Future of African Commercial Real Estate

The recent headline from the US suggests that about $1.5 trillion in commercial mortgage debt is due by the end of 2025 but steeper borrowing costs tighter credit conditions and a massive decline in property valuation have increased the risk of default and Fitch also reported that 35% or $5.8 billion of pooled securities commercial mortgages will not be able to be refinanced.

Many have pointed to the remote work brought on by the pandemic as the reason for this, but this is not the full story.

Certainly, the pandemic accelerated what was a trend not just in the US but across the developed world with workers placing a greater emphasis on quality of life over more money or promotions.

People used to commute for up to two hours every weekday realised how much time they were saving by remote work while being more effective.

During the pandemic, many people decided to move out of major towns and cities to be closer to nature especially with crime and costs escalating in major cities around the world, this is likely to be a permanent change in housing trend across the developed world especially North America and Europe.

Their companies also realized how much more profitable they became with remote work from reduced operating costs and greater productivity of employees.

What about Africa?

Whenever I see these international trends, I always think of when it will arrive in Africa. Overall, I see the overall trend as a big benefit for Africa for several reasons:

Firstly, Africa’s commercial real estate is not as developed as other regions therefore there is fewer legacy challenges there.

Secondly, with the amount of young people in Africa, greater remote working will help Africa develop quicker and have more balanced economies as opposed to the usual development challenges with wealthy cities and poor rural economies.

These young people will not necessarily have to move to the cities for economic opportunities, but they can have these opportunities wherever they are located.

Thirdly, this gives African policy makers an opportunity to reassess development priorities and ensure infrastructural development also reaches rural areas.

All of these will have a net benefit for food production as the rural areas are strengthened.

In further blogs, we will be looking at this issue considering infrastructure, agribusiness and real estate considerations across Africa.

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