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Jll africa century twelve pillars report
1. Africa Cities Research | Global Foresight Series 2013
The African Century
Twelve Pillars of Africa’s Future Success
2. 2 The African Century - Twelve Pillars of Africa’s Future Success
Urbanisation and Real Estate
Introducing our Africa Cities Research Programme
The past two years have seen a sharp rise in interest
in commercial real estate opportunities in African
cities. As home to some of the world’s fastest growing
city economies, with rapid rates of urbanisation and
burgeoning middle classes, it is of little surprise that
Africa is appearing on the radar of an increasing number
of major corporations. International capital is beginning
to focus on Africa’s real estate potential, and developers
are now responding to the strong demand for modern
shopping malls, offices and hotels.
With the international spotlight firmly on the continent,
our latest Cities Research focuses on the opportunities
in 40 African cities. Africa offers a huge diversity of
operating conditions, city dynamics and real estate
environments; yet it is the rapidly expanding cities in
Sub-Saharan Africa that are attracting greatest interest
- and with less than 3 million square metres of ‘Grade A’
Africa’s Evolving Urban Network
40 Cities – Our Watch List
Source: Jones Lang LaSalle, 2013
commercial space (office and retail) across the region
(excluding South Africa), the real estate opportunities
are clearly evident. Challenges abound, but the
operating environment is selectively improving and there
are potentially significant pay-offs in those African cities
that are creating economic stability.
Our Africa Cities Research programme explores the
continent’s evolving urban network and assesses how
the changing environment is impacting on current
and future commercial real estate requirements. We
shall be releasing a series of reports that provide new
insights into this rapidly urbanising continent – we will
identify which African cities offer the greatest real estate
opportunities, and we will explore real estate sector
prospects and transparency. In this Introductory Paper
and by way of context, we highlight 12 pillars that, we
believe, will underpin Africa’s future success.
3. The African Century - Twelve Pillars of Africa’s Future Success 3
Africa is on the Move
The African Opportunity
Africa is on the move - economic growth is robust,
foreign investment is growing and its expanding urban
middle classes with their strong propensity to spend
are creating an internal market of global scale. The
continent is actively harnessing its natural resources,
but Africa is not just a ‘commodity play’; growth in
manufacturing, technology and telecoms, finance and
business services, outsourcing, retailing and hospitality
is generating an urgent requirement for a modern
commercial real estate infrastructure.
A commercial real estate market
poised for ‘lift-off’
Sub-Saharan Africa’s commercial real estate sector
has many of the ingredients for ‘lift-off’ as the industry
Twelve Pillars of Africa’s Future Success
Source: Jones Lang LaSalle, 2013
responds to the strong demand for high-quality
property. Unencumbered by a legacy of existing
stock, the continent has a real opportunity to leapfrog
the normal evolutionary process and to build assets
equipped for the modern technologically-enabled
business and consumer - Africa’s lead in mobile
banking illustrates that it has the potential to be a
groundbreaker. The reality, however, is that the
future shape of Africa’s real estate market will be
determined by its ability to tackle poor transparency,
which will continue to be a major barrier to real estate
construction, occupation and transactional activity.
Here, Sub-Saharan Africa can learn from many
other emerging markets across the globe, who are
successfully improving both their regulatory controls
and the fairness of their real estate transaction
processes.
4. 4 The African Century - Twelve Pillars of Africa’s Future Success
Twelve Pillars of Africa’s Future Success
1. Sustained Economic Growth
The requirement for a modern commercial real estate infrastructure intensifies
• The past decade has been a major turning point
for the African economy. Economic growth in
Sub-Saharan Africa has matched or exceeded 5%
for nine out of the last 10 years, underpinned not
only by a commodities boom but by expanding
private consumption. This is producing significant
pent-up demand from multinational corporations,
local businesses and consumers for high-quality
commercial real estate.
• Economic growth is expected to continue to
exceed 5% per year over the next five years as
Sizing the Opportunity
Economic Size - GDP (PPP)
Note: US$. Source: IHS Global Insight, September 2013
the internal market expands. The balance of
economic activity within the continent is shifting
southwards into Sub-Saharan Africa, home to
some of the world’s fastest growing economies,
such as Ethiopia, Ghana, Nigeria and Angola.
• In terms of economic performance, Sub-Saharan
Africa now holds up well compared to other
emerging markets - eight out of the world’s top
dozen fastest growing countries over the next five
years are expected to be in Africa.
5. The African Century - Twelve Pillars of Africa’s Future Success 5
2. Favourable Demographics
Africa’s demographic boost
• Africa is becoming a market of global scale - its
population, currently in excess of one billion, is
expected to double over the next 25 years, the
fastest growth rate of any continent.
• Its working-age population is growing especially
vigorously, with 70% of the total population
aged under 30, delivering a potentially huge
demographic boost. By 2040, Africa’s working-age
population will be larger than either China or India.
Working-Age Population
Fastest growth in Africa
Working-Age Population defined as 15-64 age cohort
Source: UN World Population Prospects, 2012
• Africa is a mosaic of 54 countries, yet several
heavily populated countries are likely to dominate
future market opportunities. Nigeria (the
continent’s largest market with a population of 174
million), Ethiopia (94 million), Egypt (82 million),
South Africa (52 million), Kenya (44 million) and
Morocco (33 million) are providing true scalability
for corporations, retailers, hotel operators and real
estate developers.
6. 6 The African Century - Twelve Pillars of Africa’s Future Success
3. Rapid Urbanisation
Africa is urbanising more rapidly than any other continent
• The real estate sector will play a major role in
shaping Africa’s urban future as city infrastructures
strain under the pressures of ‘flash urbanisation’.
Africa is urbanising more rapidly than any other
continent, with its city-based population expanding
by 3.5% per year. Some cities are growing
considerably faster (such as Abuja at 9% and
Luanda at 6% a year).
• 60 cities across Africa currently have a population
of more than one million; a total of 170 million
city dwellers whose incomes are typically
nearly double their respective country’s national
Africa’s Economic Growth Hotspots
Economic Size - GDP (PPP)
Source: IHS Global Insight, September 2013 (National Data); Jones Lang LaSalle, 2013
average. The continent is also home to four of the
world’s megacities - Cairo, Lagos, Kinshasa and
Johannesburg – each providing huge population
catchments.
• Many African cities are showing remarkable
economic dynamism. Accra and Addis Ababa
are booming, and are among the world’s fastest
growing city economies. Luanda, Maputo, Lusaka,
Lagos and Abuja are also expanding rapidly,
while Kigali (in Rwanda) has ambitious plans to
transform itself into “the centre of urban excellence
in Africa”.
7. The African Century - Twelve Pillars of Africa’s Future Success 7
4. Expanding Middle Classes
A sizeable urban middle class with a strong propensity to spend
• Sustained economic growth is creating an
expanding urban middle class with growing
discretionary incomes. Africa’s middle classes
have been estimated at around 350 million,
although a more conservative estimate suggests
that the total is closer to 150 million1.
• The continent’s middle classes will provide a key
source of private sector growth, underpinning
expansion in modern retailing, as well as business
and healthcare services. They are proving to be
one of the most compelling attractions for foreign
investment into Africa.
African City Dynamics
Economic Size, Economic Growth and Wealth
*National data
Source: IHS Global Insight, Jones Lang LaSalle, 2013
• The highest concentrations of middleclass populations are in South African cities
(Johannesburg, Cape Town and Durban) and in
North Africa’s main urban areas - Cairo, Alexandria,
Casablanca, Rabat, Algiers and Tunis. But the
most rapid growth in the middle-class population
is occurring in Sub-Saharan Africa in cities such
as Lagos, Abuja, Luanda, Accra and Nairobi,
where there is considerable pent-up demand
from brand-conscious urban consumers who are
looking for quality products and a modern shopping
experience.
• Sub-Saharan Africa has, to date, been ‘off the
radar’ of most international groups (with the notable
exception of South African retailers), but this is
beginning to change as international retailers,
developers and investors seek to tap into the fastgrowing consumer markets.
1
African Development Bank, 2011
8. 8 The African Century - Twelve Pillars of Africa’s Future Success
5. Commodities and Energy Resources
Africa seeks value-added opportunities from its natural resources
• Africa has an abundance of natural resources, and
the continent will continue to benefit over the long
term from the growth in global demand for its oil
and commodity resources. But, more significantly,
recent evidence indicates that several African
countries are now capturing greater downstream
value from their resources, which will have a more
direct impact on the demand for industrial and
commercial real estate.
Nairobi, Kenya
• Africa’s proven oil and natural gas reserves have
grown strongly. Nigeria, Angola and Algeria top
the ranks of oil and gas exporters, but recent
finds of offshore natural gas in Tanzania and
Mozambique and the development of oilfields in
Uganda and Kenya will result in East Africa also
becoming a major exporting region.
9. The African Century - Twelve Pillars of Africa’s Future Success 9
6. Innovation and Technology
But Africa is not just a resources play …
• Many African cities have strong entrepreneurial
energy, and several innovation sectors are
performing well. Innovative uses of technology are
allowing some cities to leapfrog normal evolution
and position themselves as centres of technology
and research on the continent. The rise of mobile
telephony and mobile banking is creating pockets
of excellence, with Nairobi – Africa’s ‘Silicon
Savannah’ - emerging as a regional powerhouse in
mobile technology. Elsewhere, Accra is witnessing
strong growth in its ICT sector, while Addis Ababa
is emerging as a hub for IT start-ups.
Africa’s Top Technology Hubs
Presence of International ICT Companies
Based on presence of Hewlett Packard, IBM, Intel, Microsoft, Siemens, Vodafone, Huawei and Cisco
Source: Jones Lang LaSalle, 2013
10. 10 The African Century - Twelve Pillars of Africa’s Future Success
7. Increasing Foreign Direct Investment (FDI)
Investors target Sub-Saharan Africa
• International investor perceptions about
potential opportunities in Africa are slowly
improving. The global search for commodities,
a growing internal consumer market and better
macroeconomic fundamentals have helped to
boost foreign investment.
• FDI volumes into Sub-Saharan Africa have
risen by 41% since 2007 (bettered only by
Latin America), although volumes have fallen
equally sharply in North Africa. High flows
from China have contributed to FDI growth as
it seeks to tap into Africa’s natural resources
and contribute to infrastructure development.
Malaysian, Indian and South African investors are
also active.
International Business Targets Sub-Saharan Africa
FDI Flows 2007-2012
Source: World Investment Report, UNCTAD, 2012
• FDI from developing countries is growing, as well
as from private equity funds, and there is a shift
towards FDI directed at the African consumer
as investors become aware of its favourable
demographics.
• Nigeria, as the continent’s largest consumer
market, has become Africa’s favoured location for
investment, echoing the increasing retailer and
real estate developer interest in the country’s main
cities, notably Lagos, Abuja and Port Harcourt.
11. The African Century - Twelve Pillars of Africa’s Future Success 11
8. Service Sector Growth
Strong growth in business services to boost office demand
• As Africa’s internal market expands, a huge
requirement is building for personal banking
services, business finance and micro finance.
Currently, only a quarter of the continent’s
population have a bank account, presenting a
significant growth opportunity. Retail banking in
Sub-Saharan Africa is expected to achieve 15%
per year growth for the remainder of the decade2.
• Johannesburg will remain the continent’s leading
financial centre, given its strong domestic banking
sector and status as the regional headquarters of
many international banks. Casablanca, Lagos and
Nairobi are consolidating their positions as regional
banking hubs, while Port Louis (in Mauritius) is
evolving as an offshore banking centre.
• New forms of banking, such as mobile banking, are
emerging. This is being driven by platforms such as
M-Pesa in Kenya, which is now used by a reported
70% of Kenya’s adult population. Similar systems
have been set up throughout Africa, working with
major banks such as South Africa’s First National
Bank.
Africa’s Financial Centres Hierarchy
Emergence of Regional Banking Hubs
Based on presence of a basket of key African and international banks, accountants and insurance companies
Source: Jones Lang LaSalle, September 2013
2
KPMG
12. 12 The African Century - Twelve Pillars of Africa’s Future Success
9. Offshoring Activities
Africa emerges as an offshoring destination
• In comparison with the more established offshoring
markets in India, Central Europe and South East
Asia, Africa is a relatively recent entrant to the
offshoring sector. The continent has, however,
seen a strong uptick in activity in recent years,
driven primarily by its low-cost proposition, talent
availability, English and French language skills,
and favourable time zones for Europe.
• Johannesburg, Cape Town, Cairo and Casablanca
have evolved as the leading cities in terms of a
critical mass of offshore services, while Nairobi
and Accra are also developing their offshoring
capability.
• Several African governments, such as Ghana and
Kenya, are making concerted efforts to improve
the attractiveness of the operating environment
by creating technology parks and developing their
skills base.
13. The African Century - Twelve Pillars of Africa’s Future Success 13
10. Improving Governance, Economic Management and Transparency
Operating environments are selectively improving
most favourable risk profiles and, combined with
their high rates of economic growth, provide among
the continent’s most attractive environments for
investors.
• Business operating environments in Africa are
selectively improving and economic governance is,
in general, becoming more rigorous. Nonetheless,
investors’ concerns about a wide range of risks
persist, and Africa will remain a challenging
balance of risk versus opportunity. Within
Sub-Saharan Africa3, Accra (Ghana), Lusaka
(Zambia), Dar es Salaam (Tanzania) and Maputo
(Mozambique) are judged to have the region’s
African Cities – Risk v Opportunity
Risk: Country Risk, IHS Global Insight, September 2013. Growth: GDP Change 2011-13, IHS Global Insight, September 2013
Source: Jones Lang LaSalle, September 2013
3
Excluding South Africa, Botswana and Namibia
14. 14 The African Century - Twelve Pillars of Africa’s Future Success
11. Infrastructure Development
New infrastructure … new cities
• Poor infrastructure (in terms of transport, utilities
and telecommunications) remains one of the
biggest challenges for the African continent,
but investment funding is steadily increasing.
China, in particular, has become a major source
of funding that includes hydropower projects
in Nigeria, roads and railways in DR Congo,
Mozambique, Tanzania, Kenya and Angola, and
communications in Ethiopia.
• With many city infrastructures straining under the
weight of rapid urbanisation, there are several
ambitious plans for new satellite ‘cities’ on the
edge of Africa’s major cities, including Konza
Techno City outside of Nairobi and Eko Atlantic on
Victoria Island in Lagos.
15. The African Century - Twelve Pillars of Africa’s Future Success 15
12. … and a Rapidly Evolving Commercial Real Estate Market
Implications for
Developers
• Sub-Saharan Africa’s commercial real estate sector
is in an early, high-energy phase of development as
the industry starts to respond to rapid urbanisation
Africa’s Commercial Real Estate Stock
*Excluding South Africa.
Relates to modern offices and shopping malls
Source: Jones Lang LaSalle, Emerging Markets Consultants, SACSC, IHS Global Insight
and strong demand from businesses and
consumers for a modern real estate infrastructure.
Nonetheless, the continent remains severely
undersupplied with high-quality commercial space,
and a lack of experienced local developers will
create opportunities for international players.
16. 16 The African Century - Twelve Pillars of Africa’s Future Success
Implications for
Retailers
International retailers are responding to the
growth opportunities
Mall construction is poised
for ‘lift-off’
• The growing number of brand-conscious urban
consumers is not going unnoticed by developers
and retailers. South African retailers such as
Shoprite, Pick n Pay, Massmart and Woolworths
have taken the lead, but a number of other
international retailers are now assessing the
opportunities.
• Nonetheless, shopping mall construction is poised
for ‘lift-off’ as developers and retailers respond to
the severe supply-demand imbalance. The stock
is rapidly expanding at a rate of over 20% a year,
spearheaded by Cairo, Casablanca, Lagos and
Nairobi. Nigeria’s main cities have become a
key target due to the scalability opportunities of a
country of over 170 million consumers.
• Retailer expansion, however, will continue
to be hindered by a lack of high-quality retail
accommodation. Jones Lang LaSalle estimates
that the stock of ‘Grade A’ shopping malls across
Africa (excluding South Africa) is less than 1.5
million square metres – that’s barely equivalent
to the stock of Hungary, a country of 10 million
people against one billion in Africa.
17. The African Century - Twelve Pillars of Africa’s Future Success 17
Implications for
Corporates
Corporates lead the charge
Dearth of quality office space
• Corporates are leading the charge into Africa and,
out of necessity, are acting as a catalyst for new
real estate development. Many multinationals
have already established significant footprints
across the continent, and are facing the typical
challenges of operating in ‘frontier’ markets, such
as poor transparency, bureaucracy, high costs, skill
shortages and an absence of suitable real estate.
• There is an urgent requirement for quality office
assets to meet the strong demand from a broad
range of growing corporate sectors – such
as finance, outsourcing, oil and commodities,
manufacturers and telecoms. We estimate that
there is less than 2 million square metres of ‘Grade
A’ stock across Sub-Saharan Africa (excluding
South Africa), of which around half is located in just
four cities - Nairobi, Lagos, Luanda and Port Louis.
18. 18 The African Century - Twelve Pillars of Africa’s Future Success
Implications for
Hotel Operators
Implications for
Real Estate Investors
Sharp increase in the hotel
development pipeline
International capital perceives
opportunities
• In line with the corporate and urban development
taking place in Sub-Saharan Africa, the hotel
landscape is witnessing strong growth, led by
upscale business hotels. Africa is estimated
to have around 90,000 branded hotel rooms4,
which compares to around 128,000 in London
alone. With more than half of the hotel rooms
concentrated in just three North African countries
(Egypt, Morocco and Tunisia), the potential
opportunities for the hotel sector in the SubSaharan region are substantial, and international
and regional hotel operators are actively seeking
to expand their presence. The hotel development
pipeline is increasing significantly, and Nigerian,
Ghanaian and Tanzanian cities are emerging as a
primary focus of activity.
• Africa currently accounts for less than 0.5% of
global direct commercial real estate investment
volumes, the bulk of which is transacted
domestically within South Africa. But, international
capital is beginning to move into Africa as investors
seek to access the continent’s growth prospects.
A number of real estate funds have been created
to focus on the commercial property market, with
South African capital taking the lead.
Increasing demand for budget and
mid-market hotels
• So far, hotel development in the Sub-Saharan
region has largely targeted the full service upscale
international business market. However, there is
a growing focus on the local customer base (both
for leisure and business), as spending power
increases. Groups such as Accor are already
responding to the increasing demand for budget
and mid-market accommodation.
4
W Hospitality Group, 2013
Poor transparency will hinder
investor activity
• While Sub-Saharan Africa is a compelling longterm growth story, poor infrastructure, corruption,
scale of markets and low liquidity will continue
to deter most investors. The key to success
for international investors will be to secure the
right local partners to guide them through the
complications of land title, bureaucracy and political
risk. Doing business in Africa is not easy and
poor real estate transparency will continue to be a
binding constraint in all but a few markets across
Africa. Nonetheless, for many international real
estate players the possibilities offered by Africa’s
fast-growing markets will be too great to ignore.
19. The African Century - Twelve Pillars of Africa’s Future Success 19
Real Estate Transparency
Opportunities with Obstacles
Source: Jones Lang LaSalle Global Real Estate Transparency Index, 2012
