East Africa: chartering a course for property post-Covid-19

Not as buoyant as other markets, East Africa remains a challenging
region for property developers. With Covid-19 triggering a recessionary
environment, the property industry is identifying areas of resilience and
pockets of opportunity. As investors and developers step back, regroup, and
respond in innovative ways, the need for insight from local partners is more
critical than ever according to Matthew Renshaw, Chief Operating Officer of
pan-African property solutions company, Profica.

Perception,
rather than reality, are often a strong driver of business decisions on the
African continent and they are often skewed. “In an environment where
regions and countries are being affected in different ways, you need to understand
what is happening on the ground
” says Matthew.

In East Africa, we always see a strong resilience and will to thrive challenging conditions that prevail rather than just surviving. We believe that consistent international interest, continued investment flows and a stronger regulatory environment in countries included Kenya are positive indicators.”

For
construction projects underway, the impact of strongly regulated curfews has
been felt across the industry. Estimates put construction cost increases at an
average of 10% since lockdown measures were imposed, challenging the viability
of projects should this continue.

The labour force is less accessible” says Matthew. “Although wage bills remain the same for less productivity. There have been delays in availability of imported material, especially for electrical equipment, steel and interestingly concrete. Projects are progressing at a slower pace based largely on local availability of materials and we continue to assess the impact project by project.”

According to Matthew, investors and clients are entirely re-evaluating the viability of projects in extreme cases based on widely felt sectoral impacts, particularly in the retail, entertainment, and hospitality sectors which have all been hard hit. “Financiers are relooking at feasibilities and wanting them to be rerun in the middle of projects. We may see shifts in focus to accommodate changing demand, such as developments moving from commercial to being a mix of residential and commercial. We anticipate a lot of repurposing and re-evaluation of strategies in the next few months.”

Matthew believes East Africa can remain a relatively strong hub with healthcare, logistics, warehousing, commercial and residential sectors showing some resilience. “The need for investment in essential areas such as residential projects, healthcare facilities, data centres and other technology services is marked, and COVID-19 has further accelerated this need. Responsive changes in the commercial occupier space are coming to the fore. At the moment, we are seeing widespread caution across the industry, with investors and developers holding back for more certainty. However, the time will come to move forward and grasp the opportunities in key areas.”

Office
space

Profica’s team are seeing contrasting approaches from large global clients for the post-Covid world. “Some clients believe that once the vaccination has been found, we will quickly go back to pre-Covid-19 normality and businesses will still need large, group offices rather than remaining with remote working arrangements. A major factor still impacting remote working possibilities in many African countries is reliable access to electricity and the internet.”

On the other hand, he explains that many other tenants have realized that remote working flexibility works well for both productivity and cost-saving and plan to have only a third of the workforce in the office at any time. “There will be a need for smart, less open-plan design and hot desking flexibility. There will be a focus on co-working spaces rather than businesses leasing large properties. Either way, offices and technology will need to support a strong need for management to be able to supervise, collaborate and to engage in a range of formats.”

Matthew
believes smart building technology will be accelerated post-pandemic, including
occupancy monitoring. Working spaces will also need to be easily disinfected
and well-ventilated even using antimicrobial substances in materials.

In an environment where demand is changing, he says repurposing of existing assets will become more prevalent. “We are seeing an increase in commercial spaces being repurposed into residential in the South African environment and this may be something we will see in the other regions. New buildings in business hubs will need to be future-proofed for flexibility of purpose.”

Healthcare

East Africa will need to catch up on the lack of healthcare facilities of acceptable quality says Matthew. Covid-19 has been a shot across the bows for many countries and we may see healthcare now getting more of a focus. “Africa’s medical research capability has also grown tremendously and there is some interest in the medical supply industry as well. The need for both clinical spaces and pharmaceutical developments will increase.”

Data centres

Countries across the African continent now have to leapfrog when it come to evolving technologies” says Matthew. “We will continue to see rapid growth in data-hungry new technologies including the accelerated roll-out of Broadband, Artificial Intelligence, Cloud, 5G and the Internet of Things (IoT). The ability to rapidly adapt and implement, as well as operate and secure business-critical data enables businesses to survive shocks to the economy with the data centre at the core of this. There is a concentration of submarine cable landings in Mombasa and we are starting to see meaningful investment in connectivity in East Africa, one of the least connected regions in the world.”

Logistics and warehousing

Matthew highlights that e-commerce growth will continue in Africa with the pandemic as the major catalyst and world-class logistics hubs and warehousing will be needed to support this with consumers moving towards a no-touch model. “We will see a greater need for fulfilment centres and sophisticated, centrally located warehousing. Logistics businesses will require more space for stock to be held.”

Hospitality

Globally, sectors relying on social interaction, tourism and travel have been fundamentally affected by the pandemic and East Africa, with tourism contributing up to 10% of GDP in Kenya, is no exception. However, Matthew highlights specific opportunities in the region: “While Kenya has an oversupply of hospitality infrastructure, there is a shortage in Tanzania, especially in tourist and business hotspots. As activity resumes, even on a more limited basis, there may still be demand.”

Thriving past Covid-19 requires a medium to longer-term strategy – opportunities such as working on how existing assets can be repurposed and seeing how distressed assets can be dealt with. Projects are starting again, and industry players must ensure they are strategically positioned. We do not know what the future normal is, but key areas may move quite quickly.  The most agile businesses who can take advantage of evolving market opportunities will survive. Now is the time to find the opportunities, innovate and reinvent ourselves to face a new reality” he concludes.

Source: Propertywheel.co.za | https://propertywheel.co.za/2020/10/east-africa-chartering-a-course-for-property-post-covid-19/

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.