Emerging & Frontier MarketsAssessing Risk & Opportunity2015
Andrew Heard, Global Occupier Services, Research
Emerging And Frontier MarketsWhat is an emerging / frontier market?
“A society evolving into a market-oriented economy, possessing the following potential characteristics:
• Increasing economic freedom• Gradual integration within the global
marketplace• An expanding middle class• A growing population• Improving standards of living and social
stability and tolerance• An increase in cooperation with
multilateral institutions• Technological advancements
All of which provide prospects for economic growth and opportunities for occupiers and investors alike”
Emerging And Frontier Markets Backdrop
RAPID GROWTH
• A shift in the core of the global economy • Search for higher returns on investments and opportunities of new
growth markets for occupiers• Substantial increases in capital flows and business activity• Real estate and infrastructure improvements
BUT RISKS RISING
• Challenges of global integration• Downside risks are becoming more pronounced• Shocks in more mature locations are now impacting emerging
market growth prospects
• Secular stagnation between more mature and less mature markets
EMERGING & FRONTIER MARKET REPORT
Assessing the macro BUT • Putting risks into context • Taking into consideration business and real estate realities• Takes into consideration the views of market experts
30YRSNet capital flows in emerging
markets have fallen for the first
time in 30 years.Institute of International Finance
10%2020 Nominal GDP growth
forecasts in emerging markets have
been revised downwards by 10%
since 2012.IMF
$4.3TNPrivate foreign currency borrowing
in emerging markets 2015.Institute of International Finance
$1TNOutflows of private capital from
developing economies 2015.Institute of International Finance
4
Emerging And Frontier Markets Global headwinds to growth in emerging markets
Structural downgrade in China
Ongoing Geopolitical tensions
Lower commodity prices
Weakening global trade
Financial turbulence in a global context
Strength of the US Dollar
ADVANCED ECONOMIES
EMERGING ECONOMIES
Growth Potential
Capital Flows
• Lower oil and all other
commodity prices
• A sharper than expected
slowdown in China and
prospects for further
financial market volatility
• Appreciation of the US
dollar
• Increased geopolitical
tensions
Emerging Market Risk Index 2015What is it, what is included and why?
• The Index evaluates the risks of acquiring office space
• The report assesses relevant property indicators for over 40 countries
• The Index utilizes best-in-class published data regarding operating conditions – such as transparency and corruption risk – in addition to economic and political stability criteria
• The Index takes into consideration a survey using ‘best in class’ property operators in each region assessing the ease and speed of acquiring office space in these markets
Emerging Market Risk Index 2015Operational environment and real estate realities
• How transparent is the overall property market?
• How easy is it for foreign companies to own commercial property?
• How easy is it for foreign companies to lease space?
• How quickly are transactions concluded?
Emerging Market Risk Index 2015Drivers and impacts at local level
Rank Macro level Property costs / time Real estate realities(Survey)1 Botswana UAE Botswana2 Qatar Saudi Arabia Ghana3 Saudi Arabia Bahrain Uruguay4 Oman Thailand South Africa5 South Africa Qatar Morocco6 Uruguay Colombia Turkey7 Bahrain Vietnam Tunisia8 Panama Oman Indonesia9 Senegal Peru Argentina
10 Peru Mongolia Zambia
33 Uganda Zimbabwe Algeria34 Cote D'Ivoire Bangladesh Vietnam35 Angola Myanmar Oman36 Lebanon Lebanon Myanmar37 Nicaragua Tanzania Honduras38 Kenya Senegal Angola39 DRC Algeria Saudi Arabia40 Zimbabwe Uruguay Qatar41 Myanmar Argentina Libya42 Libya Nigeria Mongolia
INDEX RANK
30% 20% 50%
INDEX WEIGHTING
8
Emerging Market Risk Index 2015Index Results
Africa• African economies remain attractive securing 5
places within the top ten
• Botswana remains the most transparent market for occupiers
• South Africa and Ghana remain attractive retaining their positions within the top 5
Americas• Uruguay offers a strong operational profile, low
corruption risk and a strengthening political environment
• Risers also include Mexico, Argentina, El Salvador and Colombia
Asia Pacific• Vietnam, Indonesia and Philippines have fallen
with ease of property ownership, rising costs for registering property being the main challenges
New Entrant• Turkey offers occupiers more advanced
infrastructure, strong trade links and ease of property acquisition
AfricaDavid Green ProAfrica Property Services
Africa
• A continent-not a country.
• 54 individual countries
• 1,1 billion people
Sub Saharan Africa:• 48 countries • with a population of 915 million• of these 692 earn less than $2.5 per day with two thirds of
this number earning less than $1.5 per day
Urbanisation:• 350 million Africans are urbanised today but this number
will double by 2050
Urbanisation and Infrastructure
+
Africa’s young population will drive the demand for real estate and different types of real estate. Across Africa there will be continued urbanisation
Continent with youngest population
Growing middle class
350 million Africans are urbanized
today but this will double by
2050 +
Game changers / Drivers of growth
“Trillions of dollars will need to be invested in infrastructure in Africa in the medium term.”Armien Tyer, Head Investment Cluster, Absa Wealth and Investment ManagementAfrica Asset Management 2020
“There is a strong emotional attachment to property in Africa making it a key investment class.”Stewart Rider, Chief Operations Officer, StanlibAfrica Asset Management 2020
Development of the financial services industry and an increased range of investors
Urbanisation & Infrastructure
Growing middle class
Demographic dividend
Building the future of Africa
Drivers for Growth in AfricaYoung population drives demand for real estate. Continued urbanisation, expansion of current cities and rise of new cities
Export of natural resources and agriculture remain key sources of growth, but will expose certain countries to increased risk
Industrialisation will continue, accompanied by rapid growth in the retail sector
Infrastructure shortages will create opportunities for investment
Influence of government policy and legislation on the decision to invest will increase, while local partnerships will become increasingly important
Continued advancement within pension fund, stock exchange and banking regimes will facilitate investment, and an increased range of investors will drive demand for real estate
Technology will impact on business and building practices as well as consumer behaviour
Sustainability will become entrenched in building design and occupier requirements
Huge expansion in
citiesUnprecedented
shifts in population
‘Sustainability’ transforms
design
RE capital takes financial centre
stageTechnology disrupts
RE economics
Growth ratchets up competition for assets
RE 2020 six predictions
The global investible real estate universe will expand substantially, leading to a huge expansion in opportunity, especially in emerging economies
Fast-growing cities will present a wider range of risk and return opportunities
Technology innovation and sustainability will be key drivers for value
Collaborating with governments will become more important
Competition for prime assets will intensify further,
A broad range of risks including new risks will emerge
RE 2020: Megatrends
Occupiers in Africa
• Occupiers drive sustainable solutions
• When considering these drivers for growth it is important to realise that there are also very specific risk factors underlying the development of Africa namely:
•Political instability•Complex legal regimes•Lack of economic diversity•Social instability
• Timeframe of the investment and restrictions to exit strategy•Currency volatility
Urbanisation and Infrastructure
Dar es Salaam
Luanda
Lagos
Nairobi
Kinshasa
Douala
Dakar
Abidjan
Ibadan
Addis Ababa
Accra
Johannesburg
Al-Qahirah (Cairo)
Al-Iskandariyah (Alexandria)
El Djazaïr (Algiers)
Cape Town
Dar-el-Beida (Casablanca)
Durban
0% 20% 40% 60% 80% 100% 120% 140%
Growth of African cities% increase, 2010 - 2025
Sub-Saharan Africa’s power shortage = US$ 400 billion investment
Independence Power in Africa report
Sub-Saharan Africa infrastructure spend will reach US$ 180 billion per annum by 2025
PwC Capital Projects and InfrastructureOnly 16% of all road are paved in sub-Saharan Africa
Christine Lagarde, MD of the IMF,Infrastructurene.ws
Source: United Nations Population Division; World Urbanization Prospects, the 2014 revision
“67% of Africa CEO’s
see urbanisation
and demographic shifts having
a major impact in
next 5 years”
Retail in Africa
• Africa has 2085 shopping malls of which
•1945 are in South Africa
and
•140 are elsewhere in Africa
Retail Snapshot
NigeriaLagos & Abuja
South AfricaGauteng (Jhb &
Pretoria)
GhanaAccra
KenyaNairobi
Population 24 million 9.62 million 4 Million 3.36 million
Main Shopping Centres Palms and Ikeja Mall
Sandton City, Eastgate, Rosebank,
Cresta, Menlyn
Accra Mall, Marina Mall, A&C Mall and
West hills
Westgate, Thika road, Two Rivers and
Sanit Centre
Total Formal Retail (sqm) 87,450 18,500,000
20,000sqm of quality retail and ca.
12,000sqm of lower grade
292 454