Authors: Somaya Joshua, Head of Commercial Property Finance, Absa CIB and Zaharaa Khanbhai Director – Commercial Property Finance, EA -Absa Bank Kenya
Investors with patient capital committed to markets including Tanzania, Uganda and Kenya could benefit from increasing institutional participation in the coming years.
Investor sentiment has been influenced by a combination of factors including higher-for-longer interest rates, geopolitical uncertainties and dollar liquidity constraints in key markets like Kenya and Tanzania.
While investors have a clear understanding of the dynamics around the impact of interest rates on any property market, the impact of dollar liquidity constraints is more nuanced.
Despite the challenging environment, there are a number of reasons for patient investors to keep markets like Kenya, Uganda and Tanzania on their radars.
The emergence of Special Economic Zones (SEZs) continues to contribute to attracting capital inflows driving the development of infrastructure and enabling the development of assets across various sub-sectors including, residential, commercial and emerging asset classes like data-centres.
The region has a positive outlook with rapid urbanisation, a rising middle class and projected GDP growth that increases the need for high-quality commercial and residential properties. The region continues to attract foreign professionals who require both accommodation and related services such as health care and online shopping capabilities supported by warehousing and logistics.
On top of this Environmental, Social and Governance (ESG) is becoming central to making Real-Estate investments sustainably viable as investors become more intentional about integrating this into their property sector strategies. We are seeing ESG as another risk mitigation tool given deliberate strategies deployed to future proof cashflows. These assets tend to retain values and have lower operating costs over time .
Investors are preferring qualifying ESG assets and this shows in how they allocate their capital to assets that meet ESG criteria. We also see more tenants wanting ESG features, and this relates to securing future income.
Kenya is progressing on the development of their Real Estate Investment Trust (REIT) market, and we see the potential in East African property because it is an emerging asset class supported by continued economic growth behind it. The IMF started the year predicting that the Kenyan economy would grow at 5% in 2024 and the Finance Minister raised this to 6.3% in March this year. Uganda’s growth forecast for the next 3 years ranges from 5 to 6.5%,
While some readers may argue about the use of the word “crisis” as a title, we can acknowledge that the environment is challenging in the near-term. This doesn’t mean that an enabling foundation isn’t being laid for a prosperous future.
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