More than a year after the Covid-19 outbreak, the global economy has started to come back to life, with Covid-19 restrictions easing in some countries, allowing life to resume to some extent. This has boosted global real estate markets, with issues such as the flight to quality, ESG and talent wars receiving particular attention.

Tilda Mwai, Senior Africa Analyst at Knight Frank

And across Africa, these themes are intensifying. While the pace of recovery may vary from country to country, below we look at three themes that will shape the African property market in 2022.

Widening of the gap between prime and tertiary assets expected

Across the continent, demand for prime offices is making a comeback. User requirements are on the rise, in part thanks to renewed business confidence in regional hubs such as Nairobi, Lagos and Johannesburg. New space requirements increased by 49% in Q3 2021 compared to Q2 2021, driven in part by the professional services and financial services sectors. In contrast and in line with global trends, the demand for more secondary stock remains weak, leading to increased concessions such as increased rent-free periods in cities like Kampala from a typical month to 2 -3 months.

Whether it’s aligning the brand and image of their company, reducing costs or ensuring the well-being of employees, the majority of occupiers now consider real estate as a strategic device within their business, according to last year’s report Your space report. As such, the flight to quality is only set to intensify across the continent, with occupants keen to occupy a space that puts employee wellbeing above all else. Inevitably, this will see the gap between prime assets and tertiary assets widen, leading to the emergence of a distinct two-tier market in most cities.

Green is the new black

One theme dominated headlines, markets and investment decisions in 2021: ESG – environmental, social and corporate governance. It’s no longer just about “the right thing to do”, understanding and implementing these dynamics is now a business imperative. And across Africa, from offices to residential to industrial sectors, occupiers and buyers are increasingly focusing on the sustainability of the buildings they occupy. Although there is currently a lack of hard evidence, we expect to see a “green value premium” for ESG-aligned assets. Across the continent, this will likely materialize in “brown discounts” on older inventory for occupiers. This discount will continue to accelerate towards what is likely to be a “brown value collapse” on a not-too-distant horizon for assets that cannot meet the required standards.

For buyers, the result is what matters. More and more buyers are keen on occupying energy-efficient homes and even willing to pay for it. An overwhelming 71% of African respondents to Knight Frank’s Global Buyer Survey said energy efficiency was very important to them, compared to 42% globally. Additionally, more respondents across Africa (29%) indicated that they would prefer a greener home and would be willing to pay more for it, compared to 27% globally.

Recent climate events, a series of government zero-carbon commitments and the COP26 climate change conference, are likely to fuel this trend even further.

A growing attraction for investment

Outside of South Africa, attracting global institutional capital across the continent has been a challenge due to the lack of investable quality assets. However, in the global hunt for yield, investors are increasingly looking to Africa, attracted by the strong income profile and positive market fundamentals such as increasing urbanisation. Indeed, real estate assets across Africa continued to post attractive returns of around 12% (logistics), 9% (retail and offices) and 6% (residential).

As such, we expect increased institutional interest with players likely to invest in ‘develop to the core’ situations. The historic acquisition of a majority stake in specialist real estate developer Gateway Real Estate Africa by GRIT highlights this trend.

Away from traditional residential and commercial markets, the push for diversification is leading to a growing preference for alternative asset classes such as data centers. Johannesburg continues to be Africa’s leading data center market and saw the addition of 68MW of new supply to the market in 2020.

In addition, the increase in marketing activity expected in 2022 further stimulates new supply. Markets such as Nairobi and Lagos continue to grow, with new data regulations and a large, increasingly connected population driving demand. Already, key operators such as Africa Data Centers are ramping up supply in these markets and this trend is expected to continue through 2022.

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