COMMERCIAL PROPERTY INSIGHTS | 10 MAY 2022

2021 MSCI South Africa Annual Property Index returns show the sector recovered to a positive return of 5.3%

somaya-joshua-author

Somaya Joshua

Head: Africa Regional Operations at
Absa Corporate Investment Banking

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Despite the challenging economic environment experienced over the last three years, the East African property market is one that appears to be offering some exciting potential for patient investors.

While Emerging Market property faces certain headwinds including inflationary pressures, rising global interest rates and liquidity squeezes, there are reasons to feel optimistic about the sector as a whole.

Over the past 18 months Absa Corporate and Investment Banking (CIB) has made significant investments in East African property deals, working on a number of landmark transactions including our partnership with DH Three Limited to fund its maiden development in Kenya with the construction of a diplomatic residential development.

We see several key themes emerging in the African commercial property market now:

Kenya is strong but it’s not just a Kenyan story

While Kenya has been a standout in the East Africa region, we have seen increased interest in Uganda and Tanzania .This regional hub is seeing increased investment activity as investors seek out opportunities in growth markets. With increased regional travel and investment in local infrastructure, we expect these hubs to continue to attract investment.

We are keeping close to how the possibility of potential further lockdowns may impact travel and investment decisions on a more prolonged basis.

The ability to lend in hard and local currency, as well as on a cross-border basis is a competitive advantage

As Absa has grown its presence in the East African property market, one of the competitive advantages that we have enjoyed is that we are able to facilitate transactions in local and hard currencies and on cross-border bases in multiple currencies.

This was highlighted when we executed a property development transaction in Nairobi (while under lockdown restrictions), with South Africa as the booking centre for the debt transaction and collaborating across 4 geographies, all across different time zones. This requires a banking partner with a footprint and balance sheet in multiple jurisdictions and a keen understanding of domestic markets.

On top of this, we believe that in a post COVID-19 world, Emerging Market lenders can no longer simply rely on vanilla debt structures. The ability to build debt structures which can respond to market shocks will be key.

Shifting focus of property assets

In the past assets such as retail and accommodation property were in vogue as the consumer economy developed with a growing middle-class.

In more recent years, there has been a surge in projects involving data centres, logistics warehouses, and, post the COVID-19 lockdowns and supply chain disruptions, there has been an increased focus in on-shore manufacturing operations which will drive growth in the Industrial sector (an asset class that has maintained value during the pandemic)

ESG integrates well with the property sector

As a bank, we have invested heavily in our Environmental, Social and Governance (ESG) capacity and expertise; we see this integrating well with our property sector endeavours.

Affordable and student housing projects are attracting much interest from ESG focused investment funds and our specialist team and knowledge of our markets are expected to enable a number of new projects to come to the fore during the next 12 months.

We are also excited by the innovation that is happening in this space at the moment and the recent oversubscribed “green” bond brought to market by Acorn Holdings is an example of how attractive these innovations are to the investor market.

While there are certain headwinds facing global debt and equity markets as well as geo-political tensions, we are confident that the East African property market offers clear value for investors wishing to make risk-adjusted returns in frontier markets such as Kenya, Tanzania and Uganda .

We take enormous pride in the fact that, despite the challenges presented through recent economic disruptions, we still have a growing and performing property book in East Africa and across our Pan African footprint. This speaks to the calibre of our clients and the risk mitigation strategies that we have invested in over the last 2 years and we look forward to partnering with active investors and developers as they  seek to grow their footprint on the continent.

somaya-joshua-author
Somaya Joshua

Head: Africa Regional Operations at Absa Corporate Investment Banking

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