Why investors are transitioning to income-producing assets
A report by Estate Intel shows that most African institutional investors are transitioning from the initial build, stabilise, and exit, private equity strategy to income-producing assets. Dolapo Omidire, Research Director at Estate Intel, says the move is due to the volatile nature of African real estate markets which requires longer holding periods. He joins CNBC Africa for this discussion.
Mon, 01 Jul 2024 15:13:35 GMT
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AI Generated Summary
- African institutional investors are shifting focus from private equity to income-producing assets due to market volatility and longer holding periods.
- ESG-linked financing activities are on the rise, with banks and DFIs investing heavily in sustainable building practices.
- Slow growth in the secondary market is prompting existing investors to repurchase their own assets, while the hospitality sector remains a bright spot for institutional interest.
A recent report by State Intel has shed light on the evolving investment strategies of African institutional investors, particularly in the real estate market. Dolapo Omidire, the Research Director at State Intel, highlighted key findings from the report in an interview with CNBC Africa. Omidire pointed out that many institutional investors in Africa are moving away from the traditional approach of developing assets, stabilizing them, and seeking a quick exit towards holding onto income-producing assets for longer periods. This shift is largely driven by the volatile nature of African real estate markets, which often require a longer holding period to realize substantial returns.
One of the significant trends identified in the report is the increasing focus on ESG-linked financing activities and their impact on market dynamics. Omidire noted that ESG-linked property financing has surged by 41% since 2018, with banks and DFIs allocating substantial funds for sustainable building practices. Last year alone, approximately $800 million was invested in ESG-linked property financing, highlighting a growing interest in environmentally friendly and socially responsible investment strategies. The report forecasts that this trend is likely to continue, with ESG-linked financing expected to reach $2 billion by the end of the year.
Additionally, the report highlighted the slow growth in the secondary market, with existing investors predominantly repurchasing their own assets instead of attracting new buyers. Omidire noted that over the past decade, there has been limited activity in the secondary market, with few investors coming forward to acquire assets from primary investors. This trend has forced primary investors to adjust their strategies and explore alternative avenues to unlock capital tied up in real estate investments.
Despite the challenges in the secondary market, one area that continues to attract strong institutional interest is the hospitality sector. The report indicated that institutional investors have shown consistent interest in the hospitality market, particularly in regions like French West Africa. Investments in upscaling existing hotels and rebranding them under popular chains like Accor have been on the rise, signaling a shift towards hybrid strategies that focus on extracting maximum value from hospitality assets.
In conclusion, the State Intel report provides valuable insights into the changing landscape of African real estate investment, highlighting the importance of adapting strategies to navigate market complexities and capitalize on emerging opportunities. The shift towards income-producing assets, the rise of ESG-linked financing, and the ongoing challenges in the secondary market underscore the need for investors to remain agile and innovative in their approach to real estate investment on the continent.
