Property investment evolves from scarcity to certainty and productivity in Africa

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SIMON BROWN: I’m chatting with Casey Sprake, market strategist at AG Capital.

Casey, always appreciate the early morning. You wrote a piece recently and opened with it at the API [African Property Investment] Summit.

You were talking about a warehouse fitted with solar and batteries and its own water before a tenant would sign. In many senses that building is sort of the future of property and investing. It’s no longer the story around where the continent used to be – where is the fast-growing population, what’s the GDP?

It becomes sort of an investment player, an investable premium in many senses. It’s more than just the basics. There’s a whole lot more around that property investment in the continent.

CASEY SPRAKE: Yes, good morning, Simon. That’s precisely it. I feel the nature of property, particularly within the African continent, has changed from, as you mentioned, the status of where opportunity is sitting.

I think we all are of the belief now that opportunity within the African continent is certainly there. It’s more just understanding where the growth is going to not just occur, but how we actually determine how it can be captured through investment. That’s the next key.

I’ve been saying that, again, growth is not the scarce commodity anymore, but certainty actually is.

Read: Africa’s property opportunity: Growth prospects, but certainty is scarce

SIMON BROWN: It is that. And you make the point. Scarcity has kind of shifted. We have a lot of land across the continent. I know the cliché that ‘they are not making more of it’, but there is a lot of it.

What matters now is that certainty, and I suppose it is regulatory, it’s tenant, it’s the developmental process – it’s simple things like patient capital and infrastructure. It’s all that that exists around the opportunity.

CASEY SPRAKE: Hundred percent. Land is clearly abundant across many African markets, and we can see that demand is clearly visible. What I feel is a lot scarcer, as you mentioned, is the combination of reliable infrastructure, regulatory uncertainty, creditworthy occupier demand.

And I think, more importantly, transparent development processes and what sort of drives that patient long-term capital you mentioned.

We find that when these elements come together, property doesn’t only compound value over time. When they don’t come together, even the most compelling demographic story, for example, will struggle to translate into investment returns. It’s about getting to that end point.

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SIMON BROWN: Absolutely. You talk around the capital pipes as well, and listed Reits. In South Africa we have 33 market cap. When you were doing the article, around R230 billion, but not much across the rest of the continent. Kenya has three, Nigeria four.

Most of the other markets have none, no Reits at all. That’s opportunity, I imagine, for our local Reits as well, but also I imagine for country Reits. There must be investors in Kenya, Nigeria, Morocco and other markets.

You are thinking, hang on a second, there’s opportunity here to start their own Reits. I hadn’t realised the markets were so small in other markets.

CASEY SPRAKE: Yes. It’s quite startling when you go through the numbers. I think often when we think of African property we get lost in the strength of South Africa’s property in particular. But again, as you mentioned, access to capital is such an important and critical part of this whole equation.

I think where we find institutional investors in particular can sort of participate actively. We see where regulation is credible, and transparent reporting et cetera. Property markets can then access those deeper pools of domestic and international capital.

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But if we find spots where, as you mentioned, other countries such as Uganda, Mozambique where those systems remain underdeveloped, attractive projects really struggle to move beyond the potential that’s a face value.

So developing, I would say, pension-fund participation, improving project preparation and creating credible valuation and exit mechanisms importantly as well, forms part of that really important property story itself, when that all transfers around the term we like to use called ‘investability premium’.

SIMON BROWN: Yes. Also it gives opportunity. In the article you referred to Growthpoint — landlords as infrastructure providers. Growthpoint got the V&A deal. They’re looking to spend some R30/40 billion over the next decade and a half to expand the V&A Waterfront precinct.

But they’re now managing energy, they’re managing water security. It’s not just buildings. This in my sense is the new normal. It favours well-capitalised players, but also favours those coming into the market at this point, because they start with that new kind of clean slate.

CASEY SPRAKE: 100%. As you mentioned, Cape Town in particular offers a useful example around this. But, as you were saying, I think the property market is really moving into a sort of new defining feature of the sector overall. We’ll see that successful property owners will increasingly manage resilience, as you mentioned, across energy, water, mobility security, et cetera.

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And a real focus is now shifting towards overall tenant experience. So I would say that successful investors in turn are buying the productive capacity of a place as much as the actual building on it. And that’s the new phase that we’re shifting through to now.

SIMON BROWN: Productive capacity – I like that, absolutely. It’s not just the bricks and mortar; it is that productive capacity.

We’ll leave it there, Casey Sprake, market strategist, AG Capital, always appreciate the early morning time.

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