Real estate as a service will take off in Africa after Covid-19

How do you think the Covid-19 pandemic will change the real estate sector permanently in sub-Saharan Africa?

I think what Covid-19 has given us is a trailer of what property markets and uses of space we will be dealing with in the years to come. It has opened possibilities that were previously closed. You know, if a year ago you had sat in a boardroom and said, “Hey, how about sending everyone home for a few months?”, you would probably have been chased out. It would have been an impossibility. 

However, I do not want to confuse some of the longer-term trends that were already with us prior to Covid-19. Trends like co-working, co-living and e-retailing have been with us for quite a while, both locally and internationally. A few countries could find themselves with debt problems. There is little space to bail out companies across the African continent.

However, I think what has become clear is that there is a lot of flexibility in many companies in Africa. In facing uncertainties on a continuous basis, they have had to learn to adapt. 

Of the new opportunities, what excites you most?

I think the use of the internet could start offering new opportunities in our suburbs. Rather than working from home, I think the point which is coming across is, can I work closer to my home? 

I mean, working from home for many people is fine if you have an office and you’re comfortable. However, with poor internet and limited space, the idea of working close to home becomes an important issue. In the same way, I believe the retail sector will now be permanently changed by the internet. 

However, the last mile across this continent is very complex. Some people have addresses, some people do not have addresses.

How do you get goods to the final point?

We have seen interesting examples in places like Kibera in Nairobi, where the goods go to the entrance of the township and then guys on motorbikes take the goods to the shopper because they know who’s who and where they live, in instances where an official courier would almost certainly get completely lost. So, we will find our ways.

We are observing in some cities logistics moving into the city centres where previously they used to be 10 or 15km away. This will usher in last-mile opportunities for logistics space closer to where people live and support the delivery of all these goods.

I think there is also opportunity for shopping centres to diversify beyond shops. This will go beyond the buying of goods to the buying of services like education. In addition, our neighbourhoods will evolve beyond mixed use to become home, work, play and education hubs. Overall, I think we will become more imaginative in how we do things. For example, anybody putting up a flight tracker at the moment will see balloons above Kenya at 6,000ft, which are now covering the country with WiFi. So, I also believe that the opportunities are going to move and will focus around smaller towns and our suburbs.

You have long argued for the “hotelisation” of real estate, where space is increasingly thought of in terms of services provided. Are we likely to see this adopted across the continent? 

In the past, the real estate sector was about selling gross rentable area. I think that is fundamentally going to alter. So, using the analogy of a hotel, when I book a room, my brain does not say I’m renting 40 sq m for three nights. That’s not the way I think. I use that space for the services that come with it. I believe that in the future property owners and companies are going to look much more like hotel groups, and branding is going to become more important.

In other words, when I am at a Radisson, I know I’m at a Radisson. I am always amazed at how little branding happens around property companies. Why? Because I suppose if you sell square metres, it’s not that important. But when you start selling a service, it starts to matter.  

For example, in the residential sector in the US, there are flats now being built with no kitchen. How often have you been in a hotel and said to yourself, I could live here? So, you start picking this up in the residential sector, where you have cafeterias, places to eat and lounges in shared areas. 

However, in the office sector, it is a bit different. Once you start offering services, those services are, first of all, not just limited to the building itself. They also encapsulate the urban environment around the building. So, the users will also be keen to interact with the outside environment beyond the office block. 

What does this mean for investors and developers?

What becomes important is facilities management. In the past, people have appreciated the importance of the work environment and of being able to organise that environment the way that they would like to see it. It takes you about two minutes if you walk into a hotel to come to a conclusion whether it is functioning properly or not and I think this is going to be the same for offices. Taking this to the extreme, I would argue that the money is not necessarily going to be made on the rental; it will be made on the service that is being provided. 

As I mentioned earlier, branding will also be core. So, if I am a property investor, I know that if I go to a similar building somewhere else in the world, I am going to get the same service. That is probably one of the important changes to come. Users of space, whether in Johannesburg, Nairobi, Luanda or Lagos, will get the same service.

The other thing is that there is this mismatch in property. We build for 40 years ahead of us and we take a long-term perspective, we do discount cash flows on ten years and beyond, yet we have users who really cannot see beyond the next three or four years.

I think it is interesting how that mismatch happens, and I think that is where the provision of space on a short-term basis starts bridging the difference between the two. Especially in places across this continent where macro-economic uncertainty is high, users will be looking for flexibility. If you are in the oil business and you’re an exploration company in Kampala or in Lagos, you’ll be looking for that flexibility.

How is this trend likely to influence financing for development, especially in sub-Saharan Africa?

What we will probably see is financing arrangements that are again not that different from what we see in the hotel companies, where the actual ownership of the hotel building is split from the management. This will be based on the building having a strong management agreement attached to it in the same way that hotels do so that we split the operation pretty much from the property.

It is not enough to say, “Well, thank you for renting the space, now plonk your desks down and enjoy it”. There is still going to be a lot of that in Africa, let’s not fool ourselves, but what we are discussing now is a service that I think will find its way very rapidly to the property markets, as we have seen elsewhere.

In terms of supply and demand indicators, what we see now is the property market starting to function in a different way in the type of leases that are wanted. We are likely to see a form of Airbnb for the commercial property market. So, the way we think about the property market and the way it functions starts altering.

Of course, when I talk of Africa, it is a big place with big differences in the way legislation works. In South Africa alone, we have 2.5 million sq m of office space floating around the market now. So, I can assure you that we’re going to find innovative ways to work with that. 

In conclusion, what is the main opportunity arising from this emerging trend that you think investors should leverage?

The big positive is that we have a young, enthusiastic population, while the rest of the world is talking about a growing elderly population. From a consumer perspective that offers opportunities. I think there is also an opportunity to bring technologies very quickly into a market and to have our property markets leapfrog over one or two of the steps that markets in other parts of the world have had to go through.