Report: Potential of Africa’s residential and commercial real estate markets

November 27, 2023

Cairo, the bustling capital of Egypt with a growing middle class and new design district, is attracting tens of billions of dollars in real estate investment now that the government is allowing foreigners to buy property

By Luxury Marketer Intelligence

How to transform challenges into opportunities when it comes to the African real estate market?

Indeed, the challenges encountered in Africa's commercial property sector are strikingly uniform, as pointed out by Knight Frank in its new Africa Horizons 2023-24 Report authored by Boniface Abudho, research analyst in its Africa team.

Take Nigeria, with its ever-expanding population, now exceeding 200 million people – the highest in the continent. This population is expected to double within three decades, a trend expected to reverberate in other African countries such as Kenya and South Africa.

The World Bank estimates that by 2050, Africa's population will surge to at least 2.4 billion and could reach 4.2 billion within the next century.

“While such an unprecedented population surge certainly brings challenges, such as resource constraints, it also presents various opportunities, for example in education, housing and healthcare,” Mr. Abudho said in an overview of the research.

As an example, the escalating costs of educating children abroad, particularly in the United Kingdom and the United States, offer a real prospect for private education providers across the continent.

Ascendance of co-working spaces
In markets such as South Africa and Nigeria, the traditional office setup is currently being challenged by the dynamic and flexible environment of co-working spaces, per Knight Frank. These spaces offer cost savings, flexibility and heightened productivity for businesses.

For instance, in Lagos, many businesses are shying away from rigid long-term leases and upfront costs associated with conventional offices, opting instead for the flexibility and cost-efficiency inherent in co-working spaces.

As of 2020, Nigeria boasted 60 entrepreneurial co-working spaces, surpassing other African nations, with Egypt (59) and South Africa (58) following suit.

The shared amenities offered by co-working spaces eliminate the financial burden of maintenance costs and renting space that is not used constantly such as meeting rooms, enabling businesses to scale up or downsize in response to their requirements without being bound by prolonged leases.

Imperative for affordable housing
Africa is grappling with a severe housing deficit, marked by a shortage of at least 51 million housing units, according to the Center for Affordable Housing Finance in Africa.

“Urbanization and population growth are the prime catalysts for this crisis, leaving governments struggling to meet the surging demand for affordable housing,” Mr. Abudho said.

On average, more than 40,000 people migrate to African cities every day, most of whom cannot afford formal housing or access mortgage loans. This presents an excellent opportunity to provide affordable housing units to address this burgeoning demand.

While Africa remains the most rural region globally, it is urbanizing rapidly, exerting immense pressure on urban land and housing provision in the coming decades.

Scaling up affordable housing initiatives can boost national economies, create jobs, revitalize the construction industry, and enhance living conditions and overall well-being for the continent's inhabitants, per the report.

In Nigeria, inadequate housing affects between 14 and 16 million people, while South Africa grapples with a housing shortage of approximately 3.7 million units.

Conversely, Kenya experiences an annual housing demand of 250,000 units but manages to supply only around 50,000 units each year. Various governments have introduced diverse, affordable housing models, but much work remains to satisfy the demand.

The Kenyan government, for example, launched the Affordable Housing Program in 2017 to deliver 500,000 units by December 2022. However, it is worth noting that this initiative has struggled to attain its full potential due to financial constraints arising from inadequate budgeting, resulting in various projects stalling.

To further bolster this program, the Kenyan government has established the National Housing Development Fund to provide funding, targeting the construction of 200 units per constituency.

The United Arab Emirates, Saudi Arabia, Qatar, Kuwait and Bahrain are among the top investors in Africa. Source: FDI Markets

Data centers
The demand for data centers is also soaring across countries such as South Africa and throughout the continent as the world progresses towards a more interconnected and automated future.

With the rise in online retail, catalyzed largely by the pandemic, requirements for data centers have flourished across the continent, the report stated.

Data centers provide a cheaper and more efficient IT capability than inbuilt servers, which is aiding their popularity. They also offer cloud services and allow organizations to focus on their core functions.

The African data center market is projected to experience significant growth in terms of investment, with a compound annual growth rate (CAGR) of approximately 15 percent from 2020 to 2026, per Knight Frank.

In 2020, the market size in terms of investment was valued at $2 billion. It is anticipated to reach $5 billion by 2026, according to Africa Data Centers.

Investors such as the Agility Logistics Park (ALP) have already recognized the burgeoning demand for data centers in Africa.

The firm recently launched four master-planned data center campuses in Egypt, Ghana, Saudi Arabia and Kuwait.

Upon completion, these campuses will contribute a substantial 275,000 square meters of cutting-edge center capacity to ALP's existing infrastructure in the Middle East and Africa, Knight Frank said in the report.

“However, there is still more work to be done to meet the continent's expanding digital needs,” Mr. Abudho said.

“Currently, Africa represents less than 1 percent of the global co-location data center supply, with South Africa being the main contributor to the continent's capacity,” he said.

According to The African Data Centers Association (ADCA), Africa requires approximately 1,000MW of power and at least 700 additional facilities to address the growing demand. This underscores the untapped potential in the African data center space, which is primed for further development and investment to bridge this digital divide and foster the region's technological advancement.

“Overall, untapped opportunities abound in diverse facets of the African real estate sector, with particular emphasis on co-working spaces, affordable housing and data centers,” Mr. Abudho said.

“With Africa's population poised to double by 2050, these opportunities must not be overlooked,” he said. “Other opportunities lie in specialized residential developments, such as retirement homes, addressing the needs of a growing middle-class elderly population in Africa.”

Excerpts from Knight Frank’s Africa Horizons 2023-24 Report

WELCOME

James Lewis, managing director for Middle East and Africa

Africa is on the move. In terms of trade, global influence, wealth creation, transparency and ease of doing business, all indications are trending upwards.

With the shackles of the pandemic now behind us, renewed global interest in Africa is evidenced by the recent engagement and investment commitments made by major global powers such as the U.S., U.K., South Korea, U.A.E., Saudi Arabia, Turkey and China.

For instance, the U.K. has announced plans to invest $2 billion in sustainable projects across Africa, while the U.S. has pledged an initial $200 billion for its partnerships for Global Infrastructure Initiative.

These efforts are expected to trigger an influx of multinational corporations into major hub cities, including Lagos, Nairobi, Cairo, Johannesburg and Accra.

For private and institutional investors, this sovereign-level interest provides a springboard for taking advantage of emerging opportunities across individual real estate sectors, including data centers, manufacturing, ESG, infrastructure developments and agro-processing.

Our 2023/24 Africa Horizons explores these sectors in more detail and highlight five stand-out investment opportunity areas as we see them.

In addition, we spotlight Cairo not only as the latest node in our Africa network but also as North Africa's rising star and a darling for Middle East sovereign wealth funds who have announced plans to invest as much as $120 billion over the next few years.

We hope you find our research both informative and stimulating, and I look forward to discussing the opportunities we have highlighted with you in more detail.

INTRODUCTION

By Boniface Abudho

The African Opportunity
In many parts of the world, extensive urbanization has already taken place, and Africa is at the cusp of starting this journey.

Cities like Cairo, Lagos, Luanda, Dar es Salaam, Nairobi and Addis Ababa are together home to over 65 million people.

By 2030, the combined population of these African activity hives will expand to 100 million, according to the United Nations estimates.

Overall, sub-Saharan Africa's population is growing at a rate of 2.7 percent p.a., more than twice as fast as South Asia (1.2 percent) and Latin America (0.9 percent) (World Economic Forum).

Indeed, according to the Word Bank, by 2050, Africa's population is forecast to rise to 2.4 billion and will continue to grow to 4.2 billion in the next 100 years, four times its current size.

The projected population boom is set to unleash a wealth of real estate investment opportunities as Africa's mega-cities enter their next phase of growth.

Multi-dimensional partnerships key to unlocking investment
A significant hurdle to overcome will be securing funding to drive the expansion of Africa's cities.

The continent faces significant challenges in attracting private-sector investments. Long-standing investment barriers include political instability, corruption and inadequate road and energy infrastructure.

However, there are also numerous opportunities for investment, particularly in agriculture, data centers and manufacturing.

In our view, multi-dimensional partnerships can play a significant role in addressing some of the challenges faced by investors eyeing opportunities on the continent, particularly those with little or no experience in Africa.

Public-private partnerships are a case in point, exemplifying collaborations that embrace diverse areas of interest, including financial, operational, technological, social and environmental. Their overarching objective is to foster a mutually advantageous alliance aiming to address a wide range of issues or challenges.

Consequently, public-private partnerships have the potential to yield positive outcomes for local communities, such as augmenting employment opportunities and developing critical infrastructure.

Dubai's DP World, for instance, a world leader in global supply chain solutions, strives for partnerships that enhance employment, local infrastructure and national GDP.

One such example is the new Road Transport Center for delivery trucks in Kigali, Rwanda, which has reduced waiting times for land transport from weeks to days. It has also lowered storage costs, helping to position Kigali as a significant logistics hub in East Africa and facilitating connections between regional businesses and global markets.

Over the last 10 years, DP World has invested over $1.8 billion in Africa and plans to invest a further $3 billion over the coming years.

Please click or tap here to download Knight Frank’s Africa Horizons 2023-24 Report

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Report: Potential of Africa’s residential and commercial real estate markets

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