DURBAN – Corporate real estate investment continues to gravitate towards gateway cities, according to recent research by JLL released during the World Economic Forum in Davos, Switzerland.
South Africa’s top three cities – Johannesburg, Pretoria and Cape Town, are no exception, providing an economic anchor on the African continent.
According to recent research released by JLL during the World Economic Forum in Davos, Switzerland, gateway cities continue to top global real estate investment. South Africa’s top three cities are no exception, providing an economic anchor on the African continent.
Well-known, large gateway cities with the world’s deepest concentrations of capital, companies and talent continue to dominate the top ranks. The trend has not been different in Africa where investment and developer activity have been concentrated in the well-established cities which includes South Africa’s top three cities as well as Nairobi, Kenya and Lagos, Nigeria.
Globally, the top-ranked cities, including London, New York, Paris, Seoul, Hong Kong, Tokyo, Shanghai, Washington DC, Sydney, Singapore, Toronto and Munich, have all appeared in the top 30 ranking every year for the past decade and account for 30 percent of all real estate investment. London maintained its position as the top city for global real estate investment in 2018 as investors continue to favour familiar cities that have well-established investment markets and high levels of transparency.
Based on data from Real Capital Analytics, South African cities accounted for more than 80 percent of commercial real estate transactions in 2018. South Africa continues to be a well-favoured entry into the continent, which is reflected in real estate transactions, some involving multinationals. In many ways, the country plays a role as the “Gateway Country” into the rest of the continent.
Zandile Makhoba, Head of Research for Sub-Saharan Africa at JLL said, "Political turmoil, high sovereign debt and corruption place a dampener on investor confidence into African markets. Despite this, the continent is still hailed for its economic potential with organisations finding ways to establish a presence in Africa, contributing to the growing importance of real estate investment on the continent. This is largely due to global uncertainty, which according to Oxford Economics is expected to peak during 2019 and 2023".
Even with its economic challenges, real estate investments in South Africa have seen notable growth in the past year, rising by an estimated 58 percent year-on-year to R21 billion in 2018. While this pales in comparison to investments in London, which recorded the highest CRE investments in 2018 in excess of $35 billion alone, the growth seen locally is telling of the opportunity that still exists in the not-yet-mature market.
South Africa’s investment growth compares to a marginal four percent rise in global real estate investment activity including office, industrial and retail accommodation – all of which totalled $733 billion in 2018.
While there is limited data to make similar comparisons for other African cities, it is important to note that many are still in development; construction activity is much stronger than transaction activity where high-quality accommodation is in undersupply. The rise in developer confidence in other gateway cities on the continent highlights the growing importance of world-class accommodation for local corporates as well as rising demand from multinationals operating in these countries. For example, Kenya will see a 10 percent rise in office stock in 2019, with over 80,000m2 of accommodation in the pipeline and the anticipated completion of The Pinnacle. Likewise, Lagos looks forward to retail completions including Twin Lakes Mall and Royal Gardens Mall among others.
“Although event the strongest economies in the world sit in turmoil, one could argue that business in Africa seems to be approached with extra caution compared to other regions. This is despite visible efforts in improving business conditions,” noted Makhoba.
Makhoba concluded, "Africa is not one for quick gainers. Patience through recent elections, droughts and indirect impacts from global turmoil all contribute to a complicated and volatile journey to success. But examples of success are not hard to come by. Many of the continent’s gateway cities are still ‘under construction’ and globalisation offers all the opportunity to build".