Lagos pearl of the future, Johannesburg darling of today
Even though Nigeria has become Africa’s biggest economy on the continent, South Africa’s business centre city, Johannesburg is still far ahead in terms of current property development projects in terms of number and quality when compared with Nigeria’s business centre, Lagos.
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Nigeria has a gross domestic product of 1 trillion US dollars according to 2014 estimates by the CIA World Factbook. South Africa’s gross domestic product is $707bn, reports Ortneil Kutama, Africa Property News.com Media Director.
Lagos is a much longer term play than the city of Johannesburg in terms of projects for developers but the red tape in Nigeria is not easy to navigate. Johannesburg remains the powerhouse city of Africa. Some property funds are thinking ahead and investing in Lagos nonetheless.
Lagos has a population of nearly 5.2-million people and many of them are aged between 18 and 40. The middle class there is growing rapidly yet there are very few conventional American style shopping malls in the entire city.
Property investment companies which are listed on South Africa’s JSE that have invested in Nigeria, include Resilient Africa, Attacq and Hyprop Investments. But Resilient Africa stands out as a fund which has investments in Lagos as opposed to other investors which are working in other cities. Resilient Africa is a joint venture run by Resilient REIT and Shoprite, the South African shopping giant. Resilient owns more than 60% of the venture. The two powerhouse companies have plans to build ten malls in Nigeria.
Meanwhile, retail-focused property group Hyprop Investments and capital growth fund Attacq last year bought Ikeja City Mall, the largest shopping centre in Ikeja. Hyprop CEO Pieter Prinsloo said he had been looking for a sizeable investment in Nigeria, having found fewer acquisition opportunities available in SA in the past year. Ikeja stood out. The 22,000m² mall is in Ikeja, a densely populated suburb with a population of 4.5-million. Its anchor is Shoprite and it includes South African brands Spur, MTN and Markham, and international brands such as TM Lewin, Nike, Lacoste, Mano, Tommy Hilfiger, i-Store, KFC and Max Fashion.
Hyprop and Attacq are considering investment options in Lagos too. They have acknowledged that it takes months to years to get clearances for developments in the city, however.
While Lagos requires housing, office and retail developments, SA’s Johannesburg is enjoying a slew of new retail developments. Some of these are in the inner city itself. South Africans and Johannesburgers, to be more specific, are taking back the city.
Inner city regeneration programmes have yielded some levels of great success as they bring middle-income and upper-income residents back to South Africa’s city centres. One part of the city which has played a role is the Maboneng Precinct. Since the completion of its first residential buildings in 2010, developer Propertuity has attracted more than 2000 residents to the Maboneng precinct, a formerly vacant part of the eastern inner city.
Propertuity founder and CEO Jonathan Liebmann created the well-known cultural site Arts on Main between 2007 and 2009. He is now spreading it further west in the Johannesburg CBD.
In fact, various pockets of excellence districts are being developed in Johannesburg. These include the likes of the aforementioned Maboneng, Doornfontein and Braamfontein.
These areas are seeing various housing developments, many of them being for students and some for new foreign professionals. Many listed property funds are creating residential assets for the first time in decades. Many of these companies believe they can attract the youth to the city as their parents gave up on the city. They could also attract foreigners who getting work in Johannesburg city or nearby suburbs but have never lived in the city before.
In order to make these developments, however, infrastructure must be improved in certain parts of the city. This includes parking and cleaning facilities which can then accommodate the new residential developments. Lagos however requires relatively more infrastructure upgrades than Johannesburg does. The city struggles with severe traffic and power blackouts. As such, investors are improving the rollout of electrical services, water and sanitation and waste removal services.
The Nigerian companies looking to develop in Lagos have also had to deal with economic pressures. The falling global oil price has put downward pressure on the Nigerian economy as Nigeria exports a large amount of oil. Further the Nigerian naira has dropped to record lows. The Nigerian government has approached the African Development and World Banks, asking for loans which could lead to a further devaluation of the currency. The weak oil price placed intense pressure on the Nigerian government’s budget. The decline in the oil price has thus had a negative impact on the Nigerian economy.
Des de Beer, the CEO of Resilient has said that this has made Resilient Africa’s plans a bit more difficult, but that it must be borne in mind that those are long term plans. Resilient Africa is aiming to develop ten malls in Nigeria. Resilient owns 60,94% of the Resilient Africa joint venture for the development of malls in Nigeria in partnership with Shoprite Checkers. Shoprite already has a strong presence in Lagos. Resilient Africa’s first mall in Nigeria is called Delta Mall. It is located in the city of Warri and not Lagos, but Resilient Africa may develop in Lagos in the future.
At December last year Resilient and Des de Beer had moved R712m to Resilient Africa with additional commitments totalling some R397m.
“The investment in Nigeria is relatively small and business risks have increased. There are obvious downside risks to the country’s rating and currency. The distressed economic conditions have and will continue to yield attractive investment opportunities which will be pursued providing investment criteria are met,” Mr De Beer said.
“Although oil exports historically only accounted for 35% of Nigeria’s GDP, it made up 95% of export earnings and 70% of government revenue. In an attempt to limit the depreciation of the naira against the US Dollar, the Nigerian government introduced wide ranging import controls. This has negatively impacted both the local and South African clothing retailers who are highly dependent on imports,” he said.
He said that the tenants at the Delta Mall have come under pressure from the recent economic struggles in Nigeria.
“The clothing retailers, which occupy 22% of the Delta Mall GLA, are experiencing difficult trading conditions and unless the import controls are relaxed, the larger clothing tenants are all expected to cease trading. Remaining tenants are reporting strong trading conditions. Although currencies make comparisons difficult, the Shoprite store achieves the highest trading densities of any grocery store in Resilient’s portfolio,” said De Beer.
The oil price will of course recover and that will be a boon for developments in Lagos and the rest of Nigeria.
The recent depreciation of currencies of oil and coal export-reliant countries in Africa has brought into focus the continued viability of commercial tenants being charged dollar-indexed rentals by foreign developers, when tenants’ income is based in local currency. ... Full story