for some very important growth in the number of quality service providers available.

Visual Version of this Timeline 

The timeline illustrated documents all the expansion activity by real estate service firms seeking to become pan-African providers. We break this down further in our analysis of each strategy type below.

How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.
How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.

New Office Establishment

Depending on the specific market or region it is in, establishing a new office from scratch is often the hardest strategy to take. Hiring staff, breaking language barriers, sourcing for your very first clients and most of all getting the right data to advise clients is not an easy feat. 

Despite these challenges, the data collected shows that this was the first, and has also proven to be the most popular mode of entry for new real estate businesses seeking a presence across the continent. Since 1960, up to 22 offices have been opened in 12 African countries with Knight Frank accounting for well over a third. 

How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.
How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.

Pam Golding opened 7 offices during the period but chose to focus more on the Southern African region.

Though Knight Frank and Savills both have strong commercial brokerage businesses globally, they are even more renowned for their work in the luxury residential leasing and sales space and this is what we expect informed their entry into Africa. Knight Frank opened its first African office in Nigeria in the 60s with a few more following during the 80s and 90s. While Savills, in 1999, opted for a partnership with Pam Golding, a leasing and sales agent with strong competence in the residential space.

This method was successful 91% of the time arguably owing to the fact that most of them were opened pre 2006 when the market was less competitive and gave each player enough time to grow their client base. An example where there was less success recorded was with the JLL team who closed the offices they established in Nigeria and Kenya roughly 3 years after opening them. They do, however, maintain close partnerships with local players such as Trillium REP in Nigeria and another in Kenya to support execution. Northcourt commenced a regional expansion starting in Ghana during Q4:2019. 

 This method saw just about the same amount of interest from the large global real estate players and locals seeking expansion.

Joint Venture Agreements

After its establishment in South Africa during 1975, Broll’s foray into Africa was led by entry into Namibia in 2003, Nigeria in 2004 and 5 other countries in the decade that followed. This was the 2nd most popular strategy. Broll’s entry into Nigeria was given a soft landing as they won the mandate to act as the leasing agent and manager of the Actis sponsored Palms Shopping Mall (one of the first in Nigeria) and Tinapa, a large mixed-use development in Calabar (Southern Nigeria).

How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.
How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.

Of all joint venture agreements tracked, Broll accounted for 78% owing to their typical setup structure involving the Broll Property Group (South Africa) entering individual joint venture agreements with local companies to form the localised Broll Entity. 

  • In Namibia, Broll Property Group partnered with Ohlthaver & List to form Broll Namibia. 
  • In Nigeria, Broll Property Group partnered with a group of investors to form Broll Property Services Nigeria.
  • In Ghana, Broll Property Group partnered with the Ghanaian Social Security & National Insurance Trust (SSNIT) and SIC Insurance Company to form Broll Ghana.
  • We expect that they took similar approaches to enter other African countries.

Part of the reason this approach was taken was because of the unique policies that apply in multiple African countries for businesses owned by foreigners. 

Cluttons International and Alphamead Facilities Management also entered into a joint venture agreement in 2015 in a bid to increase their international presence and bring their real estate expertise to West Africa. Though the alliance won interesting mandates including multiple valuations and the management of Festival Mall in Lagos and Ceddi Plaza in Abuja; it was abruptly interrupted after Cluttons in London went into a pre-pack administration. This event was the only reason that the joint venture route came in at an 89% success rate. Following the Cluttons announcement, the International Real Estate Partners (IREP) office was formed but later changed its name to AMREP (Alpha Mead Real Estate Partners). 

The most recent joint venture agreement, which involves CBRE and Excellerate is a result of shuffling and reshuffling of partnership agreements, all of which are discussed in the following section. 

Partnership and Affiliate  Agreements

The Partnership Agreement approach was the darling for the key international players. This is because it enabled them to expand their network and their market coverage simply by relying on other parties with a strong understanding of the local market who had a tried and tested ability to execute.

Savills executed the very first partnership or affiliate agreement with Pam Golding and has benefited from their expansion across 7 African countries and are now even working in Nigeria on the sale of the Ilubirin Housing Project while advising corporate clients such as Microsoft via their South African office. There were plans to create a strong commercial focused pan-African entity dubbed 5th Avenue, but those have remained cold since they were announced in 2013.

With others such as CBRE and Excellerate, there has been some propco incest with partnerships swapped out among major players. Akin to Savills and Pam Golding, CBRE and Broll Property Group entered a mutually beneficial affiliate agreement in 2004 that saw Broll gain significantly from access to international clients while CBRE enjoyed the ability to continue to serve their clients in various African countries. Individual contracts with CBRE and the localised Broll entities such including Broll Nigeria, Broll Ghana were signed after 2011.  When that affiliate agreement ended in late 2018, however, there was a lot of movement between previously aligned service firms exchanging partners in a bid to stay relevant. Here is a consolidated version of the timeline for context.

  • 2004 – Broll Property Group and CBRE enter affiliate agreement.
  • 2016 – Excellerate and Cushman & Wakefield Enter Partnership.
  • 2018 – Broll Property Group and CBRE end affiliate agreement.
  • 2019 – Excellerate and Cushman & Wakefield to end their partnership.
  • 2019 – CBRE agrees to enter a joint venture with Excellerate.
  • 2019 – Broll Property Group and Cushman & Wakefield enter affiliate agreement.

Prior to JLLs office establishment in 2014, they briefly partnered with Estate Links/Gbenga Olaniyan and Associates, a leading indigenous real estate services firm. The team worked together on a few engagements, most notably the disposal of Union Bank of Nigeria’s real estate assets. After the close of their office in 2018, JLL sustained their presence in Nigeria by partnering with Trillium Real Estate Partners.

How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.
How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.

As a result of the churn noticed within the partnerships and affiliate agreements executed, this method had a 57% success rate, much less than the 91% recorded with the direct establishment of offices. 

Franchise Agreement

The examples of franchise agreements are unfortunately only Nigeria focused. Executed in 2008 (Fine and Country) and 2015 (REMAX), this strategy enabled indigenous professionals to use global brands to service clients as long as they continued to meet predetermined standards, requirements and fee remittances. 

Both companies operate largely in the residential space albeit in different segments (luxury and all housing types) and have noted a fair amount of business. Fine and Country also offer brokerage services to properties in other markets including Ghana.

How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.
How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.

Acquisition

Entrance or expansion within the market via acquisition has been less popular but rather successful. JLL’s entrance into South Africa commenced first with the acquisition of Bradford McCormack & Associates (BMA) in 2011 and was further consolidated with the acquisition of Trussard Property Consultants which was completed in Q1:2016.

How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.
How to build the ideal pan-African Real Estate Service business. Source: Estate Intel, Financial Statements, Company Websites, Press Releases.

Combined with support from the European teams, these acquisitions provided the JLL team with an excellent foundation and created the powerhouse that enables them to work on ample consulting, valuation projects across the continent. 

Though Excellerate was already active in the South Africa market, their acquisition of Profica in 2015 significantly consolidated their position as an African service provider. This is because Profica has offices in up to 7 African countries and has done business in over 20. This access positioned them very well for a partnership with global service providers such as Cushman and Wakefield in 2016 and a joint venture with CBRE in 2018. 

As all these investments are still active, this strategy has seen a 100% success rate. Finding a company that is either already executing in the markets you are keen on or that can provide the right platform for growth might seem like an easy win. However, this sample size is small and it is important to point out that acquisitions, where interests are misaligned, may often lead to the worst results. 

 

Who Might Be Up Next?

With CBRE, JLL, Cushman already active in the market – are there any more big acquisition, partnership, franchise or office opening deals in the pipeline? We think it’s possible! 

  • Colliers who once quietly mulled entry onto the continent are still not present. Colliers is a global real estate service and investment management company with operations in 68 countries, and over 14,000 people active for more than 20 years. 
  • GVA Worldwide, which is principally held by Avison Young (an American real estate service company with 5,000 real estate professionals in 120 offices in 20 countries), is an international network of independent real estate companies. They work aggressively to grow this global network and there are still significant gaps for them within Africa.
  • Coldwell Banker has affiliate companies in over 40 countries with one of the largest geographic footprints in today’s commercial real estate marketplace and they also have no strong presence within Africa. 

Why is it this hard?

While it is obvious that building any business is a difficult exercise, how hard should a pan-African real estate business be to build? I think there are a few major challenges. 

Not enough clients:

Akin to the standard property sector, a shallow pool of tenants (direct property users) and a smaller pool of active investors means that there are still few limited clients to service in this market. As a result, where one company wins a big mandate to manage a real estate portfolio or provide representation for a tenant, it typically means another real estate service company has lost a client. Even though there are new clients coming into the market, many are small and most of the large ones already have real estate partners. 

To worsen things, many of the local companies in Nigeria, for example, opt for managing their portfolios internally and championing that culture shift is difficult. 

In this regard, international affiliation or some form of partnership to access international and corporate clients is important as global mandates for real estate services for various corporations are bid for and decided out of offices in London, Dubai or New York.

Regulation on international entities 

In Nigeria for example, many international companies operating in the country are unable to offer valuation services, one of the key breadwinners in the family of services for any real estate company. 

For many corporate entities and for accounting purposes, the government makes it mandatory for real estate assets to be valued on a periodic basis. These valuations, however, must be carried out by entities registered with the Estate Surveyors and Valuers Registration Board of Nigeria (ESVABON) and the Nigerian Institution of Estate Surveyors and Valuers (NIESV). Over the past decade, many international entities have found it difficult to register. This means that they have to rely on their international clients who only require a stamp provided by the happy United Kingdom’s Royal Institute of Chartered Surveyors. 

Though Knight Frank is international, the first office in Nigeria was opened in 1965, years before the Nigerian Institution of Estate Surveyors and Valuers (NIESV) and Estate Surveyors and Valuers Registration Board of Nigeria (ESVABON) were created in 1969 and 1975 respectively, allowing them to easily align. 

Access to Data:

Without the right local market knowledge, understanding of nuances, typical rates and more – it is almost impossible to offer real estate clients good quality service. Though improving, little or no access to information is the norm. So new entrants into the market are left with a lot of leg work to do or even worse – guesstimating. In more advanced markets, access to all the data that is required can be gotten with a few subscriptions to property data platforms. This levels the playing field so performance is evaluated on the quality of advice or analysis that is based on the foundational data that is accessible to almost everyone. 

The current set up means that those who came in and have invested in internal databases over time will significantly benefit. These benefits are accessible via acquisition or indirectly through partnership but not when establishing an office from scratch.

Just as Actis played a key role in developing prime assets which required world-class services, institutional investment from pan-African funds such as GRIT or Growthpoint Investec African Properties will play a role in the future of African real estate service companies. Many are creating pan-African property portfolios and have the ability to provide a platform for service providers to follow and grow their reach.

We are hoping that new international entrants and indigenous expansions within Africa will take a page from this mini playbook to guide next steps as they attempt to take the business of building a pan-African real estate service business. 

What do you think about these expansive strategies? Vote in the poll below or engage with us on LinkedIn

Which do you think is the winning strategy?
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