10 Years On: Shopping Malls and Real Estate in West Africa

Kevin Teerovengadum is CEO of AttAfrica, with the first specialised retail investment fund consisting of six prime shopping centres in Africa (including Accra Mall and Achimota Retail Centre). In 2015, he originated and completed the acquisition of Ikeja Mall in Lagos.

Previously, Kevin spent 17 years in Africa covering multiple sectors from banking to telecoms and real estate, and six years as a director of Actis Africa Real Estate Fund.

In September 2016, Kevin will be among an expert panel of speakers at the West Africa Real Estate Investor Forum taking place in London.

Here, he talks about the history of retail schemes on the continent, and gives an investment outlook around the past and future of retail schemes in Nigeria, Cote d’Ivoire, Ghana and beyond.

Where are we in the real estate cycle in key Sub-Saharan Africa markets?

Kevin: Despite the fact that Sub-Saharan Africa GDP growth has slowed significantly from an all time high of 6 per cent to 2.5 per cent per annum, we have seen a record number of real estate funds, predominantly Private Equity Real Estate (PERE) Funds, successful in raising institutional capital with a four year draw down period (2015-2019). The estimated amount raised is approximately US$1.6 billion and with bank leveraging, the potential total developments from the pool of capital raised are estimated to be US$4 billion. Markets earmarked are predominantly Nigeria, Ghana, Kenya, Angola, Mozambique, Cote d’Ivoire and Cameroon.

The commodity-driven markets are currently going through a tough economic cycle and might take two to three years to ride out of the bottom cycle, depending on a number of external factors. Hence, investors and developers will have to be cautious as to how to allocate their capital in these markets, ensuring that price of land is reflecting the new norm, cost of construction is brought down and rental levels reflect what the market can afford rather than the ever increasing rental levels that we have witnessed between 2006 and 2015. The big question raised is will we see downward pressure in valuation of assets in 2016/2017.

What is happening in Nigeria, the biggest economy in Sub-Saharan Africa, where the perception has always been that an investor cannot afford not to invest in the most populous country in Africa?

Nigeria’s economy is going through a very difficult period with GDP growth forecast in 2016 earmarked at 0.5 per cent with a potential rebound to 2.5 per cent in 2017. Net foreign direct investment has decreased from the US$5 billion per year to currently around US$1.5 billion. This is low for a country like Nigeria which is still heavily dependent on oil. Amidst that, the new administration has a medium to long term plan to diversify the economic pillars. The recent adoption of the flexible interbank foreign exchange market represents a more liberal approach compared to the previously unsustainable artificially pegged exchange rate. Following which, we have seen the Naira depreciating by 40 per cent over the month of June 2016, from 200 to 280 to the US$.

What is the impact of this downturn economic cycle on the real estate opportunities in Nigeria?

Let me state that given that the Nigeria’s real opportunities have been in a state of “catching-up” over the past 10 years, a slowdown in the economy does not mean it’s the end. What it means is that investors will have to be smarter as to how to approach developments. If you look at the office/commercial sector, we have recently seen a drop in rental levels from US$90/sqm per month to US$70/sqm. Land prices haven’t come down as of yet and same for construction cost. Hence, development yields and potential return on investment have come down, as your costs are the same but rentals down. It is currently a tenants’ market in the commercial segment.

There are quite a number of retail schemes being implemented on the Lekki Expressway in Lagos. How will this evolve given the macroeconomic headwinds?

The Palms was the first A-Grade Mall that opened in 2006 and for almost nine years had a “monopoly” in that catchment area. We’ve seen the recent opening of Circle Mall developed by RMB Westport and which is not far up the road from The Palms. In addition, there’s another four retail schemes on a 10 kilometre stretch further up the Lekki Expressway. I don’t believe all the four will make it because retailers who were keen to sign with every single developer pre-2015 are now approaching the market prudently, which I believe is the correct thing to do. The reality is, the depth of quality retailers (i.e. tenants) is quite shallow. Hence these retailers will have the ability to play one scheme against the other, and developers will have to do soft deals to attract the retailers if they want their scheme to be successful. My view is there’s space for maybe two retail schemes, but not more than that on the Lekki Expressway.

It seems that Cote d’Ivoire is seeing renewed interest by real estate investors lately, why so?

Indeed. Some might even say Cote d’Ivoire is like the Ghana of 2008 to 2013. Before the civil war of pre-2000, Cote d’Ivoire was the hub of Francophone West Africa. It has the biggest port, biggest banking sector, main stock exchange, headquarters to the African Development Bank (AfDB), and was even nicknamed the Paris of Africa. Since 2012, there has been political stability, and the smooth elections of last year seems to suggest that there’s an endorsement of the country’s future; so much so that the country is growing around 8 per cent per year, which is high compared to Sub Saharan Africa’s growth rate of 2.5 per cent this year. This feel good factor is drawing investments back in to the country.

What is your biggest lesson learnt over the years investing in Sub-Saharan Africa?

I have seen the evolution of the various countries since the late 1990s. The past 10 years can be characterised as the era of high commodity prices, high GDP growth rate and global investors appetite for African risk. I believe that Africa has a lot to offer and the long term potential is definitely positive.

However, one has to approach investment cautiously, do a lot of research and understand the markets and the demographics really well. Don’t assume that all the countries are the same and what works in Ghana will work in Cote d’Ivoire. In fact, even two cities within the same country can be totally different. Those who have a deep understanding of the markets will be the long term gainers.

Kevin has spent 17 years in Africa covering multiple sectors from banking to telecoms and real estate. He spent six years as a director of Actis Africa Real Estate Fund. Since August 2013, Kevin is the CEO of AttAfrica with the first specialised retail investment fund consisting of six prime shopping centres. In 2015, Kevin originated and completed the acquisition of Ikeja Mall in Lagos. Kevin also sits on various boards.

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