A view on the Lusaka De­vel­op­ment Mar­ket

Zambian Business Times - - REAL ESTATE & PROPERTY DEVELOPMENT - By Ca­trin Jones

“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

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