Changing world, changing real estate business:

The property world and business environment is changing in tandem with macro global forces and micro market nuances. This is just one of a number of themes that eProp picked up at the IPD conference in Cape Town South Africa over 18-19 July 2012.

 

Indeed, the risk and return patterns of the past are not necessarily those of the future; for example social and engineering infrastructure is likely to guide much private investment, both in South Africa as well as further into Africa. It is quite plausible for nodes or precincts to contribute to grid power generation and so forth and this has significant implications for property development and asset management approaches; in fact this scenario is already happening in places around the world so why not more so in an African scenario where basic infrastructure is often not in place or creaking? On another theme, sustainability is now considered a massively significant trend that will continue to drive the real estate agenda at very practical and measurable levels.

Balancing a global decade of unparalleled per capita growth on the one hand, against the highest debt burden in history on the other, is excessively challenging. Interest rates are more likely to remain at low levels or even come down further as the world grapples with the conundrum of solving the sovereign debt to GDP risk, quantitative easing, austerity measures, and so forth, contributing to a ‘rich’ first world forward growth scenario that is unlikely to challenge 2% for the foreseeable future. In essence this is good news for direct and listed property; however the reality is that local consumer and business growth will also remain somewhat sluggish, coupled to a rising operating cost regime.

As SA grapples with not having benefited from the recent global resources boom – illustrated by the declining contribution of manufacturing and mining to GDP – and where growth of only around 2.7% is predicted, it is no wonder that attention is turning to Africa. Risk notwithstanding, Africa is expected to deliver 5.9% growth, i.e. double that of SA, although SA remains the only transparent real estate market on the continent as reflected in the accompanying graphics courtesy of Jones Lang la Salle.

 

Questions around SA retail market saturation continue to be debated and the accompanying graph, courtesy Old Mutual Property, suggests that per capita retail supply is relatively high compared to other emerging markets which no doubt includes the likes of most, if not every, other African country.

Entrepreneurs and even longer term investors are definitely changing their approach to Africa; this despite the fact that the ‘dark’ continent often resembles a frontier market let alone an emerging one. Perhaps what is also assisting is the delinking of long held conventions regarding sovereign risk and asset allocation strategy, which shift is more than likely to result in ever increasing appetite for African real estate investment, moving forward.

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