Real estate innovation in Africa
This article was originally published by Knight Frank. (View the original here)
Innovation offers investors exciting opportunities in Africa’s real estate markets. We examine some worth considering
While office, residential, retail and industrial remain the go-to sectors for African real estate investors, demographic shifts mean that affordable housing, education, healthcare and agriculture are emerging as real opportunities.
However, there remains an undertone of caution as leading indicators such as cost of living and inflation levels suggest there are still challenges ahead. In general, the residential and commercial sectors have remained subdued over the past two years due to fiscal policies, government regulations and a general inability to balance demand with supply.
Vacancy rates and constrained levels of capital and rental growth across most countries have been fuelled by subdued levels of demand. This is often exacerbated by ongoing local challenges of land administration and bureaucracy.
Africa’s real estate sector has been keen to adopt technological innovation, laying the foundations for the emergence of a vibrant “proptech” sector. What started as a trickle through the introduction of online search platforms has become a wave of disruptive and cutting-edge technologies that continue to improve both transparency and efficiency.
Globally, investments in proptech hit $12 billion in 2016, up from just $20 million in 2008, with an estimated $4.6 billion invested in proptech in the first six months of 2019.
Although proptech companies in Africa currently only account for 1% of global market share, the continent’s technology ecosystem is among the fastest growing in the world.
The World Economic Forum notes that proptech is transforming the global real estate sector in three key ways: through promoting greater transparency, enabling increased efficiency and encouraging a shift away from traditional uses.
Digital innovation
These key trends continue to be mirrored in Africa through innovations including the digitisation by a number of countries of their land administration processes, the rise in co-working spaces and the continued growth in online retail.
The proptech solutions presented have ranged from transaction platforms, management platforms, data-driven services to wide-ranging digital innovations, including blockchain and virtual reality solutions.
At the moment there are more than 500 co-working spaces across the continent, 80% of which have sprung up in the past three years. This trend is expected to continue to grow rapidly. This has been attributed to the dynamic shift towards space as a service demand, from individuals, entrepreneurs and corporates, as well as the growing younger demographic.
Egypt, Nigeria and South Africa have recorded the highest numbers of co-working spaces in the continent. We have also witnessed the continued expansion of global brands such as Regus which is currently operational in 22 African countries, together with the recent entry of WeWork into the South African market.
The online retail sector in Africa continues to grow, influencing the retail and industrial real estate sectors. McKinsey estimates that online shopping in Africa will generate $75 billion by 2025. This continued growth of e-commerce platforms such as Jumia, Konga, Kilimall and Mall of Africa, as well as Takealot, has been attributed to the continued growth in mobile and internet penetration in the continent. GSMA estimates that smartphone connections will rise to approximately 700 million by 2025 with Kenya, Nigeria and South Africa continuing to dominate e-commerce sales.
Formal retail space across the continent has continued to undergo rapid transformation. Amid the entry and exit of various brands in the sector across the continent, retail outlets have had to adopt omni-channel offerings in order to ensure as a measure of sustainability. As online retail gains traction and critical mass, this is expected to translate into a growth in demand for sophisticated and centralised warehousing facilities across the continent.
The World Bank report, Doing Business 2019, cites a number of reforms across the continent geared towards easing the burden of property registration.
Examples include the successful transition by the Mauritius Land Registry to a paperless system; Kenya’s recent land process digitisation efforts; and Togo’s digital solutions for property registration and digitisation processes.
In addition, Rwanda and Ghana have also committed to introducing a blockchain-based land administration process. These initiatives are in line with the move towards more transparent markets for investors.
Reach Africa’s private equity community by publishing a Showcase Article on Africa Private Equity News. Contact us at editor@africaprivateequitynews.com for our rate card and more information.