Retail developers encouraged by Africa’s project yields

Increasingly, retail developers are eyeing Africa’s rapidly growing consumer markets as the scope for investment is steadily cumulative and demand for more formal retail options from shoppers is following suit.

As the world’s second-fastest growing region, the continent’s booming economies have caught the eye of multinationals in search of higher yields. The region is topped only by emerging Asia.

When Walmart Stores, the world’s top retailer, bought control of major South African discount chain, Massmart Holdings in 2011, American shopping mall developer, Irwin Barkan, had an epiphany.

An industry veteran of 30 years, Barkan’s US home market was “greying”, while the underdeveloped African continent offered a sweet spot, with a rapidly expanding middle class and no competition from online retailers.

“When Walmart announced it was buying 51 percent of Massmart, I knew that if I was going to stay in business, Africa was where I had to go,” he said.

He moved last year to Ghana, one of the continent’s brightest economic hopes, and his company, BG International (BGI), has broken ground on what will be an 18400m2 enclosed mall in West Accra. Another mall planned for Ghana’s second city of Kumasi is at a similar stage.

The continent’s consumer-facing industries are expected to grow by $400bn by 2020, representing its single-largest business opportunity, according to a McKinsey report.

French multinational retailer Carrefour has partnered with distributor CFAO to open shops in eight African countries by 2015. It is the latest global giant to cast its net on the continent’s burgeoning middle-class following Walmart, Inditex’s Zara and Arcadia Group’s Topshop.

South African real estate developer HBW Group Pty Ltd. plans to raise $85 million by selling shares in an African property fund as retailers look for land to expand in the world’s second-fastest growing region.

HBW is not the first South African real estate developer aiming to tap into increased investor interest through a property fund.

As SA Commercial Prop News reported earlier this year, Billion Group‚ a property developer that is also the asset manager of JSE-listed Rebosis Property Fund‚ is targeting retail developments across Africa. Billion and Rebosis CE Sisa Ngebulana said Billion was undertaking 12 shopping centre developments between Angola‚ Ghana‚ Nigeria and Uganda.

In the past, retailers like Shoprite Holdings have had to adopt the role of property developer — building centres and letting to third-party traders while taking spot as core tenant.

The African rush has now seen a deluge of property developers scramble for sites.

As Africa’s largest grocer, Shoprite in 2012 partnered with Resilient Property Income Fund to build 10 shopping malls in Nigeria. The deal, worth more than R1bn, also involves Standard Bank and Group Five.

Stanlib, the asset management arm of Africa’s biggest lender Standard Bank (SBKJ.J), recently launched an Africa-focused development fund with plans to build six to eight malls in Nigeria, Uganda, Ghana and Kenya.

South Africa’s largest asset manager, the state-owned 1.2 trillion rand ($115 billion) Public Investment Corporation, also has plans to invest in property on the continent.

Atterbury Group, which recently bought Accra Mall, also has sights set on expansion in Africa. It plans to open in the Ghanaian capital a new mall that will be the city’s biggest, to add to properties from Namibia to Mauritius.

SA’s Investment giant, Sanlam announced its newly sub-Saharan Africa Real Estate Fund listed on the Stock Exchange of Mauritius this year in May. The fund‚ which is structured as a listed property company‚ will allow local and international investors to invest in high quality retail and commercial real estate across select sub-Saharan African countries excluding South Africa.

Private equity group Actis, which last year sold its 85 percent stake in Accra Mall to Atterbury and South African financial services group Sanlam (SLMJ.J), has deployed a $280 million sub-Saharan Africa property fund on office parks, malls and apartments.

“We have a large target market, rapidly expanding and urbanising and hugely under-supplied with quality real estate,” said Michael Chu’di Ejekam, Actis real estate director at its Lagos office.

Nigeria could take a further 45 to 50 large top-class malls within the next seven years to add to its current total of about three, he said.

Chinese developers and other Asian investors are also looking to invest in African malls, said Knight Frank’s Welborn.

“The Chinese have built the roads, hospitals and schools, so this is the next stage for them.”

Meanwhile, developers of the $100 million emporium, the Mall of Zimbabwe in Borrowdale, Harare, West Group, Augur Investments and McCormick Property Development said construction work for the shopping complex was well on course, with the project’s ground-breaking set for October this year.

While urbanisation and rising affluence are fuelling a consumer boom on the continent with a rising middle class demanding high-quality brands and modern goods not previously available, the lack of infrastructure and formal trading platforms remain a challenge.

Despite the obstacles, South Africa is providing the investment muscle driving the main expansion of malls in the rest of the continent.

Across Africa, commercial real estate developers are responding to the lure of one of the world’s fastest-growing consumer markets and rushing to build malls for eager retailers.

Source: SA commercial property news