Emerging & Frontier Commercial Real Estate Markets 2015

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Presentation TitleEmerging & Frontier MarketsAssessing Risk & Opportunity2015Andrew Heard, Global Occupier Services, ResearchEmerging And Frontier MarketsWhat is an emerging / frontier market?A society evolving into a market-oriented economy, possessing the following potential characteristics: Increasing economic freedomGradual integration within the global marketplaceAn expanding middle classA growing populationImproving standards of living and social stability and toleranceAn increase in cooperation with multilateral institutionsTechnological advancementsAll of which provide prospects for economic growth and opportunities for occupiers and investors alikeEmerging And Frontier Markets BackdropRAPID GROWTHA shift in the core of the global economy Search for higher returns on investments and opportunities of new growth markets for occupiersSubstantial increases in capital flows and business activityReal estate and infrastructure improvementsBUT RISKS RISING Challenges of global integrationDownside risks are becoming more pronouncedShocks in more mature locations are now impacting emerging market growth prospectsSecular stagnation between more mature and less mature marketsEMERGING & FRONTIER MARKET REPORT Assessing the macro BUT Putting risks into context Taking into consideration business and real estate realitiesTakes 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 Finance10%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 FinanceEmerging And Frontier Markets Global headwinds to growth in emerging markets4Structural downgrade in ChinaOngoing Geopolitical tensionsLower commodity pricesWeakening global tradeFinancial turbulence in a global contextStrength of the US DollarADVANCED ECONOMIESEMERGING ECONOMIESGrowth PotentialCapital FlowsLower oil and all other commodity pricesA sharper than expected slowdown in China and prospects for further financial market volatilityAppreciation of the US dollarIncreased geopolitical tensionsEmerging Market Risk Index 2015What is it, what is included and why?The Index evaluates the risks of acquiring office spaceThe report assesses relevant property indicators for over 40 countriesThe Index utilizes best-in-class published data regarding operating conditions such as transparency and corruption risk in addition to economic and political stability criteriaThe 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 marketsEmerging Market Risk Index 2015Operational environment and real estate realitiesHow 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 levelINDEX RANK30%20%50%INDEX WEIGHTINGEmerging Market Risk Index 2015Index Results8AfricaAfrican economies remain attractive securing 5 places within the top tenBotswana remains the most transparent market for occupiersSouth Africa and Ghana remain attractive retaining their positions within the top 5AmericasUruguay offers a strong operational profile, low corruption risk and a strengthening political environmentRisers also include Mexico, Argentina, El Salvador and ColombiaAsia PacificVietnam, Indonesia and Philippines have fallen with ease of property ownership, rising costs for registering property being the main challengesNew EntrantTurkey offers occupiers more advanced infrastructure, strong trade links and ease of property acquisitionAfricaDavid Green ProAfrica Property ServicesAfricaA continent-not a country.54 individual countries1,1 billion peopleSub Saharan Africa:48 countries with a population of 915 millionof these 692 earn less than $2.5 per day with two thirds of this number earning less than $1.5 per dayUrbanisation:350 million Africans are urbanised today but this number will double by 2050Urbanisation and Infrastructure +Africas young population will drive the demand for real estate and different types of real estate. Across Africa there will be continued urbanisationContinent with youngest populationGrowing middle class350 million Africans are urbanized today but this will double by 2050+Game changers / Drivers of growthTrillions 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 2020There is a strong emotional attachment to property in Africa making it a key investment class.Stewart Rider, Chief Operations Officer, StanlibAfrica Asset Management 2020Development of the financial services industry and an increased range of investorsUrbanisation & InfrastructureGrowing middle classDemographic dividendBuilding the future of AfricaDrivers for Growth in AfricaYoung population drives demand for real estate. Continued urbanisation, expansion of current cities and rise of new citiesExport of natural resources and agriculture remain key sources of growth, but will expose certain countries to increased riskIndustrialisation will continue, accompanied by rapid growth in the retail sectorInfrastructure shortages will create opportunities for investmentInfluence of government policy and legislation on the decision to invest will increase, while local partnerships will become increasingly importantContinued advancement within pension fund, stock exchange and banking regimes will facilitate investment, and an increased range of investors will drive demand for real estateTechnology will impact on business and building practices as well as consumer behaviourSustainability will become entrenched in building design and occupier requirementsHuge expansion in citiesUnprecedented shifts in population Sustainability transforms design RE capital takes financial centre stageTechnology disrupts RE economicsGrowth ratchets up competition for assetsRE 2020 six predictionsThe global investible real estate universe will expand substantially, leading to a huge expansion in opportunity, especially in emerging economiesFast-growing cities will present a wider range of risk and return opportunitiesTechnology innovation and sustainability will be key drivers for valueCollaborating with governments will become more importantCompetition for prime assets will intensify further,A broad range of risks including new risks will emergeRE 2020: MegatrendsOccupiers in AfricaOccupiers drive sustainable solutionsWhen 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 instabilityComplex legal regimesLack of economic diversitySocial instabilityTimeframe of the investment and restrictions to exit strategyCurrency volatilityUrbanisation and InfrastructureSub-Saharan Africas power shortage = US$ 400 billion investmentIndependence Power in Africa reportSub-Saharan Africa infrastructure spend will reach US$ 180 billion per annum by 2025PwC Capital Projects and InfrastructureOnly 16% of all road are paved in sub-Saharan AfricaChristine Lagarde, MD of the IMF,Infrastructurene.wsSource: United Nations Population Division; World Urbanization Prospects, the 2014 revision67% of Africa CEOs see urbanisation and demographic shifts having a major impact in next 5 yearsRetail in AfricaAfrica has 2085 shopping malls of which1945 are in South Africa and140 are elsewhere in AfricaRetail SnapshotNigeriaLagos & AbujaSouth AfricaGauteng (Jhb & Pretoria)GhanaAccraKenyaNairobiPopulation24 million9.62 million4 Million3.36 millionMain Shopping CentresPalms and Ikeja MallSandton City, Eastgate, Rosebank, Cresta, MenlynAccra Mall, Marina Mall, A&C Mall and West hillsWestgate, Thika road, Two Rivers and Sanit CentreTotal Formal Retail (sqm)87,45018,500,00020,000sqm of quality retail and ca. 12,000sqm of lower grade292 454Sheet1Sheet2Macro levelProperty cost / timeReal estate reality levelSheet3Macro Economic ConditionsProperty set up time and costsReal estate realitiesRankMacro levelProperty costs / timeReal estate realities(Survey)Botswana99671BotswanaUAEBotswanaGhana53124102QatarSaudi ArabiaGhanaUruguay27195123Saudi ArabiaBahrainUruguaySouth Africa2496154OmanThailandSouth AfricaMorocco62146165South AfricaQatarMoroccoTurkey42118296UruguayColombiaTurkeyTunisia68128297BahrainVietnamTunisiaIndonesia54125328PanamaOmanIndonesiaArgentina79196329SenegalPeruArgentinaZambia551223810PeruMongoliaZambiaKenya11214238UAE522241Thailand54604133UgandaZimbabweAlgeriaMexico411314134Cote D'IvoireBangladeshVietnamLebanon1081824435AngolaMyanmarOmanPanama33944536LebanonLebanonMyanmarJordan571424837NicaraguaTanzaniaHondurasBangladesh791674838KenyaSenegalAngolaUganda951635439DRCAlgeriaSaudi ArabiaNicaragua1081655440ZimbabweUruguayQatarPeru37876041MyanmarArgentinaLibyaSri Lanka691506042LibyaNigeriaMongoliaEgypt7515768Cote D'Ivoire9716568Colombia397173Tanzania8119073Nigeria8421984El Salvador6212786Philippines4714189Senegal36193101Zimbabwe122165102DRC119143117Bolivia74157120Bahrain3245127Algeria48193127Vietnam8272132Oman2276134Myanmar122179134Honduras93120135Angola98128145Saudi Arabia2045147Qatar1064167Libya127134209Mongolia6991220