Retail proving to be the most dynamic sector

The rise of the middle class and economic growth have tempted a number of investors to look seriously at Africa as an investment destination. Without doubt, retail property is proving to be the most dynamic sector.

The retail property sector has recently come to the fore as a champion in helping the overall property market retain its reputation in Africa, Africa Property News.com has learned.

Over the past few years, sub-Saharan Africa has experienced stable growth, increased political stability, improvements in transparency and openness to foreign trade.

Thanks to these improvements, as well as the mystique around Africa, we are seeing an increasing number of global investors looking for growth opportunities outside the depressed markets of Europe and North America.

One of the key attractions for investors is the rise of Africa’s middle class, which is leading to more disposable income. And, with increased access to international trends, spending patterns are changing. African consumers are demanding better products, a greater variety of brands and better service. Gone are the days of substandard offerings.

We believe the African youth is an important market of eager and aspirant consumers. Africa is characterised by a young population, with about 62% under the age of 25. This guarantees a considerable consumer base for the future.

The rise of the middle class and economic growth have tempted a number of investors to look seriously at Africa as an investment destination. Without doubt, retail is proving to be the most dynamic sector. We are experiencing increasing interest from not only developers but also international brands.

This is driving the rise of the shopping mall on the continent. Over the past few years we have seen a move away from traditional High Street retail and formal and informal markets to the development of formal retail centres. This is evident in countries such as Mozambique and Angola, where there are a number of shopping centres under construction within the boundaries of the city of Luanda and Maputo. Most of the centres are anchored by Shoprite.

In Nigerian, this rapidly developing retail market is driven by internationals brands such as Hugo Boss and Domino’s Pizza. Brands such as Tommy Hilfiger, Chanel, Nine West and Christian Dior are also interested in entering the market.

The most attractive retail locations in Nigeria are Lagos and Abuja. However, there are several developments in the pipeline or nearing completion in secondary towns such as Kano, Port Harcourt and Ibadan. In total more than 200000m² of retail space is currently under construction in Nigeria.

Namibia is also an attractive choice for investment due to its many similarities to neighbouring South Africa, and this includes its banking and property laws. We see Namibia as a natural choice for regional expansion for businesses that already have an SA footprint. The country’s retail market is driven mainly by increased private-sector investment, with new developments such as the 54000m² Grove Shopping Centre and upgrades to the Auas Valley Shopping Centre, which reflect increased consumer demand. Windhoek is the most active retail market in Namibia. We are also observing some activity in Swakopmund and Walvis Bay, along with scattered developments in the northern parts of the country.

In Lilongwe and Blantyre, the two main retail centres within Malawi, the demand for shopping space is focused on small-scale, trading-type retail. We recognise that a distinct feature of this market is its emphasis on minimising costs. Larger retail spaces have been affected negatively by the lack of demand from international retailers. Competition for tenants is fierce. We’ve seen landlords offer significant incentives — in some cases slashing rentals by as much as half. It is not surprising then, given the competitive retail environment and the lack of new entrants into the retail market, that there is currently only one mall under construction in Malawi.

Modern retail space in Ghana is in short supply. Traditional retail units and street hawkers dominate the retail offering. But the formal retail market is evolving rapidly and there are several mall projects, new developments and expansions either planned or under way. These larger, modern shopping malls will change Ghana’s retail landscape with world-class design and an increasingly international retail mix.

The Indian Ocean islands of Mauritius, Seychelles and Madagascar — promoted to tourists as part of the Vanilla Island region — represent a unique African property market. With its blend of First-World infrastructure, political and economic stability, as well as fiscal incentives and easy accessibility, most of Mauritius’s formal retail activity takes place in decentralised shopping centres.

Shopping malls recently opened include La Croisette Mall, Cascavelle Mall, Flacq Shopping Mall and the Kendra St Pierre Commercial Centre. However, we do advise caution as the retail sector is seen as oversupplied due to an annual growth in retail space of about 8,8% over the past decade.

On the other hand, Seychelles is emerging as a country increasingly attractive to invest in and operate from — thanks to its new International Business Authority and several pieces of enabling legislation. Its small population, along with the major retail and office activity, is centred in Mahe.

Madagascar is benefiting from a growing middle-income segment, with new retail centres currently being developed in Antananarivo.

Defying negative preconceptions, Rwanda is regarded as the top performer in East Africa. We can attest to the business-friendly approach adopted by the local government, which continues to attract foreign investment in services, industry and mining. Major planned projects in Kgali include Vision City Commercial Node and the new CBD Development Node, which will cater for current and future demand for leading edge sustainable mixed-use real estate from both local Kigali residents as well as national and international tenants.

Our Kenya offices report that this country’s commercial sphere is being fuelled mainly by the strong growth of the services sector and the continued position of Nairobi as a regional hub. Retail centres in Nairobi have gross lettable areas of less than 30 000m². But this is likely to change with new mixed-use developments — one of which is Two Rivers — potentially bringing around 49 000m² of retail and 18 000m² of office space onto the market. Garden City Mall includes 46 000m² of retail and 25 000m² of office space; and The Hub includes 29 000m² of retail and about 2 000m² of office space. Over the past few years, we’ve seen retail trends changing with consumers now choosing decentralised urban shopping malls over inner-city retail.

When should you invest in sub-Saharan African retail? Now, even though the continent still faces problems ranging from political instability to religious fighting, dependency on minerals and oil, and corruption. The lack of infrastructure is also an obstacle for investment, impeding full economic growth potential in most countries. Also, it is still difficult to physically access many African markets, especially in the interior. The provision and proper maintenance of infrastructure is therefore crucial to Africa’s long-term growth.