Investors opting for data centres, green projects

Property investors in Africa, mostly private equity firms and high networth investors, are diversifying their portfolio into dollar-denominated return projects and green buildings to cushion against potential losses from the plummeting currencies in the continent.

Rising political and environmental risks in the continent, rising interest rates in the US and the rising risk premiums associated with the Russian invasion of Ukraine and the latest Middle East conflict have placed downward pressure on exchange rates across the continent according to a new report.

Property consultant firm Knight Frank, through its latest Africa report (2022/2023), say real estate investors are mitigating the emerging risks by deploying their capital in projects that have dollar denominated returns where possible and in green-rated building.

The report says climate change poses extreme challenges for Africa given the continent’s exposure to weather-related events and the reliance on rain-fed agriculture which is creating opportunities for real estate investors to put their capital in green-rated buildings.

“Environment, social and corporate governance is an increasingly global focus for real estate investors, and we expect this to spur capital flows towards green-rated buildings,” says Ben Wood hams, a partner at the firm and in charge of the African desk.

Africa has 785 green-rated buildings of which 641 are in South Africa alone.

The report, however, notes that attracting meaningful volumes of institutional capital into Africa continues to prove challenging, a situation that has been compounded by the ongoing global macroeconomic headwinds.

For example, in 2021 total cross-border investment in African commercial real estate declined by 49 percent to $274 million and 54 percent lower than the 2019 figure.

“We expect a rotation of assets by investors, particularly private equity, into the industrial, residential, life sciences and data centre sectors,” says report.

“Investment managers and institutional investors are expected to lead the demand for these alternative sectors, while high networth investors will demonstrate strong interest too particularly into the more stable markets such as South Africa and Kenya,” it adds.

The report discloses that disruptions caused by the Covid pandemic have caused many businesses to shift their operations online, resulting in overwhelming demand for internet services.

This has stimulated high demand for data centre development in Africa, with supply growing across the continent, according to the report.

In 2021, the major data centre additions were in Johannesburg, Lagos and Nairobi. These locations alongside Cairo and Casablanca are regarded as the top five key data centre markets in Africa.

According to the report, data centres are gaining traction as an alternative development asset in Africa among developers and investors, with South Africa appearing to secure a pole position as the continent’s data centre capital.

“Looking ahead, we expect to see an intensification in data centre demand as the need for connectivity by the public sector, professionals in the fintech and health care space demand across the continent,” says the report.

“Indeed, the financial and business services, as well as the transport, storage, information and communications technology services sectors are forecast to add almost 11 million new jobs around Africa by the end of the decade.”