29 Aug

Weathering Africa’s commercial real estate storm

real estate

The brilliant thing about working in Africa is the continent’s ability to change – and adapt – almost instantly. While at first glance this is often interpreted as a challenge or a risk, the importance of adopting a “glass-half-full approach has never been more essential than in Africa’s current real estate environment”, says Gerhard Zeelie, head of Africa property finance at Standard Bank.

In Africa, things can change very quickly.

In May last year, for example, Nigeria was in the throes of a US dollar liquidity crisis. Barely 12 months later this is largely resolved. Just as tweaking foreign exchange regulations along with positive market changes improved liquidity in Nigeria, an uptick in the oil and copper prices coupled with market-friendly, transparent forex regimes could, equally as easily, change Luanda or Lusaka’s commercial real estate prospects – overnight. Similarly, large global energy investments touted for Mozambique are currently dispelling default-driven negative sentiment as investors again turn positive about the region.

“The variables that threaten risk in Africa are equally what contributes to making the continent such a rich landscape of opportunity – especially in the continent’s real estate sector,” says Zeelie.

Africa’s commercial real estate sector is currently, without doubt, a tenants’ market. Despite a more settled Naira and easing USD liquidity in Nigeria, challenges importing goods – until recently prohibited for foreign currency allocation – is keeping smaller businesses and retailers under pressure, forcing landlords to continue offering tenants discounts, or capped USD-based deals. New malls remain at 50-60% occupancy levels as “tenants shy away from the more expensive USD-based rentals, or remain unsure of whether they will be able to get prohibited, non-essential, stock through ports”, says Zeelie.

Similar concerns follow the office rental environment as businesses adopt a wait-and-see attitude, deferring office moves, upgrades and corporate office expansions.

These kinds of challenges mean that commercial real estate developers are struggling to convert Africa’s resilient consumer demand into competitive rentals. “This is not only constraining income in the sector but also leading to a depreciation in the value of the continent’s real estate stock as, increasingly, space in new developments stands empty or achieves lower rentals than before,” observes Zeelie.

The intensity of the storm in the continent’s commercial real estate sector varies.

In Nairobi, for example, “a better regulatory setting, an easier business environment more generally, and a more diverse economy – with multiple earners of foreign exchange – collectively contribute to a more resilient tenant profile and higher occupancy, even though vacancies exist in certain nodes and sectors”, says Zeelie.

Kenya, or, more correctly, Nairobi’s commercial real estate market, is, however, the exception rather than the rule in Africa.

When projects don’t perform as anticipated, African commercial real estate developments require more patient funding structures which can be achieved through the correct ratio between debt and equity.  “Projects conceived in earlier, more positive, business environments on very different numbers, for example, should be restructured,” says Zeelie. While a restructure will often involve a higher level of equity finance, “the bank should also display some flexibility in its approach”, he adds.

For example, if financiers have a view on how long negative conditions may last in certain markets they may be able to extend the tenors or repayment terms of financing facilities – provided there is not a significant deterioration in the risk. Or, if clients have access to shareholder funds, it might be cheaper to put more hard currency into the structure. There may also be options to convert debt into local currency, provided there is enough liquidity in the market.

“Another solution could be to negotiate upfront payment of the present value of all lease payment with key tenants,” says Zeelie. Over the long term this provides these tenants with predictability – and probably a discount – while injecting much needed capital, now, into commercial real estate financing structures, enabling landlords to manage rentals with smaller clients in the short term.

source from How We Made It In Africa

29 Aug

How a new cruise ship terminal could boost Durban’s economy

cruise

While sub-Saharan Africa is on the map for foreign investors in many other sectors, the cruise ship industry mostly passes the region by. It is hoped that this situation could change once the new Durban Cruise Terminal opens for business.

According to Andrew Pike – head of the ports, terminals and logistics division at law firm Bowmans – the facility, expected to be completed in 2019, could be just what the African cruise industry needs. He heads the Bowmans team advising KwaZulu Cruise Terminal (KCT), the preferred bidder for the tender to develop and operate the project.

How we made it in Africa asked Pike about the expected economic impact of the terminal and opportunities to grow the regional cruise industry.

MSC Cruises SA, part of one of the world’s largest passenger liner operators, is a joint-venture partner of KCT, the entity that will build and operate the new Durban Cruise Terminal. However, MSC already operates a number of cruises from Durban, which raises the question whether the terminal will give preference to MSC, or if it will accommodate all operators equally?

No, the terminal concession will be offered on a common-user basis, meaning that the terminal operator, KCT, will be obliged to give reasonable equality of access to any cruise liner wishing to use the terminal. Accordingly, there can be no positive discrimination towards MSC Cruises ships.

Is the rationale behind the new terminal to: 1) Entice operators to develop entire new cruises that stop at Durban; 2) Motivate those currently passing Durban to dock at the city; or 3) To give passengers of liners already stopping at Durban an improved experience?

Ideally, and as far as possible, all three, but the principal motivation at present is to improve the experience for passengers already passing through the existing terminal at N-Shed. The existing terminal is not a world-class facility and the new terminal will give them a far better experience. This in turn will hopefully drive other cruise operators to call in Durban on an ad hoc basis or even to schedule new cruises to Durban because of their confidence that they will be received in a world-class facility. So the bigger picture is to increase tourism to Durban.

Is one modern cruise terminal enough to lure operators to the southern tip of Africa? Don’t you need facilities such as these all along the coast of the continent?

One may be insufficient, but it provides an anchor for cruises on the African coast. Once there is one modern terminal in southern Africa which is successful, it may well prompt other cruise operators to develop similar, or at least complementary, facilities in other jurisdictions such as MozambiqueTanzaniaand Kenya.

How will the new cruise terminal impact Durban’s economy?

In the short term there will be some employment creation during the construction phase. In the longer term there will be further employment and tourism benefits as the new terminal will have a retail component and will also link through to the Point precinct, meaning that the terminal plus all of the other facilities in the area become an attraction for tourists and boost local businesses.

One would also hope that the whole package will result in increased passenger throughput and consequently provide opportunities for tour operators into the greater Durban and KwaZulu-Natal province, such as Valley of a Thousand Hills tours, eco-safaris to small reserves in the area, and of course increased pedestrian traffic through markets such as Wilson’s Wharf, Victoria Street Market and the like.

Overall, the facility will put Durban more on the map for foreigners who know nothing about the city. CNN once described Durban as “The coolest city you’ve never seen”. The new terminal will get Durban seen and, whether foreigners pass through the terminal or not, word of mouth from those terminal passengers will provide a strong boost for Durban tourism.

from How We Made It In Africa

21 Aug

13 new hotels to enter Kenya in next five years

hotels

A total of 13 hotels are set to open their doors in Kenya over the next five years, growing the bed space by more than 2,400 rooms, according to a report by PricewaterhouseCoopers (PwC).

Pegged on a growing economy and demand for bed space, the study by the advisory firm indicates the hotels are expected to open their doors in the country by 2021 including additional units by Radisson, Marriot and Best Western brands.

“These developments, along with a stable local economy, are attracting international hotels to Kenya. Sheraton, Ramada, Hilton, Best Western, Radisson, Marriott, and Mövenpick are among the international brands scheduled to open hotels in Kenya during the next five years,” PwC says in Hotel Outlook report.

The growth has been accelerated by the increasing number of domestic and international tourists.

“Kenya benefited from the lifting of travel advisories … and growth in domestic tourism in a strong economic environment, as well as a series of incentives introduced by the government,” reads part of the report.

The incentives include elimination of VAT on park fees, removal of visa fees for children as well as the reduction in park fees by Kenya Wildlife Service.

Others are the waiver of landing fee for charter flights in Mombasa and Malindi.

PwC says guest nights, which declined a cumulative 15 per cent between 2011 and 2015, also rebounded with a 2.9 per cent increase in 2016. The average room rate edged up 2.2 per cent in 2016 and room revenue grew 4.9 per cent.

The advisory firm expects a decline in the occupancy rate over the next two years before a rebound from 2019.

International hotel management chain Best Western has taken over city hotel Meridian and branded it Best Western Plus.

Lazizi Premier opened its doors in May, becoming the first airport hotel to begin operation.

This is expected to be followed by the completion of Four Points by Sheraton Nairobi Airport and Hilton Garden Inn, which are in the final stages of completion.

This will be the second property by Sheraton which took over management of the Four Point Hurlingham, previously Best Western Premier.

Source from Nation

03 Feb

Ethiopia invites Seychelles to invest in its tourism industry

The Ethiopian premier expressed this wish during a bilateral meeting with Seychelles President, Mr Danny Faure, who was in Ethiopia to attend the 28th Ordinary Summit of the Africa Union, his first since acceding to the presidency in October last year