A view on the Lusaka Development Market

“Due to the rapid growth of Lusaka, economically and spatially, there will much opportunity to develop for the next many years. Plenty of land will become ever more interesting for retail and residential developments. Office developments may be initially concentrated in, or close to, the existing office areas but we expect that over time we will see office parks come up along the main ring roads.

There is ample interest from retail anchors for supermarkets and strip malls in many locations and also some support for line shops. There is a huge demand for land plots for medium density housing, which is being filled by land developers on the more expensive side and by the Council on the less expensive side.

What is really missing, though, in the development industry is, to some extent, focused developers and, to a much larger extent, development equity. In Europe there are 10 interested investors for every good property development deal – in Zambia, there is 1 interested investor for every 10 development deals.

While there is international development equity available for property developments, this is primarily for large assets over $20m and preferably larger – but most of the opportunities are much smaller than that. We expect that we’ll see some international funds starting to build relationships with local developers to develop a portfolio of these smaller assets for themselves.

Most commercial assets are being developed by individuals, or smaller businesses, and a higher degree of specialization is much needed in the industry. We believe this may be related to another problem, which is the lack of exits, meaning that the developers do not get to recycle the capital and profit into new investments. We are seeing interest from Zambian institutional investors in good assets but we are not seeing the assets being properly marketed and so the buyers and sellers have difficulty finding each other.

One major mistake we often see in the industry is, that the developer puts too much money into the building and therefore have rental expectations that do not match the market reality. This results in the developer either having a high vacancy, if they refuse to drop the rent, or achieving a much lower yield than they would have assumed when assessing the opportunity. We believe it is really important to build affordable which is possible without compromising on look and feel, as well as integration with the surrounding community.

We expect that the industry will start moving towards building green with some speed over the coming two years, driven by demands from international occupiers and investors. We believe the IFC Edge standard will be the one that most developers will measure themselves against in the short term.

Catrin Jones is a Senior Analyst at Urban Africa Real Estate