Africa’s dynamic property sector

Mar 08, 2019

As Standard Bank hosts the Women in Property Network Conference in Johannesburg, South Africa’s real estate sector anticipates a year of increased corporate activity. Rental reversion stemming from a retail sector under pressure and, amongst other factors, government reform of State-Owned Enterprises (SOEs) is expected to perhaps prompt consolidation amongst smaller domestic real estate funds in South Africa. At the same time digital disruption in retail trends is set to influence traditional mall shopping. The sector continues to see a healthy demand for industrial real estate across Africa, even as some large South African real estate funds reduce their African exposure as they deepen their commitment to Eastern European assets. On the residential front, new opportunities are emerging in South Africa’s resilient mid-range home market.     

The Women in Property Network Conference provides a platform for women involved in real estate to engage with each other, “collectively addressing challenges and identifying opportunities for women in property in South Africa, across the African continent and globally,” says Somaya Joshua, Executive: Real Estate Finance, Standard Bank. The conference also provides a valuable platform to advance and deepen the role played by women in the sector.

To date, senior women in the real estate sector tend to occupy Chief Financial Officer and other business support roles. As such, part of what Standard Bank aims to achieve by hosting these gatherings is, “support the attainment of cutting-edge leadership roles for women in real estate,” says Ms Joshua. Certainly, current trends, and changes, in real estate development in South Africa and more broadly across the continent present a rich tapestry of opportunity for women to make a broader contribution to the sector at a senior level.

Rental reversion, especially in South Africa’s non-food commercial retail sector, may “lead to an increased level of corporate activity,” says Ms Joshua. Downward rental pressure is also likely to see landlords, “either accept lower rentals or live with higher vacancies,” adds Ms Joshua.

Rental pressure in South Africa is also being exacerbated by government efforts to reform SOEs. The Department of Public works, for example, has embarked on a programme of reviewing the leases of government-rented real estate across the country. Since many of the leases under review have not been renewed yet, “some of our commercial real estate clients are impacted with non-contractual income for now,” says Ms Joshua. Renewed leases will likely contribute to the downward pressure on commercial rentals, adding to South Africa’s general rental reversion theme.

Another observable trend in the local market is South Africa’s big listed real estate sector players continuing to invest heavily abroad, largely in Eastern Europe where, “almost full employment and consistent economic growth is sustaining high rentals on select commercial opportunities,” says Ms Joshua. Locally, we’re also seeing BEE (sale and leaseback) activity that will be a strategic opportunity for the Bank.

While some large South African real estate players have decided to exit some African markets, this is by no means a universal trend. The recent formation of Growthpoint Investec African Properties (GIAP) with secured capital commitments in excess of USD 212 million from several large institutional and international investors, including USD 50 million from Growthpoint itself, is a case in point. GIAP is currently actively targeting sector-specific income-producing commercial real estate assets in a range of African cities.

Ms Joshua believes the mixed performance of other South African real estate funds in other African markets was, arguably, “driven by local economic conditions”. This is where the in-market presence and deep real estate experience of Standard Bank’s people across Africa’s very different markets can make a difference.

Certainly, Standard Bank’s own experience in following clients into Africa and supporting their businesses to succeed has been a very positive one. This also means that, “Standard Bank is, today, well placed to advise, guide, support and execute in Africa’s diverse real estate opportunity landscape,” says Ms Joshua.

In light of global disruption, there is also speculation about the impact of online shopping on the retail sector. Especially the potential for online shopping to reduce rental prices. Possibly, online shopping, “rather than reducing retail rentals, may instead drive retailers to develop omni-channel offerings that continue to include an in-store element - for customers to either view, try-on or pick up digitally pre-ordered purchases,” observes Ms Joshua.

The increase in warehousing and direct delivery driven by these new digital buying trends is also positioning logistics as a new destination for real estate capital and investment. This real estate sub-sector is expected to grow as the need for more warehousing and associated industrial infrastructure increases across the continent.   

From a residential real estate funding perspective, Joshua believes that South African banks are well placed to increase lending parameters in the residential sector following muted risk appetite as a result of the 2009 financial crisis. Important lessons have been learnt and must be applied in how we approach funding in the sector. This means that, today, “there is a lot more that banks can do in the domestic market – especially if they reconsider price points,” says Ms Joshua.

With these trends set to continue, Standard Bank’s sponsorship of the Women in Property Network Conference presents a powerful networking opportunity for women to deepen their participation in an exciting sector that is well placed for growth.

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