Nairobi remains among Africa's top foreign investment destinations due to advanced technology, robust financial sector and strategic geographic location, a new report shows.
In the East Africa region, Kenya's capital ranks top but is beaten by South Africa, Nigeria and Tunisia in the continent, the Knight Frank report shows.
Nairobi's attractiveness has pushed the up prime residential prices by 3.5 per cent in the past year with average office occupancy at 73 per cent, the highest in the continent.
In May, the firm ranked Kenya's capital as the leading destination for real estate investments in Africa in its Prime Global Cities Index –Q1 2022 report.
Nairobi was placed at position 32 out of the 45 sampled cities, with a capital appreciation of 1.3 per cent quarter on quarter and 3.5 per cent year on year.
Increased demand for housing resulting from several factors, including a growing middle-income class, drove performance.
Kenya's capital city was ahead of Cape Town which was second, Kampala third with Cairo and Johannesburg at fourth and fifth place respectively.
Dubai is the city with the fastest rising prime prices in the review period with a 58.9 percent change recorded in the 12 months, and a 23.2 per cent change in six months from the third quarter of 2021 to the first quarter of 2022.
According to DCByte, the major data centre additions in 2021 were in Johannesburg, Lagos and Nairobi.
These locations, together with Cairo and Casablanca, are regarded as being the top five key data centre markets in Africa.
The firm classifies these countries as key hub locations in Africa, mainly because of their economic potential.
Generally, attracting meaningful volumes of institutional capital into Africa continues to prove challenging and recent global macroeconomic events appear to be hampering matters further.
Indeed, total cross-border investment in African commercial real estate stood at $274 million in 2021, down 49 per cent from 2020 and 54 per cent lower than 2019 figures.
Factors that influence capital flows include political outlooks and environmental risk.
In addition, monetary tightening in the United States and rising risk premiums associated with the war in Ukraine, have placed downward pressure on exchange rates in the continent.
The report says that although real estate investors have mitigated this risk by deploying their capital in projects that have dollar-denominated returns, where possible.
According to the 2022 IMF-Regional Economic outlook for Sub-Saharan Africa, inflation is expected to remain elevated in 2022 at 12.2 per cent before easing to 9.6 per cent in 2023 though there is significant heterogeneity across the region.
Real estate is traditionally seen as an inflation hedge and so an inflationary environment is likely to boost demand.
Climate change to poses extreme challenges for the region given its exposure to weather-related events and the reliance on rain-fed agriculture.
Knight Frank says investment in adaptation is therefore of paramount importance, but the green transition also provides new opportunities for Africa given its potential for renewable energy.
The report notes that Environmental, Social, and Corporate Governance (ESG) is an increasingly global focus for real estate investors, and expects this to spur capital flows towards green-rated buildings.
Africa has 785 green-rated buildings, 641 of which are in South Africa alone.
The continent's real estate market is recovering despite volatilities in the global market.
''With economies slowly limping back to life and international travel resuming, expatriates and tourists are returning, which is boosting demand and the performance of the residential sector as job levels recover,'' the report reads.
Indeed, in Lagos, rents currently stand 22 per cent higher than they were in 2019, while Cape Town (13 per cent) and Nairobi five per cent) have also registered increases over the same period.
These strong increases are likely to be curbed as housing demand in many cities is starting to shift away from city centers to the suburbs primarily due to affordability considerations, but also due to the relative gain in indoor and outdoor space.
''With inflation continuing to edge upwards, affordability is expected to come into an even sharper focus, especially as real household incomes continue to be eroded,'' Knight Frank says.
In Kenya, an undersupply of formal student housing has seen developers responding by developing purpose-built student accommodation (PBSA).
Knight Frank Kenya Kenya CEO Mark Dunford says those who invest in underserved niches will reap huge dividends.
"With the mainstream market still suffering from an undersupply of affordable housing, demand for co-living is likely to continue rising for the foreseeable future. Investors find this sector attractive because of its resilience and strong long-term economic fundamentals,'' Dunford said.
