Nigeria is riding a retail revolution driven by a perfect storm of people, rising purchasing power and urbanisation.
The nation’s population of 179 million is growing at 2.7 percent per annum, with a median age of 18.6, while the urban population is estimated at 42 percent, compared with 19 percent in East Africa.
Income per head has grown from $378 in 2000 to $1,615 at year-end 2012, as the economy expanded five-fold in the period. Gross Domestic Product (GDP) is forecast to expand an average of 6 percent a year for the next five years, according to International Monetary Fund (IMF) data.
“The retail revolution in Nigeria is underway,” said Chu’di Ejekam, director for real estate at private equity (PE) firm, Actis, in a presentation made October 2. “There currently exists a huge undersupplied and growing market … with attractive PE returns.”
India may provide an example of how the Nigerian retail growth story unfolds in the future, as analysts say Nigeria is in a similar place as India was 10 years ago just before the Indian retail boom took off.
In 2001, India had 142,000 sq. metres of modern retail space. By 2006, the number had spiked to 2.7 million sq. metres, moving from 30 malls in 2003 to 230 malls by 2007.
Actis may make investments of as much as $1.5 billion in African commercial real estate, including Nigeria, according to Ejekam. Retail property plans for Nigeria include the Jabi Lake Mall in Abuja and Ado Bayero Mall in Kano.
The most attractive locations for new retail outlets are often the first-tier cities of Lagos and Abuja, due to ease of access and superior infrastructure. Second-tier cities like Port Harcourt, Kano, Warri, Owerri and Onitsha are also providing opportunities.
The $21 billion Nigerians abroad sent home last year may also be giving a boost to disposable incomes and retail spending.
Some challenges remain, however, for retail property investors and developers in the country. One is capital. While large equity requirements of between $30 million and $70 million are often needed, naira debt is expensive as prime lending rates are north of 20 percent with the Central Bank of Nigeria’s (CBN) benchmark monetary policy rate (MPR) at 12 percent.
The cost of projects is also expensive often with limited local expertise. Actis estimates that the cost of completing a project in Nigeria is 2.5 times that of a similar sized one in South Africa. Costs are often passed on to tenants, leading to few anchor options.
The stunted real estate investment trust (REIT) market in Nigeria means there are often few ways to exit an investment for PE firms and developers. Investors who manage to navigate the challenges with “disciplined risk management measures will have attractive returns if they employ a focused strategy”, said Ejekam.
The Nigerian retail market can generate PE returns of up to 25 percent, according to Actis.
“Powerful execution capabilities are required to mitigate execution risk,” Ejekam said.source: http://businessdayonline.com
The nation’s population of 179 million is growing at 2.7 percent per annum, with a median age of 18.6, while the urban population is estimated at 42 percent, compared with 19 percent in East Africa.
Income per head has grown from $378 in 2000 to $1,615 at year-end 2012, as the economy expanded five-fold in the period. Gross Domestic Product (GDP) is forecast to expand an average of 6 percent a year for the next five years, according to International Monetary Fund (IMF) data.
“The retail revolution in Nigeria is underway,” said Chu’di Ejekam, director for real estate at private equity (PE) firm, Actis, in a presentation made October 2. “There currently exists a huge undersupplied and growing market … with attractive PE returns.”
India may provide an example of how the Nigerian retail growth story unfolds in the future, as analysts say Nigeria is in a similar place as India was 10 years ago just before the Indian retail boom took off.
In 2001, India had 142,000 sq. metres of modern retail space. By 2006, the number had spiked to 2.7 million sq. metres, moving from 30 malls in 2003 to 230 malls by 2007.
Actis may make investments of as much as $1.5 billion in African commercial real estate, including Nigeria, according to Ejekam. Retail property plans for Nigeria include the Jabi Lake Mall in Abuja and Ado Bayero Mall in Kano.
The most attractive locations for new retail outlets are often the first-tier cities of Lagos and Abuja, due to ease of access and superior infrastructure. Second-tier cities like Port Harcourt, Kano, Warri, Owerri and Onitsha are also providing opportunities.
The $21 billion Nigerians abroad sent home last year may also be giving a boost to disposable incomes and retail spending.
Some challenges remain, however, for retail property investors and developers in the country. One is capital. While large equity requirements of between $30 million and $70 million are often needed, naira debt is expensive as prime lending rates are north of 20 percent with the Central Bank of Nigeria’s (CBN) benchmark monetary policy rate (MPR) at 12 percent.
The cost of projects is also expensive often with limited local expertise. Actis estimates that the cost of completing a project in Nigeria is 2.5 times that of a similar sized one in South Africa. Costs are often passed on to tenants, leading to few anchor options.
The stunted real estate investment trust (REIT) market in Nigeria means there are often few ways to exit an investment for PE firms and developers. Investors who manage to navigate the challenges with “disciplined risk management measures will have attractive returns if they employ a focused strategy”, said Ejekam.
The Nigerian retail market can generate PE returns of up to 25 percent, according to Actis.
“Powerful execution capabilities are required to mitigate execution risk,” Ejekam said.source: http://businessdayonline.com
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