Exploring potential in Africa's real estate sectors

Boniface Abudho, Research Analyst in our Africa team, explores opportunities in affordable housing, co-working spaces, and data centres.

Transforming challenges into opportunities

The challenges encountered in Africa's commercial property sector are strikingly uniform. Take Nigeria, for instance, with its ever-expanding population, now exceeding 200 million people – the highest in the continent. This population is expected to double within three decades, a trend expected to reverberate in other African countries like Kenya and South Africa. The World Bank estimates that by 2050, Africa's population will surge to at least 2.4bn and could reach 4.2bn within the next century.

While such an unprecedented population surge certainly brings challenges, such as resource constraints, it also presents various opportunities, for example in education, housing, and healthcare. As an example, the escalating costs of educating children abroad, particularly in the United Kingdom and the United States, offer a real prospect for private education providers across the continent.

The ascendance of co-working spaces

In markets such as South Africa and Nigeria, the traditional office setup is currently being challenged by the dynamic and flexible environment of co-working spaces. These spaces offer cost savings, flexibility, and heightened productivity for businesses.

For instance, in Lagos, many businesses are shying away from rigid long-term leases and upfront costs associated with conventional offices, opting instead for the flexibility and cost-efficiency inherent in co-working spaces. As of 2020, Nigeria boasted 60 entrepreneurial co-working spaces, surpassing other African nations, with Egypt (59) and South Africa (58) following suit.

The shared amenities offered by co-working spaces eliminate the financial burden of maintenance costs and renting space that isn’t used constantly like meeting rooms, enabling businesses to scale up or downsize in response to their requirements without being bound by prolonged leases.

The imperative for affordable housing

Africa is grappling with a severe housing deficit, marked by a shortage of at least 51 million housing units (Centre for Affordable Housing Finance in Africa). Urbanisation and population growth are the prime catalysts for this crisis, leaving governments struggling to meet the surging demand for affordable housing.

On average, over 40,000 people migrate to African cities every day, most of whom cannot afford formal housing or access mortgage loans. This presents an excellent opportunity to provide affordable housing units to address this burgeoning demand.

While Africa remains the most rural region globally, it is urbanising rapidly, exerting immense pressure on urban land and housing provision in the coming decades. Scaling up affordable housing initiatives can boost national economies, create jobs, revitalise the construction industry, and enhance living conditions and overall well-being for the continent's inhabitants.

For instance, in Nigeria, inadequate housing affects between 14 and 16 million people, while South Africa grapples with a housing shortage of approximately 3.7 million units.

Conversely, Kenya experiences an annual housing demand of 250,000 units but manages to supply only around 50,000 units each year. Various governments have introduced diverse, affordable housing models, but much work remains to satisfy the demand.

The Kenyan Government, for example, launched the Affordable Housing Program in 2017 to deliver 500,000 units by December 2022. However, it's worth noting that this initiative has struggled to attain its full potential due to financial constraints arising from inadequate budgeting, resulting in various projects stalling.

To further bolster this programme, the Kenyan government has established the National Housing Development Fund (NHDF) to provide funding, targeting the construction of 200 units per constituency.

Data centres

The demand for data centres is also soaring across countries like South Africa and throughout the continent as the world progresses towards a more interconnected and automated future. With the rise in online retail, catalysed largely by the pandemic, requirements for data centres have flourished across the continent.

Data centres provide a cheaper and more efficient IT capability than inbuilt servers, which is aiding their popularity. They also offer cloud services and allow organisations to focus on their core functions.

The African data centre market is projected to experience significant growth in terms of investment, with a Compound Annual Growth Rate (CAGR) of approximately 15% from 2020 to 2026. In 2020, the market size in terms of investment was valued at US$ 2bn, and it is anticipated to reach US$ 5bn by 2026. (Africa Data Centres).

Investors such as the Agility Logistics Park (ALP), have already recognised the burgeoning demand for data centres in Africa. The firm recently launched four master-planned data centre campuses in Egypt, Ghana, Saudi Arabia, and Kuwait. Upon completion, these campuses will contribute a substantial 275,000 sqm of cutting-edge centre capacity to ALP's existing infrastructure in the Middle East and Africa.

However, there is still more work to be done to meet the continent's expanding digital needs. Currently, Africa represents less than 1% of the global co-location data centre supply, with South Africa being the main contributor to the continent's capacity.

According to The African Data Centres Association (ADCA), Africa requires approximately 1,000MW of power and at least 700 additional facilities to address the growing demand. This underscores the untapped potential in the African data centre space, which is primed for further development and investment to bridge this digital divide and foster the region's technological advancement.

Overall, untapped opportunities abound in diverse facets of the African real estate sector, with particular emphasis on co-working spaces, affordable housing, and data centres. With Africa's population poised to double by 2050, these opportunities must not be overlooked. Other opportunities lie in specialised residential developments, such as retirement homes, addressing the needs of a growing middle-class elderly population in Africa.

Discover more

Find out other African commercial real estate opportunities in our latest edition of the Africa Horizons 2023/24 Report.

Download here