This document discusses emerging and frontier markets, focusing on risks and opportunities in real estate. It notes that emerging markets are characterized by increasing economic freedom, integration into the global marketplace, and expanding middle classes. However, risks are also rising due to challenges of globalization and volatility. The document then analyzes the emerging market risk index, which evaluates acquisition risks across over 40 countries. It assesses economic, political, and property indicators. Finally, the document summarizes real estate trends and opportunities across various African countries and cities, noting growing urbanization, infrastructure needs, a rising middle class, and expanding retail sectors.
Emerging & Frontier Commercial Real Estate Markets 2015
1. Emerging & Frontier Markets
Assessing Risk & Opportunity
2015
Andrew Heard, Global Occupier Services, Research
2. Emerging And Frontier Markets
What is an emerging / frontier market?
“A society evolving into a market-oriented
economy, possessing the following potential
characteristics:
• Increasing economic freedom
• Gradual integration within the global
marketplace
• An expanding middle class
• A growing population
• Improving standards of living and social
stability and tolerance
• An increase in cooperation with multilateral
institutions
• Technological advancements
All of which provide prospects for economic
growth and opportunities for occupiers and
investors alike”
3. Emerging And Frontier Markets
Backdrop
RAPID GROWTH
• A shift in the core of the global economy
• Search for higher returns on investments and opportunities of new growth
markets for occupiers
• Substantial increases in capital flows and business activity
• Real estate and infrastructure improvements
BUT RISKS RISING
• Challenges of global integration
• Downside risks are becoming more pronounced
• Shocks in more mature locations are now impacting emerging market
growth prospects
• Secular stagnation between more mature and less mature markets
EMERGING & FRONTIER MARKET REPORT
Assessing the macro
BUT
• Putting risks into context
• Taking into consideration business and real estate realities
• Takes into consideration the views of market experts
30YRS
Net capital flows in emerging
markets have fallen for the first time
in 30 years.
Institute of International Finance
10%
2020 Nominal GDP growth
forecasts in emerging markets have
been revised downwards by 10%
since 2012.
IMF
$4.3TN
Private foreign currency borrowing
in emerging markets 2015.
Institute of International Finance
$1TN
Outflows of private capital from
developing economies 2015.
Institute of International Finance
4. Emerging And Frontier Markets
Global headwinds to growth in emerging markets
4
Structural downgrade in China
Ongoing Geopolitical tensions
Lower commodity prices
Weakening global trade
Financial turbulence in a global
context
Strength of the US Dollar
ADVANCED
ECONOMIES
EMERGING
ECONOMIES
Growth
Potential
Capital
Flows
• Lower oil and all other
commodity prices
• A sharper than expected
slowdown in China and
prospects for further
financial market
volatility
• Appreciation of the US
dollar
• Increased geopolitical
tensions
5. Emerging Market Risk Index 2015
What is it, what is included and why?
• The Index evaluates the risks of acquiring office space
• The report assesses relevant property indicators for over 40 countries
• The Index utilizes best-in-class published data regarding operating conditions –
such as transparency and corruption risk – in addition to economic and political
stability criteria
• The Index takes into consideration a survey using ‘best in class’ property operators in
each region assessing the ease and speed of acquiring office space in these markets
6. Emerging Market Risk Index 2015
Operational environment and real estate realities
• How transparent is the overall property market?
• How easy is it for foreign companies to own
commercial property?
• How easy is it for foreign companies to
lease space?
• How quickly are transactions concluded?
7. Emerging Market Risk Index 2015
Drivers and impacts at local level
Rank Macro level Property costs / time Real estate realities(Survey)
1 Botswana UAE Botswana
2 Qatar Saudi Arabia Ghana
3 Saudi Arabia Bahrain Uruguay
4 Oman Thailand South Africa
5 South Africa Qatar Morocco
6 Uruguay Colombia Turkey
7 Bahrain Vietnam Tunisia
8 Panama Oman Indonesia
9 Senegal Peru Argentina
10 Peru Mongolia Zambia
33 Uganda Zimbabwe Algeria
34 Cote D'Ivoire Bangladesh Vietnam
35 Angola Myanmar Oman
36 Lebanon Lebanon Myanmar
37 Nicaragua Tanzania Honduras
38 Kenya Senegal Angola
39 DRC Algeria Saudi Arabia
40 Zimbabwe Uruguay Qatar
41 Myanmar Argentina Libya
42 Libya Nigeria Mongolia
INDEX RANK
30% 20% 50%
INDEX WEIGHTING
8. Emerging Market Risk Index 2015
Index Results
8
Africa
• African economies remain attractive securing 5 places
within the top ten
• Botswana remains the most transparent market for
occupiers
• South Africa and Ghana remain attractive retaining
their positions within the top 5
Americas
• Uruguay offers a strong operational profile, low
corruption risk and a strengthening political
environment
• Risers also include Mexico, Argentina, El Salvador and
Colombia
Asia Pacific
• Vietnam, Indonesia and Philippines have fallen with
ease of property ownership, rising costs for registering
property being the main challenges
New Entrant
• Turkey offers occupiers more advanced infrastructure,
strong trade links and ease of property acquisition
10. Africa
• A continent-not a country.
• 54 individual countries
• 1,1 billion people
Sub Saharan Africa:
• 48 countries
• with a population of 915 million
• of these 692 earn less than $2.5 per day with two thirds of this
number earning less than $1.5 per day
Urbanisation:
• 350 million Africans are urbanised today but this number will double
by 2050
11. Urbanisation and
Infrastructure
+
Africa’s young population will drive the demand for real estate and different
types of real estate. Across Africa there will be continued urbanisation
Continent with
youngest population
Growing middle class
350 million
Africans are
urbanized
today but this
will double by
2050 +
12. Game changers / Drivers of growth
“Trillions of dollars will need to be invested in
infrastructure in Africa in the medium term.”
Armien Tyer, Head Investment Cluster, Absa Wealth and Investment
Management
Africa Asset Management 2020
“There is a strong emotional attachment
to property in Africa making it a key
investment class.”
Stewart Rider, Chief Operations Officer, Stanlib
Africa Asset Management 2020
Development of
the financial
services
industry and an
increased range
of investors
Urbanisation &
Infrastructure
Growing
middle class
Demographic
dividend
13. Building the future of Africa
Drivers for Growth in Africa
Young population drives demand for real estate.
Continued urbanisation, expansion of current cities
and rise of new cities
Export of natural resources and agriculture remain
key sources of growth, but will expose certain
countries to increased risk
Industrialisation will continue, accompanied by
rapid growth in the retail sector
Infrastructure shortages will create opportunities
for investment
Influence of government policy and legislation on
the decision to invest will increase, while local
partnerships will become increasingly important
Continued advancement within pension fund, stock
exchange and banking regimes will facilitate
investment, and an increased range of investors will
drive demand for real estate
Technology will impact on business and building
practices as well as consumer behaviour
Sustainability will become entrenched in building
design and occupier requirements
Huge expansion
in cities
Unprecedented
shifts in
population
‘Sustainability’
transforms design
RE capital takes
financial centre stage
Technology disrupts RE
economics
Growth ratchets up
competition for assets
RE 2020 six predictions
The global investible real estate
universe will expand substantially,
leading to a huge expansion in
opportunity, especially in
emerging economies
Fast-growing cities will present a
wider range of risk and return
opportunities
Technology innovation and
sustainability will be key drivers
for value
Collaborating with governments
will become more important
Competition for prime assets will
intensify further,
A broad range of risks including
new risks will emerge
RE 2020: Megatrends
14. Occupiers in Africa
• Occupiers drive sustainable solutions
• When considering these drivers for growth it is important to
realise that there are also very specific risk factors underlying
the development of Africa namely:
• Political instability
• Complex legal regimes
• Lack of economic diversity
• Social instability
• Timeframe of the investment and restrictions to exit strategy
• Currency volatility
15. Urbanisation and Infrastructure
0% 20% 40% 60% 80% 100% 120% 140%
Dar es Salaam
Luanda
Lagos
Nairobi
Kinshasa
Douala
Dakar
Abidjan
Ibadan
Addis Ababa
Accra
Johannesburg
Al-Qahirah (Cairo)
Al-Iskandariyah (Alexandria)
El Djazaïr (Algiers)
Cape Town
Dar-el-Beida (Casablanca)
Durban
Growth of African cities
% increase, 2010 - 2025
Sub-Saharan
Africa’s power
shortage
=
US$ 400 billion
investment
Independence Power in
Africa report
Sub-Saharan Africa
infrastructure
spend will reach
US$ 180 billion per
annum by 2025
PwC Capital Projects and
Infrastructure
Only 16% of all road
are paved in sub-
Saharan Africa
Christine Lagarde, MD of
the IMF,
Infrastructurene.ws Source: United Nations Population Division; World Urbanization Prospects, the 2014 revision
“67% of Africa
CEO’s see
urbanisation
and
demographic
shifts having a
major impact
in next 5
years”
16. Retail in Africa
• Africa has 2085 shopping malls of which
• 1945 are in South Africa
and
• 140 are elsewhere in Africa
17. Retail Snapshot
Nigeria
Lagos & Abuja
South Africa
Gauteng (Jhb & Pretoria)
Ghana
Accra
Kenya
Nairobi
Population 24 million 9.62 million 4 Million 3.36 million
Main Shopping
Centres
Palms and Ikeja Mall
Sandton City, Eastgate,
Rosebank, Cresta,
Menlyn
Accra Mall, Marina
Mall, A&C Mall and
West hills
Westgate, Thika road,
Two Rivers and Sanit
Centre
Total Formal
Retail (sqm) 87,450 18,500,000
20,000sqm of quality
retail and ca.
12,000sqm of lower
grade
292 454