In addition to Nigeria – where the fund is invested in a 27000m² office development on Victoria Island, its first cross-border asset (that is leased to Oando Oil & Gas) – Pivotal has its sights on opportunities elsewhere on the continent.
This is in line with the fund’s ambition to improve its geographic spread as well as portfolio mix. The income-producing portfolio is about R10 billion. Almost half of that is office space. Pivotal is stagnant on the JSE, trading at R16.10 per share or R5.3 billion in market cap. One of the reasons for preferring Africa, amid pessimism, to, say, Europe, is that the former “is close on our doorsteps”, says Pivotal CEO Jackie van Niekerk. While noting an upside, she also cites risks associated with some of the markets here.
In fact, there are ways to mitigate against risks says Tanzanian housing firm’s Fred Msemwa. Foreign-based firms could forge partnerships with locals “better placed to deal with local challenges in a manner that will reduce investment risks,” he says.
Pivotal has done its homework and set up a dedicated fund powered by a special team that will run development projects on the continent. “So, Pivotal will invest into a fund which will then roll out these developments. We will place that (Nigerian) asset into a fund,” Van Niekerk explains. “We’re very proud of the first transaction we’ve concluded in Nigeria,” she says, but explains that the firm isn't looking to be “in every country in Africa.”
While some firms prefer the familiar, thus squandering the upside cited by Msemwa, Pivotal is forging ahead into Africa, driven by the belief that markets to the north of the Limpopo are the place to be. “If you look at the limited supply opportunities in South Africa versus the opportunities that are in Africa (it’s worth pursuing those markets),” the Pivotal boss says in an interview with eProp.
Unlike some of its neighbours, including Mozambique or, further afield, Nigeria and Ghana, quality property stock – including office, retail and industrial space – is plentiful here. That would also explain why monthly rental is significantly lower in Johannesburg than it is in Abuja, Accra, Lagos or Maputo according to data from Broll. For one, office rent can set you back a cool US$840/m²/month in Lagos, a sprawling city of 17 million people, or three times Limpopo’s population. In Johannesburg, office rent is US$310/m²/month and even lower in Cape Town and Durban. At no less than 10%, yields are higher in the hinterland, but that is countered by other factors.
“The demand for offices and retail space continues to grow at a higher speed as Africa’s middle income group continues to grow,” observes Msemwa, CEO at Dar-es-Salaam’s Watumishi Housing Company.
Much as Pivotal’s new markets (East Africa, Nigeria and Mozambique), seem like money-printing machines, the fund is proceeding with due care and diligence. “The key is not to forget about the fundamentals. The same fundamentals and strategies that you apply in South Africa (should be applied) in all the countries that you do operate in,” Van Niekerk says.
She says it is important to be ruthless about returns without trying to conquer the whole of Africa. A project-by-project approach is the way to go, she says, adding that there is some good value and opportunities.
Taking a look at Europe, Van Niekerk notes that growth potential and escalation are flat in that region. “In Africa you still get long-term growth of your assets long after completion,” she says. “Again, being the type of fund, and with the strategy that we have – as a net asset value growth fund – absolutely it makes sense (to focus in Africa). I’m not saying that Europe is bad, I just don’t that it caters for the market we’re after at the moment.”
Investing outside the rand’s common monetary area, or abroad, is always going to be a headache, thanks to currency fluctuations. Each currency has its own dynamics – driving it either way. Rand hedging and monitoring of local currencies are ways to manage the fluctuations, especially in the retail market, says Van Niekerk.
