Market sophistication, sustainability and infrastructure developments were the headline themes at EAPI

Tilda Mwai . 3 years ago

Market sophistication, sustainability and infrastructure developments were the headline themes at EAPI

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Article Summary: East Africa’s largest real estate event(The East Africa Property Investment Summit-EAPI) recently took place after a 2-year COVID hiatus. It is therefore no surprise that the event was packed with insights on how the real estate market in East Africa has been performing, post-pandemic restrictions.  Below, we highlight some of our key takeaways from the…


East Africa’s largest real estate event(The East Africa Property Investment Summit-EAPI) recently took place after a 2-year COVID hiatus. It is therefore no surprise that the event was packed with insights on how the real estate market in East Africa has been performing, post-pandemic restrictions. 

Below, we highlight some of our key takeaways from the numerous panels and presentations made.

Market sophistication is the ticket to the next growth story

Q1 2022 was a stellar quarter for the real estate sector across Africa with occupier activity and market transactions gaining momentum across the majority of East African cities. However, compared to other regions in the world, the region still lags behind. As majority of the speakers noted, liquidity has continued to be the biggest pain point in Kenya and across the region.

From an investment perspective, this has mainly been driven by the level of returns in the real estate sector compared to other asset classes. Pius Muchiri, MD Nabo Capital pointed out that: “In Kenya for example, Infrastructure bonds are trading at 13%, yet rental yields are currently at half of that [and this is] slowing down investments in real estate.”

In addition, the lack of investible grade assets also continues to be a challenge. Mark Dunford, MD, Knight Frank Kenya noted that: “The big problem is that there have not been many platforms for larger institutional investors to acquire or do M&A with. There are a nice handful of assets across the continent. but not a general collective ownership structure. The larger Sovereign Wealth Funds(SWF) and western institutional investors are waiting for this to happen.”

Financing, too, continues to be a challenge with various speakers noting that the cost of capital is only expected to go higher especially post the pandemic. This has, however, presented the market with an opportunity to develop innovative and alternative modes of financing with REITS emerging as a key solution. However, there was a broad consensus that REITS are still immature in East Africa with a need for guidance on enforcement and structure.

Sector dynamics are shifting

While the real estate sectors have continued to recover, it has not been business as usual. Across the region, bright spots have continued to emerge and present opportunities in the mainstream real estate sectors. 

Retail demand in Nairobi for example, is expected to exceed supply over the next 12 months. Interestingly, while there has been a growing rhetoric on the right fit in terms of market demand, Hooman Ehsani, Director New Developments, Greenhills Investments, noted that areas such as flexible retail spaces for e-commerce retailers remain unexplored.

On the other hand, flight to quality and the need for flexibility continues to define the type of demand being observed in the office sector. As a result, flexible office solutions and co-working spaces are emerging as winners even as Nairobi seeks to position itself as the gateway to Africa.

Overall, demographics remain a key influence that impacts how sectors such as industrial and logistics will grow.. According to Geoffrey White, CEO Agility: “ By 2050 2/3rds of all manufactured goods will be sent to Africa.  Activity in the developed world is slowing, markets are contracting, people are getting older, and consumption is less. In Africa or emerging markets over 90% of income is consumed immediately.” This makes it the opportune time for industrial players to come into the market with a focus on growing SMEs demand and last mile connectivity opportunities.

In terms of the residential sector, housing demand has continued to grow. Mumo Kianga, Development Director Mi Vida homes noted that home enquiries had picked up in the first quarter of the year due to pent up demand in the market. This trend is set to continue throughout the year with research from Hass Consult indicating that events such as elections are less likely to have an impact on areas such as Westlands which typically have sustained demand.

Affordable housing demand as well continues to outstrip supply. On this, Gikonyo Gitonga, MD Axis real estate noted that in terms of affordability, only 2.6% of the 18 million in the Kenyan workforce are in formal employment. As such, the informal sector has continued to  drive up demand for this segment. However, despite government incentives on tax and availing land, uptake has remained low highlighting the need for more innovation in this segment.

#GoingGreen 

A common buzzword throughout the event was ESG, with different market experts noting that momentum is definitely building around ESG and sustainability issues. Simply put as Kenneth Mbae, MD Centum Real Estate noted: “Tenants are more concerned about the total cost of their stay. These include water, power and costs to keep their spaces green; {And bankers and financiers increasingly asking them to consider ESG.}

In terms of enhancing ESG take up, Corrine Figueredo, Manager Global Operations, IFC Edge noted that tax incentives would be helpful in getting people to go green. This can be achieved by imposing taxes on buildings that generate excessive greenhouse gas emissions. She further noted that governments can lead by example by retrofitting their own buildings and making sure that new buildings have an RFP element for green certification.

However, as Niyi Adeleye, Standard Bank’s Head of Real Estate Finance Africa Regions noted, there is a need to also focus on all ESG elements beyond the environmental including the Social and Governance aspects. As such, real estate segments that tick the box for them would have to be, “relevant to domestic and international capital sources in the mid to long term horizon, positively impact the quality of life, enhance the creation of social and commercial real estate infrastructure, achieve environmental and social impacts; and support the development of the real estate capital ecosystems in these markets.”

Infrastructure; the boon to real estate market growth

With the spotlight on project impact, the Nairobi Expressway was perhaps the single most exciting infrastructure development for the majority of conference attendees. The reduction in travel time to 20 minutes compared to the previous one hour journey from the airport to Westlands provides a glimpse into the possibilities of growth that infrastructure developments pose. Mark Dunford, MD Knight Frank Kenya noted that global hubs of Dubai, Hong Kong and London have all been buoyed by massive infrastructure developments. As such, Nairobi remains well poised for growth based on its massive infrastructure developments. Data from the Kenya National Bureau of Statistics (KNBS) indicates that road infrastructure spending for instance grew to Sh200 billion in 2021 from Sh10 billion in 2003. This is set to have a massive impact on the economy as indicated by John Rogers, Regional Director – East Africa, Turner & Townsend who noted that for every dollar invested in Infrastructure, it invests back twice to the GDP.

The rise and rise of Proptech

As one of Africa’s leading technology hubs, Nairobi’s Proptech sector is poised for growth.  It has seen significant progress with the emergence of associations such as Proptech Kenya and Proptech Uganda. However, the case is not that simple. Dolapo Omidire, CEO Estate Intel noted that fundraising remains a challenge with proptech’s value proposition not as straightforward as areas such as Fintech. As a result, proptech’s value is better understood by the real estate market players. While echoing Dolapo’s sentiment, Ronald Philip, Director of Strategy Agility Logistics noted that there is potential for growth and collaboration in several Proptech offerings in real estate especially in industrial and logistics, leaving it poised for growth.

The East Africa Opportunity

Overall, while most of the conversation during the conference gravitated around Nairobi, various speakers noted that the market trends and opportunities were not any different for Kampala and Dar es Salaam. Tilda Mwai, Research Associate Estate Intel noted that, Dar es Salaam for example, remains poised for growth with market opportunities still in the traditional real estate segments in terms of the need for more formalized retail and, more sophisticated offices especially against the backdrop of an upbeat economic outlook.

Interestingly, Kigali also emerged a potential hotspot with regional experts noting that the market stood to benefit from the recent admission of DRC into the East African Community. Charles Haba, MD Century Homes noted that all the different segments in the market whether retail or residential were set to continue displaying a strong market performance, with the residential sector already displaying approximately 15% in rental yields. 

We love your feedback. Let us know your Key Takeaways from EAPI by sending us an email at  [email protected].