THE BROLL REPORT 2013/2014

Transcription

1 THE BROLL REPORT 2013/2014

2 CONTENTS All care has been taken in the preparation of this document and the information contained herein has been derived from sources believed to be accurate and reliable. Broll Property Group (Pty) Ltd will accept no responsibility for any error, action or omission, any opinion expressed or any investment decisions made and/or based on this information. Neither the whole nor any part of this document, nor any reference thereto may be included in any published document, circular or statement, nor published in any way without Broll s prior written approval as to the form or context in which it may appear. Foreword 1. Global Overview Cautious Short-Term Forecast for Listed Property Property and the Economy in South Africa The Retail Sector The Industrial Sector The Office Sector The Residential Sector The Hospitality and Leisure Sector Out of Africa 22 Ghana 23 Kenya 26 Malawi 28 Mauritius 30 Namibia 32 Nigeria 34 Rwanda Articles of Interest Sources Services Contact Us 44

3 FOREWORD Africa is internationalising with more cross-border activity taking place on the continent than ever before. Increasingly South Africa and sub-saharan Africa are being placed on the boardroom agenda as companies seek fresh markets for future growth. As new markets open on the continent, and others evolve and mature, access to the latest market data helps make the best property decisions. For this reason we have carefully compiled our research for the Broll Report. We are pleased to present the Broll Report 2013/2014. It is packed full of clear, helpful information and insights on the state of commercial property in South Africa and sub-saharan Africa. As professional property services gain momentum on the continent, a startling skills shortage is emerging in the industry, making this report all the more valuable. Our own African expansion responds to the compelling investment growth story of sub-saharan Africa. Broll is approaching US$10 billion in total assets under management across all sectors of operations in African markets and we continue to advance our direct exposure in more cities, driving our ability to collaborate across borders. This first-hand experience brings an even deeper understanding of the property sectors in the 17 African countries which we now operate in. Being a part of the international CBRE Affiliate Network merges our forward thinking approach and African insight with global market knowledge, with the sole purpose of maximising the potential of your property, wherever it is. Broll s ability to provide knowledge-based insight, compiled from years of experience as a trusted property partner and exacting market research, enables us to produce quality research like the Broll Report. It also positions us to provide unique, cost-effective solutions that add value to our clients assets and portfolios, empowering well-informed decisions and improving investment performance. We hope you find the Broll Report 2013/2014 a powerful tool to drive your commercial property performance and unlock rewarding opportunities now and in the future. Malcolm Horne Group CEO Broll Property Group African property markets are starting to mature. Tenants are seeking out professional advice and landlords are gradually embracing the needs of multinational and large national space users. Both are driving a growing trend towards outsourced property services to further their goals of extracting value from commercial real estate, growing with new developments and optimising financial structures.

4 The Broll Report I 2013/ Global Overview The Global Overview reviews the year that has passed and opines on the outlook for the year to come, in seven areas of importance to commercial real estate. Global Economic Growth Global economic growth was moderate and halting in 2013, but is expected to improve in 2014 achieving rates not seen in six years. While many issues remain that are cause for concern 1, synchronization among the world s larger economies provides upside potential for world growth in Growth rates will continue to be higher in Asia-Pacific, but importantly the larger developed markets and economic unions will be advancing as well. It is very important to have the big economies growing! Ongoing, multi-country monetary stimulation 2 will help the global economy in 2014, along with less fiscal drag and global deleveraging. Some also expect that new sources of energy will lower energy costs and provide additional economic push, but the key for global economic growth in 2014 will be the synchronization of the major economies. GDP: Asia-Pac Leads, Europe Lags (Q2 2013) World Europe Latin America United States Asia Pacific Source: HIS Global Insight ,1 2002,1 2003,1 2004,1 2005,1 2005,1 2007,1 2008,1 2009,1 2010,1 2011,1 2012,1 2013,1 2014,1 2015,1 Global Rent and Capital Value Indices CBRE s global rents and capital value indices for all of the major property sectors office, industrial and retail prime properties rose in The pace was particularly strong for retail and industrial, and capital value growth was stronger than rents, reflecting a rising multiple on real estate income. That year-over-year growth rates are higher than quarterly rates implies that growth has decelerated over the past year. By the end of 2013, both occupiers and investors were looking for more clarity about the future of the economy and market. Most notable was their concern about the world-wide rise in interest rates that occurred in the middle of 2013 and the U.S. government shutdown a few months later. Each event increased uncertainty and led to a pause in economic activity. In 2014, better clarity on policyrelated matters could lead to a stronger growth pace for both markets Global 4% Rent Index Growth 3% Quarterly Change Annual Change 2% 1% 0% Global Office Global Industrial Global Retail Source: CBRE Global Rent and Capital Value Indices Market View, Q We could create a long list of worries, but we think they have a small probability of disrupting what will be a good year for economic growth in Tapering by the U.S. Fed does not mean monetary tightening, although interest rates will rise as the economy improves. 3. CBRE Global Rent and Capital Value Indices MarketView: Current Snapshot, Q

5 The Broll Report I 2013/ Global Prime Office Occupancy Costs CBRE s semi-annual survey on Global Prime Office Occupancy Costs found that London s West End unseated Hong Kong- Central as the world s highest-cost office market 4. Asia continues to claim four of the world s five most expensive office markets. Overall occupancy costs in London-West End were US$ per sq. ft. per year, followed by Hong Kong- Central with total occupancy costs of US$ Beijing s Finance Street, Beijing s Central Business District (CBD) and Hong Kong s West Kowloon rounded out the top five Global Capital Value Index Growth Quarterly Change Annual Change 8% 6% 4% 2% 0% Global Office Global Industrial 4. CBRE Global Prime Office Occupancy Costs, December CBRE Global Retail View, Q Global Retail Source: CBRE Global Rent and Capital Value Indices MarketView, Q Top 10 Most Expensive Markets (Q3 2013) The CBRE study also found that prime occupancy costs are rising fastest in the Americas, where real estate fundamentals continue to improve, albeit modestly. Overall, the Americas accounted for eight of the ten markets with the fastest growing occupancy costs, with Boston (Downtown), Mexico City and San Francisco (Downtown) among the top five. The growth in occupancy costs for prime office space underscores the value of quality: even in a slowly recovering economy, demand for the best space in the best locations continues to be strong. Ranked By Prime Office Space Occupancy Cost in US$ Per Ft 2 Per Annum as of Q EMEA Asia Pacific London West End $ 259 Source: CBRE Research Global Prime Retail Rents Hong Kong Central Beijing Finance Street $ 234 $ 197 Beijing CBD $ 190 Hong Kong West Kowloon $ 170 Moscow $ 165 New Delhi Connaught Place $ 157 Tokyo Marunouchi/ Otemachi $ 155 London City Retail rents in the world s most expensive markets are expected to rise further in 2014, due to a shortage of prime available locations and a lack of new development 5. Retailers across all markets continue to target high-end shopping areas and international tourists. Hong Kong (US$4,333 per ft 2 per annum) remains the world s most expensive retail market by a substantial margin. Hong Kong s retail market has a greater representation of luxury retailers than any other global cities. With a healthy tourist market and a lack of available space, finding an adequate unit in a prime retail location is a major challenge for new and existing retailers. A large rental spread also exists between New York (US$3,150 per ft 2 per annum) where prime rent along Fifth Avenue is at record levels and Europe s two leading markets, Paris (US$1,426 per ft 2 per annum) and London (US$1,275 per ft 2 per annum). The gap between the top four and the next six is significantly wider. Global Retail Markets (Q3 2013) Prime retail rents rate of growth, while positive, showed signs of slowing in Q3 2013, as retailers exhibited cautiousness even as they positioned their businesses for the future. Given the shortage of prime locations and prime properties, rents will likely continue to rise in 2014, albeit at a slower pace. Retailer demand in Asia-Pacific is being driven by fast-fashion retailers that continue to enter new markets and introduce sister brands to cities where they are already established, such as Hong Kong. In the U.S., in addition to Fifth Avenue s record rents, there is strong demand for prime space in San Francisco s Union Square and on Lincoln Road in Miami. Meanwhile, in Europe, demand for flagship stores remains strong in London, Paris, Moscow and Zurich, among other cities. High and rising rents can only be mitigated by more development, but there is little prime retail space in the pipeline. In Western Europe, development activity remains limited, although there is some discussion surrounding the redevelopment of existing projects. There are notable exceptions, however, with two large projects set to open in Paris and a significant pipeline planned for France over the next three to $ 143 Paris $ 122

6 The Broll Report I 2013/ four years. While there is no short-term development in London, there is a major project in the southern suburb of Croydon and a planned redevelopment of parts of eastern Oxford Street, associated with the new Crossrail station. In the U.S., under-construction shopping center space is historically low. A notable trend is the emergence of smaller, city-format stores from major big-box retailers such as Walmart (Walmart Neighborhood Market) and Target (City Target). These developments are not expected to mitigate the high prime rents seen across the U.S., however. Top 10 Global Retail Markets Q EMEA America Asia Pacific Hong Kong $ 4,333 Source: CBRE Research Q New York $ 3,150 Global Office Rent Cycle (Q3 2013) Paris $ 1,426 London $ 1,275 Zurich $ 945 Sydney $ 910 Tokyo $ 876 Melbourne $ 764 Moscow $ 739 Rental Decline Accelerating Rental Decline Slowing Rental Growth Accelerating Rental Growth Slowing Sydney Shanghai Source: CBRE Research Q S S S Sāo Paulo Madrid Paris London City L London West End L H Hong Kong Auckland A M C F Frankfurt P L Los Angeles L Downtown S Singapore T W Washington D.C Mexico City Chicago Los Angeles - Century City Tokyo M N Beijing $ 674 Toronto T New York Midtown Asia-Pacific has significantly more development underway, in both its mature and its emerging markets, with Q new completions in the region totalling 3.4 million sq. ft. Around half of this development is located in emerging markets such as Manila and Bangkok. Global Office Rent Cycle As those in the commercial real estate business are fully aware, the office market is extremely cyclical. Each quarter, CBRE issues the Global Office Rent Cycle MarketView 6, which estimates a given market s position relative to a stylized cycle that has four declining phases and four rising phases. Markets are positioned in one of the eight phases using an estimate of the recent direction of in office rents. The analysis is based on the combined inputs of local CBRE researchers and transaction professionals. The latest CBRE Global Office Rent Cycle Report shows office markets to be scattered across the stylized cycle, with markets positioned in every phase of the cycle. Of the 19 markets positioned on the cycle, 13 are in the acceleration phase or at the trough. Only 6 markets are in that phase of the cycle where rents are declining. Generally speaking, European markets are showing signs of plateauing, while those in the Americas are seeing rents accelerate; in Asia-Pacific, markets are found across all phases. There are large intra-regional differences. In 2013, a clear majority of markets in the Americas (24 of 30) were on the rising side of the cycle. This rent performance is consistent with the tightening supply of prime office space in many markets, which has become more pronounced as employment in the professional and business services sectors especially in high-tech industries has grown. 6. Global Office Rent Cycle MarketView, Q

7 The Broll Report I 2013/ Global Capital Flows Commercial real estate (CRE) is an investment asset favored by investors and capital volumes were strong in 2013; there is every expectation this will continue into Data from CBRE s proprietary databases in EMEA and Asia-Pac, and RCA in the U.S., show volume today is about 50% of the peak global volume recorded in However, the activity of six years ago was strongly stimulated by leverage, which is not the case today. Activity is particularly strong in the U.S., reflecting its favorable property fundamentals. EMEA is also showing strong activity particularly that led by investment flow into the UK and the City of London, which is a favorite destination. Recent CBRE analysis shows that global investors share of European purchases has risen from 17% in 2011 to 25% in H1 2013, boosting total investment market turnover in Europe. 7 When looking at the investment flow data, note that the Asia-Pac data excludes development sites in the volume count, which shows Asia-Pac to be less than half the volume it would be if development sites were included. Capital Flows Increasing Regional Volume, $ in billions Global Volume, $ in billions for each geography and for total, income and appreciation returns are shown in the graphic. It is notable that for the Americas in particular, capital appreciation is a large share of total returns. In my view, this reflects the weight of capital in this market. We have seen similar results in London, as many investors wish to be in the same location or assets. Real Estate Returns Ever since the financial crisis that began six years ago, there has been little new construction in the world s mature or developed property markets. The only markets in which we have seen new supply are the emerging markets of Asia-Pac. But with CRE prices rising and fundamentals improving, we expect 2014 to be the beginning of a traditional, supplyinduced real estate cycle in the developed economies. $140 $120 $100 $80 $60 $40 $20 $0 $250 $200 $150 $100 $50 $0 One-Year Direct Real Estate Returns Total Return Income Return Appreciation Return Global 8.60% 2.60% 5.90% North America Continental Europe United Kingdom Asia Pacific Source: IPD, Fall 2013 Written by: Raymond Torto: Global Chairman of Research, CBRE 2007,1 2007,2 2007,3 2007,4 2008,1 2008,2 2008,3 2008,4 2009,1 2009,2 2009,3 2009,4 2010,1 2010,2 2010,3 2010,4 2011,1 2011,2 2011,3 2011,4 2012,1 2012,2 2012,3 2012,4 2013,1 2013,2 2013,3 Asia Pacific Americas EMEA Global Source: CBRE Research (EMEA and Asia Pacific), RCA (Americas); data excludes development sites. Updated for Q Global Returns Capital has flowed to real estate over the years, as CRE has been good for asset diversification within financial portfolios. The key motivation for investing in CRE in recent years, however, has been CRE s strong returns both in absolute numbers and relative to other asset classes. The latest report from the Investment Property Databank (IPD) shows CRE to have had one-year returns of 8.6% globally, led by North America with returns of 10.4% and Asia-Pac with returns of 8.8%. Lower returns were found in the U.K and continental Europe. The figures 7. Peter Damesick. What Determines the Destinations of Global Capital in European Real Estate? CBRE About Real Estate. November 18, 2013.

8 The Broll Report I 2013/ Cautious Short-Term Forecast for Listed Property There is no doubt that 2013 was a turbulent year for SA s listed property sector, which nonetheless managed to post a respectable total return of over 8%, strongly driven by income yields. Capital returns, on the other hand, were largely wiped out by weakening capital markets. As yields on long-term government bonds softened by 115 basis points (bps) to end the year at 7.9%, the historic rolled yield for listed property as a sector weakened by 31 bps to 6.9%. This pushed the trading premium of listed property to bonds to 104 bps. In context, it should be noted that SA listed property outperformed both bonds (0.64% total returns) and cash (5.2% total returns), although the sector trailed equities, which returned a solid performance of over 21% for the year. Looking to 2014, forecasts suggest that distribution growth in 2014 will remain reasonable, with above-inflation income distributions. A key short-term risk, however, is the continued slowing of capital markets, especially as the US Federal Reserve tapers its Quantitative Easing Program. Expectations are that the program will be completely wound up by the end of As the SA listed property sector saw in 2013, capital market volatility significantly impacts property returns. Investors would be wise to monitor the situation over the course of the next 12 months. Overall, the forecast for SA listed property in the short-term is cautious based on capital market fluctuations, challenging property market fundamentals and the premium yield spread on listed property relative to long-term bond yields. In the medium-to-long-term, however the outlook is more positive and property sector returns are likely to be attractive, with entry point pricing in a more normalized, long-term capital market and risk-free rate environment. But SA is not alone, with listed property globally reporting a difficult year in 2013 with a total return of less than 2%. The best performer last year was the Europe market, which posted total returns of 14.38% in US$ terms. As in SA, capital market weakness had a major impact on performance. Nonetheless, on-the-ground property fundamentals are on average - in far better shape than in SA. A couple of key global trends are already being noted for Emerging markets are seeing a softening of demand in general; and investors seem to be raising their sovereign risk requirements (or cutting their growth forecasts) for those markets. Investors favored safe havens in January, with listed property prices rallying in the US and the UK. Property fundamentals are nevertheless solid, as shown in 2013 results reported to date. Several listed property companies have reported full year numbers and on the whole they have been positive even surprisingly so. Global listed property currently trades at an estimated forward FAD (funds available for distribution) yield of 5.5% in US$ terms with forecast income growth of 3%- 4% a year. For a long term investor, these yields are indeed attractive when compared to other fixed income yields, like the US 10-year Treasury bond yield at a 2.5%-3% range. Asset Class MTD 12 - months Equities 2.98% 21.43% Bonds 1.13% 0.64% SA Listed Property 1.00% 8.39% Cash 0.45% 5.18% Source: Catalyst Fund Managers, RMB Credit Research Region 2013 Return % (USD) 2013 Return % (Rand) Global Investors Index 1.77% 26.03% North America 0.04% 23.88% Europe 14.38% 41.64% Asia ex Australia 2.34% 26.74% Australia -9.32% 12.30% SA Listed Property Index % 8.39% Source: Standard & Poors, UBS Securities, I Net Bridge

9 The Broll Report I 2013/ Property and the Economy in South Africa SA Property Market Watch, March 2014 SA s property market continues to respond to a macroeconomic environment characterised by lacklustre economic growth, exchange rate volatility and global uncertainty. However, strengthening vacancy rates in both retail and industrial sectors suggest that the market is moving up the property cycle. The correlation between GDP growth and the performance of the SA property sector is illustrated in the graph below. South African Property Returns, GDP and Interest Rates 30% 20% 10% 0% -10% 1995 Capital Income GPD Interest Source: Investment Property Databank, South African Reserve Bank In 2013, commercial property in SA recorded 15.3% total return, a slight improvement over the 15.1% returned the previous year. This reflects sector successes in controlling operating cost increases through effective property management interventions. With a total return of 17.1% in 2013, the industrial property market outperformed the retail and industrial sectors, which posted 16.8% and 13.6%, respectively. Industrial property is seeing relatively low vacancy rates combined with robust demand especially for high-tech, modern premises. The retail sector, in contrast, is displaying mixed results depending on the location and type of property. Investors are opting for opportunities linked to higher urban densities as well as retail targeting the growing middle-class. Offices, on the other hand, are experiencing relatively high vacancy rates which will likely be exacerbated by new developments coming on-stream in the short-to-mediumterm. Total Returns in SA Retail, Office and Industrial Property Markets, 2013 Retail Office Industrial All Property Total Return % 16.8% 13.6% 17.1% 15.3% Income Return % 7.6% 8.9% 10.3% 8.2% Capital Return % 8.6% 4.3% 6.3% 6.7% Source: Investment Property Databank Vacancies for decentralized, A-grade offices space in Johannesburg, Durban, Cape Town and Pretoria stands at 9.12%, 7%, 6.87% and 10.48%, respectively. Containing escalating operating costs is a key objective for property managers and tenants throughout the different sectors of the SA property market. The Investment Property Databank (IPD) reports operating costs increased by 13% in 2012, and 12.3% in the first half of 2013 compared to consumer inflation of 5.1% in Double-digit price increases in electricity and municipal costs are the major culprit, especially as they account for some 60% of operating costs in the office sector. And although some property owners have passed rising costs onto tenants, others have had little option but to absorb them. Not surprisingly, investors are adopting a cautious stance regarding new developments. The past year saw a marked slowdown in new projects, with a 44% year-on-year decline in the value of non-residential building plans passed. Nonetheless, this slowdown in development activity should result in improved vacancies and rental trends. Short-term prospects for SA s commercial property sector will largely be dictated by the sector s ability to contain operating costs. But the longer-term scenario will be determined by rapidly-evolving business practices, online retail technologies, and a significant improvement in SA s public transport infrastructure.

10 The Broll Report I 2013/ The Retail Sector The last 30 to 40 years have seen the SA retail market shift from traditional high street retail, to shopping centres in cities such as Johannesburg, Cape Town, Durban and Pretoria. Since 1994 there has been a steady increase in retail supply in the former regulated townships, with the latest retail development trend focusing on smaller towns and rural areas. The development of centres within these smaller towns and rural areas has led to a change in shopping patterns within certain catchment areas and increasingly aspirational consumers are now being offered a wider range of brands and products. There is currently around 20.7 million m 2 of formal retail space within SA, with the majority located in Gauteng (45%) followed by the Western Cape (15%) and KwaZulu-Natal (14%). There is a further two million m 2 of space under construction or in the planning stages and about 6% of that is the Mall of Africa being developed in Johannesburg. This development will be the largest single-phase retail development in SA history and the urban connector between two of SA s largest cities Johannesburg and Pretoria. Even though it has been said the SA retail market may be oversupplied in certain areas, the market is still a vibrant one, with a number of centres undergoing expansions and/ or refurbishments. Over recent years international brands have shown an increased interest in the SA retail market with the likes of Zara, Cotton On, Top Shop, Mango, Aldo, Burger King, H&M, City Chic and a number of others moving into the market. Additionally, most of these international retailers entry expanded their brands throughout the country and can now be found in a number of locations and shopping centres. SA youth are fast becoming a strong consumer segment with demand for world-class retail offerings Where SA Shops There are currently eight super-regional centres in SA. Fiveare in Gauteng; two are in KwaZulu-Natal; and one is in Cape Town. There are 48 regional shopping centres in SA. Some 60% are in Gauteng, 19% in the Western Cape and 6% in KwaZulu- Natal. The top retail shopping nodes in the country are: The 174,487m 2 Sandton shopping district, comprising Sandton City, Nelson Mandela Square, Legacy Corner and Michaelangelo Towers Mall; The 89,000m 2 Victoria & Albert Waterfront shopping district, comprising Victoria Wharf Shopping Centre, Clock Towers Retail Centre and Alfred Mall; and The Gateway Theatre of Shopping with a GLA of 154,840m 2 located north of Durban. Concentrations of global shopping brands can also be found in Hyde Park Shopping Centre, the Monte Casino complex, and Melrose Arch in Gauteng; and Cavendish Square Shopping Centre in the Western Cape. SA Consumers SA consumers are a diverse and differentiated group, with different cultures, styles and traditions. However, SA shoppers are typically knowledgeable, loyal and increasingly more demanding in their appetite for quality and choice. They are also increasingly worldly and aware of international trends and global brands. SA youth are fast becoming a strong consumer segment with demand for world-class retail offerings, entertainment options, branded goods and luxury retail brands. Above all, they have a limited tolerance for offerings that don t meet their demands. Major drivers of retail growth include consumption of food products; the expanding middle class; and rising demand for high-value goods such as high-end fashion, jewellery, furniture and homewares. Retail Property Investments In 2012, retail was the best-performing property investment sector in SA, posting a total return of 17.1%, with an income return of 8.4% and capital growth of 8.1%.

11 The Broll Report I 2013/ Indeed, retail property has been one of the highestperforming property sectors in recent years, returning 13.4%, 12.0% and 18.8% growth over the past three, five and ten years, respectively. Nevertheless, different categories of retail centres can and do perform differently. Retail Performance Retail sales remained relatively flat in SA in 2013, largely due to consumers remaining under pressure as a result of a slowdown in income growth, rising costs (fuel, services, etc.), rising debt due to unsecured lending, high unemployment and the overall rise in the cost of living. Certain sectors continued to struggle video, music and furniture are examples but value and mass market retailers are starting to post encouraging results. During the first half of 2013, small regional centres showed a year-on-year growth in overall trading densities of 7.3%, followed by super-regional centres at 6.4%, and neighbourhood centres at 6.3%. Regional and community centres came in below inflation, showing a growth of 4.8% and 4.4% respectively. Super-regional centres had an overall trading density of R2,718/m 2, regional R2,217/m 2, small regional R2,139/m 2 and community and neighbourhood centres R2,208/m 2 and R2,662/m 2, respectively. Rental growth for all types of centres has trended above inflation although increases in municipal and labour costs have been a persistent challenge. Retail Trade Sales 15% 10% 5% 0% -5% As a result, occupancy costs have continued to rise with a negative impact on marginalised tenants. Rental rates in super regional centres are substantially higher than in other centres at around R250/m 2. As a comparison, rents are closer to R180/m 2 in regional centres, or R150/m 2 in small regional centres. Rents for anchor tenants are lower than for other tenants, because of their ability to attract foot traffic. National retailers are also less risky, occupy larger premises and sign longer leases. Smaller retailers pay premium rentals due to store size and are perceived as higher risk as well as being more management-intensive. SA continues to offer strong and varied retailing opportunities which are driving international retailer focus on the continent and on-going retail development to meet growing consumer demand. Source: Statistics SA -10% Latest sales figures from national retailers are set out below: Massmart s total sales grew 9.7% to R72.2bn in the 53 weeks to December 29, but by only 7.5% on a 52-week basis. - Massbuild (Builders Warehouse, Builders Express and Builders Trade Depot) rose 11.9%, and 8.2% on a comparable basis; - Masswarehouse (Makro) grew 14.1% and 4%; - Massmart s food wholesale business (Masscash) gained 6.5% and 3.8% on a comparable basis; and - Massdiscounters (Game and DionWired) saw sales advance 8.6% and 1% comparably. Woolworths food sales grew 15.3% and clothing sale 10.7% in the 26 weeks up to December 29 compared to 7.8% and 7.7% respectively for the same period in 2012.

12 The Broll Report I 2013/ Retail sales for other retailers (excluding new shops) to the end of December include : Shoprite Group 6 months 4.3% 6.9% Truworths 26 weeks 1.1% 9.8% The Foschini Group 9 months 4% 5.6% Mr Price 3 months 10.5% 4.4% Retail Property Trends Key retail trends to watch in the sector for the next year include: The increasing presence of global retailers in SA and their further expansion into Africa; The preference of certain large, national tenants for stand-alone retail stores to avoid high common area costs and lower utility costs; New development in former townships and periurban areas, with the proviso that retail development appropriately meets the needs of the trade area; More convenience retail is an increasing trend, with forecourt offerings from Woolworths, Pick n Pay and Spar at petrol stations a prime example. The use of technology in retail centre marketing is becoming more common. For example, many retail centres now offer apps that allow consumers to interact directly with their favourite stores, view sale items, and find gift ideas. Furthermore, the use of Facebook, Twitter and Instagram is a mainstream part of retail malls marketing and promotional activities. Chinese-owned malls are springing up across SA, especially as struggling retail centres are converted into value centres, with an often negative impact on domestic competition. Trends to Watch in 2014 On the demand side, there has been a glut of enquiries for frozen yoghurt and ice cream stores, and at least eight franchise operators are currently active in the sector. The Chesa Nyama concept faces a similar risk of over-supply. No-frills gyms and home improvement centres have also been active in their acquisition of sites. In KZN, retail brokers report escalating demand from independent retailers and franchises, with Durban CBD and umhlanga the highdemand nodes for retail space. Overall, tenants are looking for space between 60m² and 450m², and demand is forecast to increase after remaining soft in Major new retail entrants include Cotton On and City Chic, H&M, Lush and Lovisa. New education brands like Kumon and Master Maths are moving into previously difficult retail spaces. In the Cape Town CBD, Burger King kicked off its entry into SA with much fanfare last year and since then has added to their SA presence with the opening of three new outlets, two in Johannesburg and one in Centurion, in February. On the supply side, space increased in 2013 as projects came on-stream and landlords battled line store delinquencies. Indeed, rising supply is expected to continue in At the same time, there are a number of rural developments currently in the pipeline and the impact of these on spending patterns as they open for trade needs to be monitored. Examples include: 12,000m 2 Mahwelereng Shopping Centre and the 19,500m² ModiMall in Limpopo; and 12,000m 2 Ivydale Centre in Polokwane. In KZN, after a year with little new space coming on-stream, construction will begin on the 36,000m 2 Gandhi Square in umhlanga and the 50,000m 2 Mabuya Mall in Newcastle, scheduled will be rolled out in two phases of 25,000m 2 each. The market is finding its equilibrium with achieved gross rentals between R115-R185/m 2 /month, and net lease escalations are in the range of 6%-8%. Operating cost escalations at 8%-9% and lease terms of between two to five years are typical in the current market. Key factors to watch include escalating municipal charges, the impact of proposed e-tolls, and municipal plans to tackle transport and related issues. The City of Tshwane, for instance, is embarking on a transport upgrade in the inner city; the City of ethekweni is looking to relocate street vendors into dedicated spaces locations within the Durban CBD, as well as moving bonded vehicles out of the CBD to create added trading space. A Final Comment About Online Retail The SA market is still dominated by competition between retailers on the ground, but online shopping in starting to show increased market share indeed, the industry is expected to make up R4.2 billion of SA s GDP in Estimates suggest online sales represented accounted for about 2% of the total retail market in SA in However, online shopping in SA has its challenges, including the size of the country, poor transport infrastructure, the lack of internet accessibility and a general distrust of online payments. The trend to date is towards providing an information platform to assist consumers in their decision-making.

13 The Broll Report I 2013/ The Industrial Sector SA s industrial property market, underpinned by manufacturing, is increasingly being affected by the downturn in GDP growth, a slowdown in manufacturing output and the continued weakening of the Rand. While a weaker currency gives local manufacturers an opportunity to compete with imports, the sector s poor performance in recent years combined with softer demand from the Eurozone means they often do not have the capacity to take advantage of it. Furthermore, a range of challenges negatively impact SA s ability to drive new industrial growth: continued fuel price increases; wildcat strikes; high and escalating input costs for electricity and labour; and a lack of skills are all key examples. Manufacturing Production Latest data shows that manufacturing production increased by 2.5% in January 2014, which was on par with the December 2013 figures. This was generated by: Food and beverages contributed 1.3%; Basic iron and steel nonferrous metal products metal products and machinery contributed 0.5%; Petroleum chemical products rubber and plastic products contributed 0.5%. The overall manufacturing production for 2013 was 1.3% with shrinking domestic demand a great concern for the manufacturing sector locally. Overall, manufacturing has been decreasing ( %, % and %) since the recovery in 2010 (4.6%) which was up from -13.8% in the previous year. Manufacturing Production Source: Statistics SA While exports - especially to African countries - have increased thanks to a weaker Rand, labour unrest and rising costs continue to hamper not only local production but the attractiveness of SA-based manufacturing for international companies. Balance of Trade 15% 10% 5% 0% -5% -10% -15% -20% -25% The industrial sector in SA is highly dependent on imports and exports, which makes the Balance of Trade (BOT) a key indicator for the sector. Latest data shows SA continues to have a negative BOT at some R17.06 billion compared to a surplus of R2.7 billion in January This can be attributed to an increase of 0.1% in exports and 26.3% in imports. In other words, the value of imports still significantly

14 The Broll Report I 2013/ exceeds the value of exports.the cumulative BOT deficit for 2013 stands at R17.06 billion, compared to R17.64 billion for 2012, showing that exports remains weaker that imports. This will continue to have a negative impact on the manufacturing sector, but may have a positive impact on the warehousing sector. Africa is SA s only trade partner where the BOT in January was in surplus (exports exceeding imports), however, the surplus decreased from R14.8 million in December to R8.3 million in January. Balance of Trade 15,000 10,000 5, ,000-10,000-15,000-20,000-25,000-30,000 Balance of Trade (R million) Source: SA Revenue Services Policies and Legislation Jan 12 Mar 12 May 12 Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 There are a number of existing and proposed pieces of legislation as well as government policies that will have a major impact on the industrial sector. Specialised Economic Zones Bill, 2013 The Specialised Economic Zones Bill (SEZ) approved by Cabinet in November 2013 is the Department of Trade and Industry s (DTI) proposed intervention for long-term industrial and economic development. The proposed SEZs 8, together with the existing industrial development zones (IDZs) form the backbone for fixed investment, both local and foreign, in SA s most under-developed regions. 8. A special economic zone is a geographically designated area of a country set aside for specifically targeted economic activities, which are then supported through special arrangements (which may include laws) and support systems that are often different from those that apply in the rest of the country. The goal is to boost regional development and create employment in areas that lack industrial development. There are ten possible SEZs identified in eight of the provinces and feasibility studies will determine the final cut. Three of the proposed SEZs will be located in Limpopo: in Tubatse, focusing on platinum-group metals; in Messina focusing on petrochemicals, agro-processing and logistics; and in Nkomati focusing on agro-processing. Additional SEZs are being considered in: North West - Rustenburg which will focus on platinum; Western Cape - Atlantis which will focus on renewable energy; Northern Cape Upington which will focus on solar power; Eastern Cape Wild Coast which will focus on agroprocessing; KwaZulu-Natal Dube Trade Port will focus on agroprocessing; Free State Harrismith will focus on agroprocessing and logistics; and Gauteng Nasrec which will focus on agroprocessing and logistics. Industrial Development Zones (IDZS) The pivotal difference between IDZs and SEZs is that the former is focused on exports, and thus located close to ports and airports. The existing IDZs have not been as successful as anticipated with a total investment of over R11 billion generating some 33,000 jobs. Over time, analysis has shown that a lack of competitive incentive programmes has hamstrung SA s IDZ initiatives. SEZs, on the other hand, have a wider industrial development mandate and can be located anywhere. There are four proclaimed IDZs in SA: Coega, in Port Elizabeth, in the Eastern Cape with priority sectors ranging from the automotive value chain, aquaculture, agro-processing, including food and beverage manufacturing, ferrous metal processing and fabrication, chemicals, logistics, energy and fuel, services and business-process outsourcing, as well as call centre operations; East London, also in the Eastern Cape, which caters for aquaculture, agroprocessing, including food and beverage manufacturing, information and communication technology and electronics, renewable energy as well as pharmaceuticals and general manufacturing; Richards Bay, in KwaZulu-Natal which focuses on timber beneficiation, mineral beneficiation, component manufacturing and granite processing, as well as food and beverage manufacturing; and OR Tambo International Airport, in Johannesburg. A fifth IDZ at Saldanha Bay in the Western Cape is currently being developed. Sectors to be targeted include the upstream oil and gas sector, logistics, and marine-related activities. Disappointing performance notwithstanding, IDZs represent four of the top ten government investment projects for The Industrial Policy Action Plan 2013/ /2016 The Industrial Policy Action Plan (IPAP) was crafted to help create regional and industry hubs or clusters in order to strengthen and diversify the industrial sector by attracting foreign and domestic direct investment, create jobs and provide a platform for skills and technology transfer.

15 The Broll Report I 2013/ IPAP has to date generated successful outcomes in the textile, automotive and green industries. It has likewise had a positive impact on public procurement and industrial financing. IPAP also gave birth to the SEZ Bill discussed earlier. However, the future success of IPAP is at risk from lower demand for local manufactured goods, a slowdown in public and private investment, the ongoing inefficiencies at ports, and high costs and inefficiencies in road and rail freight and logistics systems. Industrial Property Investment Despite the very real challenges facing the manufacturing environment in SA, the industrial property sector has in fact performed well, posting a total return in 2013 of 17.1%. Key indicators that drive the sector s performance are: operating costs, vacancies and the changing nature of space users: Increased operating costs continue to impact all categories of the industrial property sector, and this is expected to continue in Industrial vacancy rates for SA decreased from 4.4% in December 2012 to 2.8% in the first half of But they remain lower than the three-and-five-year averages of 4.7% and 4.8% respectively. This may be attributed to a decrease in new industrial space. High-tech industrial shows the lowest vacancies at 1.0%, followed by warehousing at 1.6%. Light manufacturing properties returned the highest vacancies at 4.3%. The demand for warehousing is being underpinned by logistics and distribution companies requiring space in close proximity to airports and harbours. Geographically, the Western Cape displays a negligible 1.5% vacancy rate, followed by Kwazulu-Natal at 2.2% and Gauteng at 3.3%. In terms of highest net income from industrial properties, Gauteng achieves R32.20/m 2 /month, followed by the Western Cape at R31.50/m 2 /month and KwaZulu-Natal at R30.80/m 2 /month. The changing nature of industrial users means that industrial parks with good security, park-like surroundings, appropriate stacking heights and business clustering opportunities are more in demand than older spaces in traditional industrial nodes. South Africa is a net importer resulting in the need for warehousing driving land take-up, rental growth and building cost increases. Industrial Market Returns Capital Growth Income Return Total Return Reclassification of Industrial Uses Due to the changing nature of the industrial sector, the Investment Property Databank (IPD) has suggested changing the current industrial property classification. The rise of the logistic sector has necessitated a distinction between pure warehousing, large distribution centres and storage facilities with manufacturing being classified as heavy (manufacture goods for other manufacturers) or light (manufacture goods for consumers). Industrial Property Trends Gauteng 40% 35% 30% 25% 20% 15% 10% 0% -5% -10% 18% 17% 13% Source: Investment Property Databank Growing demand for larger warehouse premises % 8% 7% 7% 9% The industrial property sector in Gauteng continued to perform well in 2013, with very low prime vacancies and growing demand for larger warehouse premises in particular. The outlook for 2014 is for escalating demand and a parallel decrease in supply, which will likely push up both rentals and competition for prime spaces. 18% % % 31% 34% % % % 16% 17% 17% 14% 13% 12% yr avg 10 yr avg 15 yr avg

16 The Broll Report I 2013/ Demand patterns vary widely, with spaces from as small as 150m² up to 60,000m². Brokers report that tenants might be increasingly rent-sensitive but are also conscious of green, energy-efficient buildings. The result is that older, less efficient properties are harder to lease than ever. On the supply side, expectations are that new development activity will continue close to OR Tambo International Airport, especially along the R21 freeway, as well as in Midrand and nodes like Gosforth Park. Demand and supply are finding equilibrium at gross achieved rentals of R50-R60/m²/month with average net lease escalations around 8%. Operating cost escalations, due to uncertain municipal cost increases, are higher at as much as 15%. The average lease length is three to 12 years and landlords are incentivizing deals with one to two months rent-free. KwaZulu-Natal In KwaZulu-Natal, large warehousing and factory premises have enjoyed solid demand in the past 12 months both from tenants and investors. Like Gauteng, expectations are that the province s growing industrial nodes could see a supply crunch in Demand is high for good warehousing with high yard ratios and dock-levelling facilities preferably under R50/m 2 gross and within 15km of the Port of Durban. Enquiries have been received for spaces from 1,000m 2 to 20,000m 2. Land prices in nodes like the South Durban Basin have crossed the R2,000/m 2 mark, but a gap continues to exist between development feasibility and market demand for state-ofthe-art spaces. Supply has decreased in the past year, especially around the Port of Durban, although space is available in outlying nodes such as Ballito up the North Coast and in Cato Ridge close to Pietermaritzburg where land and buildings are still for sale. The recent release of 66 hectares of industrial land in Cornubia north of Durban has done little to ease demand and is already sold out. A prominent developer purchased some 16 hectares of prime land and is developing a high- tech warehouse for a specialized logistics company. A key focus area for 2014 will be the Durban-Gauteng freight corridor and spin-off development for areas like Cato Ridge, Hammarsdale and Howick. The Dube Trade Port is another initiative to watch as a catalyst for industrial property demand. Another public sector initiative to watch is the proposal by the City of ethekweni to increase infrastructure spending by 400% - with a predicted multiplier effect on private investment. The market is finding equilibrium at achieved gross rentals of R48-R55/m 2 /month and net rent escalations at 7%-8%. Operating costs escalations run at 9%-10% and the average lease being signed is for three to five years. There is however little evidence of landlord incentives, an indication that competition for space is fierce. Western Cape Industrial property in the Western Cape has seen recovery gather momentum, with rentals and land prices strengthening in Public sector initiatives that are likely to boost the sector include improved spending on road infrastructure, better public transit and the establishment of City Improvement Districts in industrial nodes. Focus nodes for demand are Airport Industria, Epping, Montague Gardens and Brackenfell where take-up rates have accelerated in recent months. Prime space is seldom on the market for more than three to six months. In 2013, large retailers developed centralized distribution centres in the province, which absorbed a significant amount of bulk land. Tenants opted to develop on ten- to 12-year leases at strong rentals. In 2014, the demand for prime land is expected to increase. New supply is coming on-stream in high-demand nodes, with speculative activity in Epping and Montague Gardens a good indicator of developer confidence. In all, there is more than 100,000m 2 of new industrial space under construction in the greater Cape Town area for The market is finding equilibrium at gross achieved rentals between R35-R55/m 2 and net rent escalations of 7%-9%. Average lease terms are between three and ten years. At the same time, there is more development competition between local developers and the listed funds that are increasingly entering the development market in the Western Cape. Older, obsolete buildings continue to remain vacant however and property owners will need to consider refurbishment or redevelopment to make them rentable. Eastern Cape In general, industrial property market activity has been on the rise in the Eastern Cape, with notable interest from logistics firms. However, a slowdown in the automotive sector combined with continual strikes and bureaucratic delays have acted as dampeners on the market. In 2014, expectations are high for a stabilizing political environment throughout the province. Ongoing investment in the Coega Development Corporation is another positive factor in the industrial property market. Current projects at Coega include a R400 million smelter facility; a R300 million air separation unit; and the R200 million First Automobile Works. Demand is being seen for space in the 500m 2 to 3,000m 2 range with a yard, good stacking height, roller shutter doors and a minimum office area. There has been a definite decline in enquiries for traditional manufacturing premises. From the supply side, growth is anticipated in Greenbushes and on the General Motors site as well as at Coega. Sidwell, Neave Township and Struandale are also high-development nodes. Landlords are starting to upgrade older properties, pushed by strong demand for efficient premises with open span, height and yard facilities. Examples include the Kerbels site and the old Sydenham Liquors property, both of which are welllocated for the Port and to Port Elizabeth s manufacturing cluster. Deals are currently being concluded at gross rentals of R25-R45/m 2 /month and net lease escalations of 7%-9%. Average lease terms remain at between three to five years.

17 The Broll Report I 2013/ The Office Sector SA s office sector remains under pressure for a range of macro-economic and business factors, not least of which is weak GDP growth. The prime nodes however are forecast to perform well in Take-up of office space is firmly focused on premier and A-grade nodes that offer contemporary, green buildings. Older, secondary nodes are lagging behind and facing high vacancies, dragging overall sector performance down as a result. Development tends to be restricted to high-demand nodes where developers feel risk is minimal. Re-development has emerged as a trend in recent months, as the supply of available zoned land has tightened. A spin-off has been higher asking rentals for both new developments and existing properties. Rising buildings costs have also put pressure on asking rentals, a trend noted in the industrial property market too. Tenants battle to find quality available space in prime areas for under R100/m 2 /month. As an indication, rentals achieved for new developments in the high-demand northern suburbs office nodes in Johannesburg are around R120/m 2 to R180/m 2. SA s office market nonetheless remains competitive for foreign tenants, especially compared to typical European rentals of between R220/m 2 and R300/m 2. As a comparison, top office rentals in London s West End sit at R730/m 2. Office supply as recorded by SAPOA increased in Q to 16.2 million m 2 with an additional 796,000m 2 under construction. More than half of the space under development is speculative, a sign of developer confidence but also a red flag for future over-supply unless demand keeps pace. The prevailing office vacancy rate in SA is around 11.2%. 40% of development in Sandton is speculative Throughout SA and across all sectors of the property market, rising operating costs are putting upward pressure on the bottom-line of both tenants and investors. Property operating costs include: Real wage increases, which make up a high percentage of input costs such as cleaning and security services; Increased municipal valuations, which inflate or deflate total assessment rates office properties; Escalating petrol prices, which increase contractor prices; Imported input costs for items such as lifts, escalators and air-conditioning, which are affected by currency fluctuations; and Building insurance costs, which have risen significantly over the last few years. A major factor in operating costs currently is uncertain and fluctuating assessment rates. These are excluded from gross rentals because of their unpredictability, adding an additional cost burden to property owners. Cost increases for water, electricity and refuse removal are likewise exacerbating the situation. Assessment rates and municipal services right now account for some 59% of total expenses. Rates and taxes alone account for 21% and electricity 32%. Office Market Trends Gauteng Sandton remains without doubt the premier office node and financial hub in Gauteng, if not SA, and this position has only been consolidated by the Gautrain Station in the node. The coming year promises to see more demand for high-rise corporate offices, especially related to the financial services and banking sectors. There is certainly demand for premiergrade space and new developments in the Gauteng office sector, and this has largely remained steady in 2013 with a similar expectation for Activity is highly concentrated around the Sandton and Rosebank office nodes, although despite the appeal of both, traffic congestion is an ongoing concern saw stable supply but the outlook is for increasing development in 2014 especially prime space. In Sandton, some 120,000m 2 is currently under development, all for blue-chip corporate occupiers: 67,000m 2 for the new Sasol head office; 90,000m 2 for Discovery Health; 30,000m 2 for Webber Wentzel attorneys and 23,000m 2 for Ernst & Young. The market is finding equilibrium at gross achieved rents of up to R175/m 2, supported by net lease escalations of 9%-10% and operating costs escalations at the same level. Average lease terms are for five to ten years and enquiries tend to range from 500m² to 20,000m 2.

18 The Broll Report I 2013/ KwaZulu-Natal The office market in Durban CBD remains stable in terms of both demand and supply, and the outlook is positive for steady activity in both the city centre and fringe in Demand for offices in KZN during the past year has been declining, but forecasts for 2014 suggest some stabilization and increase in Although enquiries for smaller office spaces of between 20m 2-200m 2 have been the norm for the past year, there are signs that a few larger enquiries are being brokered for offices up to 2,000m 2. In Durban itself, Morningside, Glenwood and the Berea are prime and continue to see demand from tenants leaving the CBD. To the north of the city, La Lucia Ridge and umhlanga are prime nodes for a range of different users. Even within La Lucia and umhlanga, there are distinct nodes. La Lucia Ridge Office Parks tend to be the older buildings, while Ridgeside is the newest office node in the region. Plans for new supply around the Dube TradePort and King Shaka International Airport will have spin-offs for the office sector, boosted by the focus on international trade and investment. Major new projects on the cards for the city centre in 2014 include the re-development of the former McDonald s site at the juncture of Smith and West Streets, and Sydney Road Extension; and the re-development of the former NMI Mercedes-Benz site at West, Fairwell and Shepstone Streets. Activity in Durban s Point node is also expected in Achieved gross rentals in Durban CBD are R45-R50/m 2, with both net lease and operating cost escalations of 9%. Prime space in Durban s office nodes achieves gross rentals of R65-R100/m 2, while La Lucia and umhlanga achieve as high as R135/m 2. Net lease escalations are 8%-10% and operating costs are 8%-12%. Average lease terms across metropolitan ethekweni are three to five years. Western Cape Cape Town CBD faced an imbalance of office space last year, with increasing supply outstripping demand. The situation is expected to continue into Premier-grade space in the CBD has seen a decline in vacancies, but the converse applies to B-grade space with vacancies peaking at new highs. Generally there is an increase in vacancies within the CBD. The office market is playing out differently at Century City, one of Cape Town s prime mixed-use nodes, where office demand and supply have both been rising - and are likely to keep rising for the next 12 months. Demand in the Cape Town CBD has been flat and vacancies are on the rise, although there are high expectations for the roll-out of improved transit in the CBD. The role of the City Improvement District (CID) and the opportunity created by the Urban Development Zone (UDZ) are also seen as positives in the city centre. Demand at Century City is typically for smaller spaces between 200m 2 and 1,500m 2 - and the preference is to own, not rent. In terms of supply, Cape Town CBD will see 12,000m 2 Roggebaai Square due for completion by yearend. The Portside development, due to come on-stream in April 2014, will already be half occupied on completion. There are new office developments in the V&A Waterfront, but these will only proceed once tenants are secured. The Christiaan Barnard Hospital will soon be relocating to the Foreshore and is expected to catalyze a medical hub in the longer-term. Sizeable leases concluded in the CBD in the past period include Bowman Gillfillian Attorneys of some 7,000m 2 ; Tourvest taking up 1,200m 2 and local on-line Takealot.com taking up 2,000m 2. In addition, the 10,500m 2 Touchstone House sectional title scheme is 90% sold. Century City looks set to see an additional 35,000m 2 of new office space come on-stream in Despite this new supply, vacancies at Century are at an all-time low of 2%. Gross achieved rents are at R120-R170/m 2, with both net lease and operating costs escalations between 8%-10%, depending on lease terms and rental levels negotiated. Lease terms are typically three to five years, however, deals have been concluded for longer periods for buildings built specifically to tenant requirements. Sizeable leases concluded in Century City include a new business centre for 4,000m 2, the new Chevron headquarters of about 9,000m 2, and the opening of Curro Private School in January Eastern Cape The Eastern Cape office market is generally slowing and skewing towards smaller spaces, with 2013 characterised by decreasing demand and increasing supply a recipe for a tenant s market. On the demand side, the release of substantial office space by ABSA created a glut in the market, and exacerbated an already soft economic environment. There are likewise concerns that the move of government offices out of the CBD will have a negative impact. Enquiries for office space range from 250m 2-750m 2, with a preference for open-plan premises served by ample parking.from the supply side, 2014 is expected to see an oversupply of office space. Without doubt the most popular nodes in the Eastern Cape are Greenacres/Newton Park and William Moffett/Fairview and new office development is likely to be located in these areas. Humerail and Richmond Hill are nodes to watch in the coming 12 months. Newton Park is seeing old houses being developed to A-grade office space of between 50m 2-300m 2. Where deals are being done, equilibrium is achieved where rents are R65-R95/m 2 on a three to five year lease. Net rental escalations are 7%-8% and operating cost escalations are at 8%-10%. Gross Achieved Rentals and Demand in SA Provinces Province R/m 2 Demand (m²) Gauteng ,000 KwaZulu-Natal ,500 Western Cape ,500 Eastern Cape

19 The Broll Report I 2013/ The Residential Sector Residential property in SA has experienced slow but somewhat steady growth in recent years, reporting a rise in activity as well as ongoing demand for housing. In fact, demand for residential property in the major metropolitan areas is now generally believed to have outstripped supply, creating a seller s market in cities like Johannesburg and Cape Town. Within those cities, specific nodes are especially popular. Mixed-use Melrose Arch in Johannesburg s northern suburbs and the urbanist Maboneng Precinct in downtown Johannesburg; and Cape Town s Central City and Woodstock regeneration nodes are good examples. Demand is being driven by a keen focus on lifestyle. Home buyers want proximity to public transit, convenient shopping and a diversity of creative spaces. Buyers increasingly want a choice of different types of homes and a walkable community within easy reach. The Maboneng Precinct, for example, offers an appealing blend of loft apartments, offices, a hotel, museum, creative factory spaces, restaurants, retail stores and entertainment venues which is particularly appealing to the younger generation. Middle class growth notwithstanding, affordable housing remains in high demand throughout SA. A persistent lack of low-to-medium-income housing options remains a key feature of the marketplace with the current development rate of some 25,000 units a year falling short of total demand, which stands at about one million homes. Developers are slowly realizing that although profit margins may not be extremely high, the demand for such units is not only extensive but still growing. In line with strong demand trends, the demand for mortgage finance has remained high even through the economic downturn. Home Loans is a Case In Point Bond Originators have seen a 5.06% rise in the number of mortgage applications received year-on-year with the total value of applications some 12%-20% higher. More than 50% of applicants are first time home buyers. The total value of mortgages approved increased by 22%-25% year-on-year. An overall approval rate of around 70%-80%. An easing in lending criteria, combined with a low interest rate, has without doubt contributed to the higher demand for residential property, however, projections for further rates increases during the year may slow demand. House price growth is expected to rise in 2014, although this may be at a marginal rate. Furthermore, the recent increase in the repo rate to 5.5% as well as further expected increases during the year may slow growth, with over-extended consumers being hardest hit. The sector performed relatively well in 2013, with housing analysts reporting a 7.4% year-on-year increase in national house prices in December 2013, or an increase of two percent in real terms with CPI at 5.4%. National House Price Growth The Residential Property Index further indicated that freehold properties experienced a higher growth than sectional title properties at 7.7% compared to 6.7% year-on-year. Coastal properties were performing better than non-coastal properties in the 3rd quarter of 2013, with a growth of 7.3% vs 6.1% being recorded. Overall, in terms of area value bands year-on-year growth as at December 2013 varied. Mid-value achieved the highest growth of 8%, followed by the luxury band at 6.7%, and then by the high value band at 6.4%.

20 The Broll Report I 2013/ National House Price Growth National House Price Growth 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% Global Buyers Tend to be in Ultra-High Luxury Bracket Although international investors represent only a small proportion of residential property buyers in SA, there does seem to be increasing interest for the Western Cape Winelands as a luxury home-buying destination. The recently-released report Luxury residential enclaves in the Global Prime Sector tracks locations throughout the world where ultra-high-net-worth individuals are investing in additional homes and mentions the Cape Winelands for the first time. Perhaps the Western Cape Winelands will soon join the likes of Côte d Azur in France, Costa Smeralda in Italy, St Barts, Aspen in the USA, Monaco, Barbados and others :1 2013:2 2013:3 Oct 1 3 Nov 1 3 Dec 1 3-5,5% 2,6% 4,1% 2,8% 4,4,% 5,1% 6,2% 7,0% 7,2% 7,4% 7,4% Source: Lightstone New Trends to Watch in 2014 Younger people today are living at home with their parents longer than they did even a decade ago. The high cost of living, rising interest rate and escalating petrol prices are all factors in this decision. And while young people face higher unemployment rates than their parents did, there are cost savings from living at home that might see younger buyers increase their spend on luxury goods and services. Residential Property Makes Some In-Roads into Listed Portfolios While it is true that residential property makes up only a small proportion of SA s listed property sector, there are signs that listed funds may diversify into it more in the future. Research suggests that listed property funds in developing markets are made up of 11% residential exposure by value; emerging markets are made up of around 15%; and SA only consists of approximately 1%. However, several of SA s listed funds have diversified their portfolios to include residential property. Examples include: Octodec Investments (8% residential exposure); Premium Properties (30% residential exposure); Growthpoint Properties (43 residential properties); and Arrowhead Properties (purchased a residential property portfolio for R406 million).

21 The Broll Report I 2013/ The Hospitality and Leisure Sector SA s tourism sector is diverse, vibrant and characterised by a range of options. For the property investor, the main focus is often on topperforming hotels that serve vacationing tourists and conference goers. But the sector has a great deal more to offer was a positive year for the SA tourism sector, after the lows of global recession in and the high of the World Cup in By all accounts, preliminary data for 2013 show this positive trend is continuing. Year-on-Year % Change in Tourist Accommodation Total Industry Statistics Stay units available 2013 Jun Jul Aug Sept Oct Nov The SA hotel and accommodation market experienced strong growth in capacity and room revenue between the years 2006 and 2008, before a sharp decline in 2009 on the heels of global recession. The 2010 World Cup provided a major boost to the tourism sector, and promoted SA as a tourist destination. And in 2012 hotel room revenue increased by about 11.4%, with total room revenue growing by 13.4%. Furthermore, the indicators for 2013 are already looking positive. Statistics SA reports that total income, in current prices, for the tourist accommodation sector (including restaurant sales, bar sales and other income) increased by 10.5% year-on-year as at November When comparing data from June 2013 to November 2013, the only indicator that showed a slight decrease was the number of stay units available. Room Revenue in South Africa (ZAR millions) Total 9,158 10,936 12,312 11,867 13,850 13,368 15,159 Stay unit nights sold Average income per stay unit night sold Total Income Income from accommodation Income from restaurant and bar sales % Change Hotels Only 7,134 8,446 9,533 8,829 10,317 9,594 10,688 % Change Other income *Income at current prices *Data for November is preliminary Source: Statistics SA Source: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

22 The Broll Report I 2013/ Tourist Accommodation Statistics Total Industry Statistics 2013 June July August September October November Stay units available (000) Stay unit nights sold (000) 1, , , , , ,891.4 Occupancy rate (%) Average income per stay unit night sold (Rand) Total income (R million) 2, , , , , ,155.4 Income from accommodation (R million) 1, , , , , ,471.5 Income from restaurant and bar sales (R million) Other income (R million) 1, , , , ,8 1,150.5 *Income is at current prices *Data for November is preliminary Source: Statistics SA The accommodation sector is made up of varying accommodation types: these include hotels, caravan parks and camping sites, guesthouses and guest-farms, and other accommodation. Each of these accommodation types recorded differing percentages in terms of income change year-on-year, with guest farms and guest houses recording the highest change as at November 2013 at 26.4%. Year-on-Year % Change in Income (Current Prices) from Accommodation by Type Type of Accommodation 2013 June July August September October November Hotels 6.3% 10.2% 15.6% 9.6% 9.4% 12.5% Caravan and camping sites 14.9% -0.9% 9.3% -0.9% -20.4% -9.6% Guest-houses and guest-farms 1.3% 1.2% 4.1% 9.7% 7.1% 26.4% Other accommodation 11.4% 16.5% 13.7% 10.8% 13.6% 10.4% Total income from accommodation* 7.3% 11.1% 14.2% 9.8% 10.1% 12.8% *Income is at current prices *Data for November is preliminary Source: Statistics SA When focusing on the number of travellers entering and exiting the ports of SA (3,185,067 people as at October 2013), the volume of arrivals decrease for South Africans but increased for foreigners and the volume of departures increased for both groups year-on-year, i.e. South African resident s volume of arrivals decreased by 2.0% and departures increased by 1.4%, whereas foreign traveller arrivals increased by 7.9% and departures increased by 14.2%. Of these 3,185,067 people, approximately 892,196 travelled by air, 2,284,010 travelled by road, 8,754 travelled by sea and 107 were classified as unspecified. The majority of foreign tourists arrived from Europe (61.3%), Asia (14.2%), North America (14.0%), Australasia (4.9%), Central and South America (4.3%) and the Middle East (1.3%). Top 10 Overseas Countries Visiting SA as at October 2013 Ranking Country 1. United Kingdom (15.3%) 2. Germany (14.1%) 3. United States of America (11.3%) 4. France (6.1%) 5. The Netherlands (5.8%) 6. China (4.3%) 7. Australia (4.1%) 8. India (3.2%) 9. Switzerland (3.2%) 10. Brazil (2.8%) Source: Statistics SA The majority of African visitors came from SADC (Southern African Development Community) countries, at 96.3%. Top 10 SADC Countries Visiting SA as at October 2013 Ranking Country 1. Zimbabwe (29.4%) 2. Lesotho (20.0%) 3. Mozambique (18.0%) 4. Swaziland (12.6%) 5. Botswana (7.6%) 6. Namibia (3.6%) 7. Malawi (3.1%) 8. Zambia (2.9%) 9. Angola (1.0%) 10. Tanzania (0.7%) Source: Statistics SA

23 The Broll Report I 2013/ Hotel Market Even though hotels account for around 11% of all graded accommodation establishments, they account for half of all graded rooms in the country. It is reported that there are 649 graded hotels (55,309 rooms) in SA, with the majority situated in the Western Cape (29%), followed by Gauteng (26%), KwaZulu-Natal (17%) and Eastern Cape (9%). Gauteng has the most number of rooms at 19,371 followed by the Western Cape and KwaZulu-Natal at 14,196 and 9,038 rooms, respectively. Hotel Facts and Figures 2012 Total number of graded hotel establishments Total number of graded hotel establishments Major Provinces (available hotel rooms) - Gauteng 19,371 - Cape Town 14,196 - KwaZulu Natal 9,038 Hotel Market Performance (2012) Occupancy 59.8% Average Room Rate Revenue per Available Room Source: Howarth The following chart is based on February 2013 data: Segmentation of Graded Accommodation in South Africa Establishments Rooms Source: Tourism Grading Council of SA 649 (9.2 percent of total graded establishments) (50.0 percent of total graded rooms) R888 R531 2,000 60,000 1,750 52,500 1,500 45,000 1,250 37,500 1,000 30, , , , Backpacker & Hostelling Bed & Breakfast Caravan & Camping Country House Guest House Lodge Self Catering Hotel Looking at accommodation demand, it was reported that occupancy in 2012 was 59.8% with an average room rate of R888 - which equates to R531 revenue per available room. The figure below gives an overview of occupancy and average room rate recorded between 2009 and South Africa Hotel Market Performance 1, Average Daily Rate Occupancy Rate Source: STR GLobal 61% 60% 59% 58% 57% 56% 55% 54% Data indicates that approximately 75% of accommodation demand is from the domestic market, with a further 5% originating from the rest of Africa, 10% from Europe and 3.5% from the Americas. Even though domestic demand outstrips foreign demand, foreigners contribute 70% to total tourism receipts (foreign tourists spend around R980/day). The demand for accommodation is dominated by the corporate sector, which accounts for 38% of room nights sold by hotels, followed by free independent travellers (FIT) at 13%, and government at 10% When focusing on the number of travellers entering and exiting the ports of SA (3,185,067 people as at October 2013), the volume of arrivals decreased for South Africans but increased for foreigners and the volume of departures increased for both groups year-on-year, i.e. South African resident s volume of arrivals decreased by 2% and departures increased by 1.4%, whereas foreign traveller arrivals increased by 7.9% and departures increased by 14.2%. Of these 3,185,067 people, some 892,196 travelled by air; 2,284,010 travelled by road; 8,754 travelled by sea; and 107 were classified as unspecified.

24 The Broll Report I 2013/ Domestic Tourism Segmented by Province (2011) 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 - Inter-Provincial Intra-Provincial Source: SA Tourism Of the 892,196 people that travelled by air, the majority used O. R. Tambo International Airport in Johannesburg, Cape Town International Airport as well as King Shaka International Airport in Durban. Tourists entering a country do so for numerous reasons: holidays, business, study purposes, or in transit. During October 2013, tourists entering SA did so mostly for holiday purposes (88.8%), with the remainder here in transit (8.7%), for business (2.0%) and for study (0.5%). Even though business purposes is not the main reason people visit SA it must be noted that the country has become a destination of choice with regards to international conferences and trade shows. During 2013 a number of these took place and this is expected to continue in the future. The weakening of the Rand may also be a contributing factor to growth in the leisure and hospitality market as tourists may be more inclined to visit SA due to the strength of their currencies thus allowing for more competitively-priced and business trips. International Tourists in SA Segmented by World Region Source: Statistics SA KwaZulu - Natal Gauteng Limpopo Eastern Cape King Shaka International Airport - 1% Other Airports - 3% Cape Town International Airport - 13% OR Tambo International Airport - 83% Western Cape Mpumalanga North West Free State Northen Cape International Tourists in SA Segmented by World Region 10,000,000 8,000,000 6,000,000 4,000,000 2,000, Europe The Americans Asia Pacific Region Middle East Africa Source: SA Tourism Outlook for 2014 and Beyond Market experts believe that the leisure and hospitality sector is in a recovery phase and continued growth is the expectation going forward. Key forecasts are summarized below. Overall available rooms are expected to increase at a compound rate of approximately 1.5% per year from 2012 to 2017 Stay unit nights are expected to increase but at a slower rate than in Hotels are anticipated to see the fastest growth at 4.8% a year, compared with closer to 2% or less for other accommodation types. Occupancy rates will vary, depending on the accommodation type. By 2017, hotels are expected to see an increased occupancy rate of 68.7%; guest houses/ guest farms are expected to decrease to 59.7% from 65.3% in 2012; and caravan/camping sites, bush lodges and other accommodation types are expected to remain relatively stable. Average room rates vary according to accommodation type and target consumer segment. Caravan/camping sites, bush lodges and other accommodation types are expected to experience the largest percentage increase by 2017 at about 8%, followed by hotels at a 4.5% compound annual rate, and guest houses and guest farms at a 3.2% compound annual rate. Hotels make up the bulk of South Africa s total room revenue and it is expected that this will continue to be the case. Furthermore, total room revenue is anticipated to increase across all accommodation types every year until 2017.

25 The Broll Report I 2013/ Although SA has been the traditional gateway into Africa, more and more international investors are looking at other points of direct entry. 9 Out of Africa As Ahmend Heikal has said, Africa is the story. The big story is Africa, but the continent continues to face problems ranging from political instability, to religious fighting, to over-dependency on minerals and oil, to corruption. Inspite of this, investors and tenants are seeking opportunities on Sub-Saharan Africa and we have renewed interest from investors and occupiers of space positioning their businesses for future growth opportunities. A key attraction for investors is the rise of the African middle class, defined by the African Development Bank as consumers who spend between US$2-US$20 a day. About 34% of the population fell into this category in 2010, compared to only 26% thirty years earlier. And forecasts suggest that 42% of Africa s population will be classified as middle class by Middle-class growth is being driven by fast economic growth, which is trickling down to greater disposable income and more global spending patterns. Indeed, seven of the 10 fastest growing economies in the world, according to the World Bank, are in Africa. Increasingly, African consumers are demanding better products, a greater variety of brands and better service. Gone are the days of substandard offerings. Africa is also characterised by a young population, with 62% of Africans being under the age of 25 guaranteeing a loyal consumer base well into the future. It is worth noting that Africa needs significant infrastructure investment to meet the needs of its growing and increasingly urbanized population. Some 50% of Africans will be living in cities in the next 30 years. Demand for electricity and transport infrastructure is especially high, and its lack creates a very real obstacle to investment so providing and maintaining infrastructure is crucial to Africa s longterm growth. The Infrastructure Consortium of Africa estimates that poor road, rail and harbour infrastructure adds 30%-40% to the cost of goods traded among African countries. The lack of social infrastructure (including water, electricity and information and communications technology) has been estimated by the World Bank to reduce economic growth by as much as 2% a year and cut business productivity by 40%. Overall, Africa has experienced stable growth, improved political stability, greater in transparency and more openness to foreign trade. The continent is moving in the right direction to increasingly attract global investors looking for growth opportunities outside the traditional markets of Europe and North America.

26 The Broll Report I 2013/ Ghana Size: Population: Unemployment: Literacy rate: Inflation rate: Interest rate: GDP annual growth: GDP per capita: 239,460km² million (Dec 2012) 12.9% (Dec 2005) 67% ( ) 13.8% (Jan 2014) 18.00% (Jan 2014) 0.3% (Sept 2013) US$1, (Dec 2012) Ghana s economy is dominated by agriculture, which employs about 40% of the working population. Ghana is the second largest exporter of cocoa in the world. It is also a significant exporter of commodities such as gold and lumber, and it recently joined the group of nations that produce oil and gas. Ghana s economic outlook for 2014 is steady, on the back of improved macroeconomic management and political stability. In the coming year, investments in the oil and gas sectors, public infrastructure and commercial agriculture are expected to drive new growth, as are mining and construction. In recent months however the depreciation of the Ghana Cedi and rise in inflation has compelled the Government to come out with measures aimed at curbing the dollarization of the Ghanaian economy which has put much pressure on the Cedi. By the directives of the Bank of Ghana no transaction in US dollars can be done locally. The new regulations however will not significantly affect foreign fund transfers as long as they are supported by valid documentation. There are nonetheless a slew of challenges to investment and development in Ghana. Investment risk, noted by Fitch s rating of Ghana dropping from B+ to B in 2013; Deterioration of economic governance ; Land issues, especially around the land title process. This is especially negative for property investment as it makes land registration cumbersome. Another land-related issue is litigation, which is a result of the sale of land by owners who possess no title; Currency risk, which has an impact on foreign investors especially because levying charges in US dollars is illegal; Inflationary pressure; and The ease of doing business in Ghana has recently shifted with a more negative perception on the part of the international community. Ghana s real estate market has proven to be both vibrant and fast-growing, mainly thanks to significant economic growth. Nonetheless, Real Estate Investment Trusts (REITs) have little presence in Ghana, largely because the appropriate legislative framework simply doesn t exist although this is in the process of being changed. Presently, only the Home Finance Company operates a REIT in Ghana. Furthermore, the secondary mortgage market is largely absent in Ghana, something that hampers real estate as a sector. The most active real estate players are the institutional developers such as Tema Development Company (TDC); Social Security and National Insurance Trust (SSNIT); State Insurance Company (SIC); and State Housing Company (SHC). However, they face increasingly fierce competition from private companies, including Regimanuel Gray Limited; Taysec Construction; Lake Side Estates; Devtraco; Afariwaa Estates; and Manet Housing Limited, among many others. Offices Offices are an active sector of the real estate market although not as active as residential. Accra and Kumasi have been the focal points of office development in recent years, and major projects include: the World Trade Centre (Ridge); Trust Towers (Asylum Down); and Silverstar Tower (Airport city). Key trends include: In Accra, within the next 12 months, demand is expected to remain stable while supply increases. In 2013, demand kept pace with supply, which stabilised rents in prime nodes. New stock is absorbed within six to nine months of completion. Typical rentals are US$22-US$38/m². In Kumasi, demand is lower than in Accra despite good quality space being available. Absorption is slower, taking nine to 12 months. Typical rentals are US$13-US$25/m². Due to competition from emerging areas like Ahodwo, Stadium area and Patase, the old office nodes have not been performing well. Rents have plateaued or are, at best, rising marginally.

27 The Broll Report I 2013/ Takoradi has also been very active since the discovery of oil, as most allied firms want to be close to the source of production. Prime office rents in this node average between US$12-US$15/m². In Tema, high-quality office space is coming on-stream, with absorption taking about three months. Typical rentals are US$18-US$20/m². Within the next 12 months, approximately 166,000m 2 of new office space will be available on the market for rental. Upcoming and completed developments within the commercial sector include: Building Name Location (Greater Accra Area) Size (m 2 ) Anticipated Completion Date Icon House Airport City 15,000 Q One Airport Square Airport City 15,000 Q Octagon Ridge 53,000 Bradley Towers Q Q Ridge 4,987 Q Nester Square Airport City 11,000 Q Oyeman Capital Place Airport Residential Airport Residential 4,770 Q ,600 Q Fifth Avenue Cantonment 8,700 Q Within the next 12 months, approximately 166,000m ² of new office space will be available. Some major leasing transactions that took place in the market in 2013 include: Occupier Building Size (m 2 ) Location (Greater Accra Area) ATC 5th Avenue 1,670 Cantonments Metlife North Ridge 1,000 Ridge GE Icon House 1,000 Airport City Tullow Cads2 4,900 Dzorwlu Stanbic Icon House 6,000 Airport City GCNet 5th Avenue 2,300 Cantonment Retail and Leisure Formal retail space in Ghana is in short supply, with traditional retail units and street hawkers dominating Accra s retail offering. Retail is the newest property sector in Ghana, particularly outside the capital. The country s first regional malls were built in Accra: i.e. Accra Mall. Other shopping centres include Marina Mall, Oxford Street Mall, A&C Shopping Mall and Melcom Plus. However these are not sufficient to match growing demand for shopping options and increasing enthusiasm for international brands. Ghana s two largest shopping centres, Accra Mall and the rebranded A&C Square, remain successful, with occupancy rates near 100% and a waiting list for retailers wanting to open for trade. This demand has pushed rents beyond the US$60/m² mark. With a growing population of more than 3.5 million people in Accra, retail development is forecast to continue in 2014, it is estimated that a further 95,000m² of retail space will come on-stream during the next seven to 18 months within the greater Accra area. This will increase by a further estimated 70,000m² in 2016 based on the current pipeline of proposed developments. Takoradi and Kumasi are also attracting interest from retail developers stimulated by economic growth and the current lack of formal retail. A number of proposed retail developments are at an advanced stage with construction likely to commence in Given the level of new development, competition between malls is likely to increase. Existing malls tend to target high- and middle-income Ghanaians - still a relatively small segment of the population - as well as expatriates. Investors, developers and retailers are monitoring a number of key risks however: foreign exchange fluctuations and 12% inflation are both risks to consumer spending and thus the retail sector. Other pressures on household spending include: high fuel prices, high utility tariffs, and decreasing disposable income. In the leisure sector, Ghana is still dominated by local brands such as Labadi Beach Resort, African Regent Hotel and Fiesta Royale but there has been an influx of international brands like Mövenpick, Holiday Inn, Golden Tulip Accra and Kumasi, starting to make their presence felt. The Villa Monticello, a boutique hotel in Accra, has been completed recently. And there are several new developments of international hotels on the cards, including the new African Sun and Marriott hotels at Airport City. Restaurants like Santoku in Villagio, the Yasmina in Marina Mall and various casinos (e.g. Millionaires Casino in the Golden Tulip Hotel, or the Piccadilly Casino in Osu) as well as Citizen Kofi restaurant and nightclub, and Silverbird Cinemas in Accra Mall are among the many entertainment options available. Residential Residential property enjoys strong demand across different income bands in Ghana. This high demand has drawn more and more private developers into the sector - to the point where private firms now dominate the residential property market. However, private developers tend to bring more expensive homes onto the market, leaving lower-income Ghanaians

28 The Broll Report I 2013/ with little access to property. Estimates put the current demand for affordable housing at some 1.7 million homes. Nevertheless, demand remains high especially since mortgages were re-introduced over the past ten years into the market by HFC Bank, quickly followed by banks such as Ghana Home Loans, Fidelity Bank, CalBank (CalMortgage) and Stanbic Bank, each offering a variety of loan products. Home-buyers in Ghana typically are years old. Apartment buyers are more likely to live abroad, while local Ghanaians opt for freestanding homes for owner-occupation. Apartments tend to be bought by investors for buy-to-lease purposes, with the average yield for high-end apartments ranging from 8%-11%. Mid-range apartments achieve 4%- 6%. Market entrants such as Clifton Homes with their development in East Legon have enabled middle income earners to climb up the property ladder. Residential development is expected to continue apace in 2014 and into 2015, with key projects shown below: Property Estimated Number of Units Location Sloane House 36 Airport West Meridian II 36 Airport Residential Area La Beach Towers 153 Labadi Chateau Towers 122 Kuku Hill, Osu Platinum Place 96 Airport City Industrial Relatively speaking, industrial is not an active segment of the property market in Ghana. It is however a sector where growth is expected to accelerate in the future especially upstream and downstream from oil and oil-related activities. Key nodes for the oil and gas industry in Takoradi are Cape Coast Road, Takoradi Airport Area, Harbor Area and Apowa industrial area. Demand and supply for this year and next year is expected to remain high, especially for warehousing and logistics activities. Recent developments are being leased out at rents of around US$4-US$7/m² in Accra; US$3- US$5/m² in Kumasi; and US$7-US$12/m² in Takoradi. Examples of new developments include: Ghana Shippers Authority s 4,000m² warehouse and logistic platform facility; Global Haulage; Western Timber warehouses; and Looking forward, Sabat Motors and Mantrac CAT have also acquired large tracts of land to develop industrial properties in the area. In Accra, the North and South industrial areas, Spintex road, Tema community 1 and Tema industrial area are the hub of industrial activity. Demand and supply are on the rise, but not significantly. Kumasi, on the other hand, has not seen an increase in either demand or supply this year. Ease of Doing Business Overall (189 countries) Sub-Sahara (47 countries) Change in Rank Starting a business Dealing with construction permits Getting electricity Registering property Getting credit Protecting investors Paying taxes Trading across border Enforcing contracts No change Resolving insolvency No change Source: International Finance Corporation Golden Tulip Residence Gye Nyame Condos 188 Airport Residential Area 122 Cantonments Revonia Gate 34 Cantonments

29 The Broll Report I 2013/ Kenya Size: Population: Unemployment: Literacy rate: Inflation rate: Interest rate: GDP annual growth: GDP per capita: 582,650km² million (Dec 2012) 40% (Dec 2011) 87% ( ) 6.86% (Feb 2014) 8.5% (Mar 2014) 4.4% (Sept 2013) US$1, (Dec 2012) Furthermore, the country s banking sector has over the decade increased the level of flexibility and availability of financial services across the country s 43 commercial banks and one mortgage financial institution. And loan transactions have been on the rise as a result, mainly from households but also from the business sector. About 14% of loan finance has been to the real estate sector. Unfortunately, the financial services sector in Kenya is increasingly hindered by interest rate fluctuations. As an example, in December 2013, while the Central Bank s base lending rate was 8.5%, commercial banks were charging between 70% and 120%. Kenya continues to be an important economic, commercial and infrastructure hub within the East African region. As a result of the peaceful conclusion of the March general election in 2013, forecasts suggest overall economic performance will to continue trending upward in From a macroeconomic perspective, economic growth continued to climb at 4.7% for Q Foreign investment in the Nairobi Securities Exchange (NSE) remains buoyant, supported by the positive economic outlook for The Central Bank has enjoyed success in reducing inflation from almost 20% in January 2012, to 7% in November The improvement was supported by lower fuel and basic commodity prices; a strengthening Kenya Shilling; and increased foreign exchange inflows from increased foreign investments and diaspora remittances. Local firms and international corporations setting up headquarters or regional offices in Nairobi. This disconnect between financial policy makers and lenders perceptions about the cost and risk of money in the economy needs to be monitored carefully in 2014, especially given the potential impact on real estate developments and transactions. The real estate sector regained momentum after the March elections last year, with construction resuming on residential, office and retail properties. Real estate as a sector posted 6.7% growth in Q2 2013, compared to 1.1% growth the year before. The growth was reflected in improved production and consumption of cement that grew by 12.6% and 7.1% respectively during the quarter. Market analysts are monitoring the Kenya Revenue Authority s mandate to re-instate Capital Gains Tax. Plans are also in the pipeline to establish a Real Estate Investment Trust (REIT) by the Capital Markets Authority in Offices Due to limited availability of land and rentable space within the Nairobi CBD, planning policy has been changed to open up land use and supply for a 9km radius around the city centre. Higher supply has boosted the office sector, which is seeing higher selling prices for property ranging from US$140-US$180/m 2. Construction of premier- and A-grade offices is increasing, encouraging more and more private firms to relocate out of the CBD into nodes such as Westlands, Kilimani, Upperhill, Girgiri and Ngong Road. It is anticipated demand for offices will remain high in 2014, driven by both local firms and international corporations setting up headquarters or regional offices in Nairobi.

30 The Broll Report I 2013/ Retail and Leisure The retail sector in Nairobi has been characterised by low vacancies and steady demand, especially for new and more diverse retailers. Retail centres in Nairobi currently have GLAs of less than 30,000m 2 but, moving forward, this could change. Real estate investors will closely watch the three major mixed use-developments under construction in the city this year: Two Rivers located in the leafy suburb of Runda and located on some 100 acres of prime land. The first phase is scheduled for completion in late 2015 and will bring 49,000m 2 of retail and 18,000m 2 of office space onto the market. Garden City Mall located in Garden Estate off Thika Road is a 32-acre mixed-used development that includes 46,000m 2 of retail, 25,000m of offices and 500 residential homes. The setting is a four-acre park, offering leisure space for Kenyans and foreigners coming to Nairobi. The Hub located in Karen, is set on 20 acres of land and includes 29,000m 2 of retail and about 2,000m 2 of offices. The retail and office component is expected to come on-stream in 2015, followed by a 150-bed hotel and conference centre in Over the past decade, Kenya s leisure property market has been dominated by golf course resort developments which feature internationally-rated golf courses, holiday homes, conference facilities, retirement cottages, sporting facilities and theme parks in a secure environment. Current developments include Longonot Gate, Migaa, Thika Greens and Abedare Hills Golf Estate at a cost between US$55 million to US$1.3 billion. Industrial Industrial property has benefited from high rentals on the back of limited zoning for industrial land uses. High-demand industrial nodes are focused off Mombasa Road, about 2km from Nairobi CBD; Baba Dogo and Kariobangi South are both strong industrial areas located some 10km from the CBD. For 2014, Kasarani and Syokimau are forecast to see increasing demand for cost-effective and efficient warehousing and industrial space. Residential Residential development geared towards Kenya s growing middle class is bringing new homes onto the market for sale at between US$55,000 and US$200,000 or for rent from US$500 and US$2,500. For 2014, demand for residential property is forecast to outstrip supply, at least in the middle to upper price range. However, while developers are focused on the higher end of the market, there remains a significant under-supply residential housing at the lower end of the market. Two Rivers will bring 49,000m² of retail and 18,000m² of office space onto the market. Ease of Doing Business Overall (189 countries) Sub-Sahara (47 countries) Change in Rank Starting a business Dealing with construction permits Getting electricity Registering property Getting credit Protecting investors Paying taxes Trading across border Enforcing contracts No change Resolving insolvency Source: International Finance Corporation

31 The Broll Report I 2013/ Malawi Size: Population: Unemployment: Literacy rate: Inflation rate: Interest rate: GDP annual growth: GDP per capita: 118,480km² million (Dec 2012) 3% (Dec 2011) 75% ( ) 25.9% (Jan 2014) 25% (Feb 2014) 5% (Dec 2012) US$ (Dec 2012) Malawi s economy is forecast to grow by 5% in 2013, but there are a slew of risks that could negatively impact growth in the coming year. Not least among them are delays in donor funding a key sector of the national economy; high inflation at about 22%; and rising interest rates. A key economic factor in 2014, the Malawian Kwacha is forecast to depreciate due to declining foreign exchange inflows. This is despite official reserves of US$410 million. A slowdown in donor funding will likewise impact the currency negatively. Rising fuel and utility prices are putting upward pressure on inflation but are especially negative for the commercial and industrial property sectors. Recent corruption and theft scandals have affected relationships with donor countries. Organizations like the International Monetary Fund and the UK s Department for International Development (DIFD) have already withheld aid until they are satisfied with the level of checks and controls within Malawi s public sector. There is also some concern about recent discussions to pass legislation in Malawi that would prevent foreign investors from purchasing or owning land. Offices Overall, the office market in Malawi has been stagnant, with little activity in the past year. Neither vacancy rates nor rentals have seen much movement. The little performance that has been experienced is largely due to the depreciation of the Malawian Kwacha and its impact on foreigndenominated rentals. The donor community is a key player in the office leasing market and without new entrants, has a significant impact on the demand for space. Space enquiries tend to be for small to-medium-sized offices of between 500m 2 to 1,400m 2. Downsizing of the workforce, a preference for home offices and a trend towards cutting office operating costs have all contributed to the current flat market. Average gross achieved rentals range from US$4-US$12/m 2, while lease terms tend to be for one to three years. No development is on the cards in the sector for this year. Retail and Leisure Lilongwe and Blantyre are the two main retail centres, and demand for shopping space is approximately even in both cities. Retail tends to be small-scale, trading-type shopping with a sharp focus on minimizing costs which are inflated by rents typically pegged to the US$. Larger retail spaces have been negatively affected by the lack of demand from larger, international retailers and competition for tenants is fierce. Landlords offer significant incentives in some cases slashing rentals by as much as half. Low demand was behind the recent closure of Spar in Lilongwe. The supermarket was reportedly unable to pay its monthly rent, and eventually went into receivership. Given the competitive retail environment and the lack of new entrants into the retail market, there is currently only one mall under construction. The hospitality and leisure sector in Malawi is highly dependent on international travellers, with little to no demand for leisure activities from local consumers. One casualty of this is Malawi s only cinema, in Lilongwe, which closed due to lack of demand. Analysts suggest that the steep and rising cost of living is a factor in the low domestic spend on leisure, but a lack of growth in the donor sector which funds seminars, conferences and business gatherings is also a key factor.

32 The Broll Report I 2013/ Industrial The industrial property sector has been flat for the past year, largely due to the downsizing - and closure - of major industrial tenants. Intermittent power supply has hampered manufacturing production, across a number of different industries. The challenge of power supply is now the most significant challenge in the industrial sector. The most popular industrial property nodes are Kanengo in the Central region and Makata in the southern region. There are currently no new industrial projects under development in Lilongwe or Blantyre, and any new premises completed in 2013 are fixed assets, not investment properties for lease. Ease of Doing Business Overall (189 countries) Sub-Sahara (47 countries) Change in Rank Starting a business Given the slowdown in Malawi s economic growth and a lack of bulk infrastructure, development is not likely to start up in a significant way in Dealing with construction permits Residential Residential property has enjoyed high levels of activity in the past 12 months, with the construction of not only stand-alone houses but also flats and townhouses. Demand for residential property is strongest in Lilongwe, where the highest house prices and rentals are achieved. Blantyre is the second most active residential market, although it is currently suffering from an over-supply which has put downward pressure on prices and rentals. On average a house achieving US$1,000/month in Blantyre would achieve US$2,000-US$2,500 in Lilongwe. Nevertheless, forecasts suggest that with new development in Lilongwe, rentals in particular should stabilise during 2014 and beyond. Getting electricity Registering property Getting credit Protecting investors No change Paying taxes "Most popular industrial property nodes are Kanengo and Makata" Trading across border No change Enforcing contracts Resolving insolvency Source: International Finance Corporation

33 The Broll Report I 2013/ Mauritius Size: Population: Unemployment: Literacy rate: Inflation rate: Interest rate: GDP annual growth: GDP per capita: 2,040km² 1.29 million (Dec 2012) 7.76% (Aug 2013) 89% ( ) 3.9% (Feb 2014) 4.65% (Feb 2014) 3.2% (Dec 2013) US$13, (Dec 2012) Mauritius has grown from being a low-income, agriculturebased economy to a diversified economy with expanding industrial, financial and tourism sectors. The country was voted by Forbes magazine as one of the top 30 places for doing business world-wide: the highest-ranked African economy in the survey. Sound economic policies and banking practices have buffered the economy against global financial fluctuations and the economy largely depends on tourism, financial services, hospitality and property development. GDP growth is forecast at 3.1% in Q and real estate has been increasing as a share of GDP in recent years. New office development both in and outside Port Louis, the opening of several new shopping malls and the construction of several high-rise apartments were seen in 2013, resulting in property sector growth of 2.9%. On the other hand, the construction sector has slowed for the third consecutive year, with a contraction of 9.4% forecast for the past 12 months. A lack of private sector investment, combined with delays in the implementation of several key public sector projects, has exacerbated the slowdown. Real GDP growth this year is forecast at 3.5% to 3.9%. Offices The prime office nodes in Mauritius are Port Louis and Ebene. Smaller spaces are located in certain beach resorts and residential towns, and these cater to the sub-prime market. Office space in Mauritius has expanded by more than 13% a year over the past decade, with stock doubling between 2008 and The completion of new office developments in both Port Louis and Ebene has put downward pressure on rentals, but the outlook for 2014 is stable rents. Retail and Leisure Prime retail areas in Mauritius include: Plaine Wilhems area outside Port Louis with the Centre Commercial Phoenix, Trianon Shopping Mall and Bagatelle shopping centre; Rose Hill town centre high street; Port Louis CBD; Caudan; and Resort locations such as Grand Baie in the north. Recent openings of shopping malls include La Croisette Mall, Cascavelle Mall, Flacq Shopping Mall and the Kendra St Pierre Commercial Centre. With annual growth in retail space of some 8.8% over the past decade and the completion of several large projects between 2008 and 2012, there has been an over-supply of shopping space on the market. As a result, the pipeline of formal closed mall retail developments has dried up something that should help stabilise the market in the short- to medium-term. Although prime retail centres typically show low vacancies and growing rental income, trading densities are coming under more pressure. Several tenants have benefited from changes in their lease terms with incentives being offered to them and rental values being lowered. The demand for prime retail space is expected to decrease in the short term until there is a re-adjustment in rental values, which are expected to decrease due to the over-supply. The leisure market, which consists mainly of hotels, is not expected to experience any significant growth to the end of The growth in tourist arrivals for the period January to September 2013 was over 935,000 which represents a 2.3% increase year-on-year. At the end of September 2013, 106 out of 113 registered hotels were in operation. The average room occupancy rate for operating hotels in Q was 61%, an improvement on 58% in 2012 and 60% in With the completion of the Azuri project, there are no new major hotel developments in the development pipeline.

34 The Broll Report I 2013/ Industrial Prime industrial nodes include Phoenix, Pailles/Plaine Lauzun, Riche Terre industrial estates, as well as the Port of Port Louis and the Airport area. Low yields with limited rental increases have made the industrial market relatively unattractive over the past ten years, with stock growing by just over 2% a year. A number of owners have moved to small storage space units to increase their revenues. Residential Prime local residential areas include Floreal and Moka in the central plains, Trou Aux Biches, Grand Baie and Pointe Aux Cannoniers in the northern coastal zone, Flic en Flac, Black River and Tamarin on the western coastal zone, and Blue Bay in the south-east coastal zone. The Integrated Resort Scheme (IRS) and Real Estate Scheme (RES) legislation enables foreigners to acquire property in Mauritius. Foreigners benefit from a Permanent Residence Permit for investments above US$500,000 (R4.25 million). Popular IRS schemes include Azuri on the north-east coast, Anahita on the east coast and Tamarina on the west coast. RES schemes are smaller in size (less than 10 hectares) and successful developments are mainly found in prime resort and residential areas such as Grand Baie, Flic en Flac, Tamarin and Black River. Thanks to better locations and lower prices, RES projects have been more successful than IRS projects - with more than double the number of sales in However, some promoters of IRS projects have restructured their developments with lower price entry points as a result. Demand for residential land parcelling remains relatively high with several projects being sold quickly, but the demand for apartments has declined due to an over-supply of units. Ease of Doing Business Overall (189 countries) Sub-Sahara (47 countries) Change in Rank No change Starting a business Dealing with construction permits Getting electricity Registering property Getting credit Protecting investors No change Paying taxes Trading across border No change Enforcing contracts Resolving insolvency Source: International Finance Corporation

35 The Broll Report I 2013/ Namibia Size: Population: Unemployment: Literacy rate: Inflation rate: Interest rate: GDP annual growth: GDP per capita: 825,418km² 2.26 million (Dec 2012) 16.7% (Dec 2011) 89% ( ) 4.96% (Jan 2014) 5.5% (Feb 2014) 5.3% (Sept 2013) US$6, (Dec 2012) The economy is heavily dependent on the extraction and processing of minerals for export. Mining accounts for 8% of GDP, but provides more than 50% of foreign exchange earnings. Rich alluvial diamond deposits make Namibia a primary source for gem-quality diamonds. Marine diamond mining is becoming increasingly important as the terrestrial diamond supply has dwindled. Namibia is the world s fourthlargest producer of uranium. It also produces large quantities of zinc and is a small producer of gold and other minerals. The mining sector employs only about 3% of the population. Namibia normally imports about 50% of its cereal requirements; in drought years food shortages are a major problem in rural areas. A high per capita GDP, relative to the region, hides one of the world s most unequal income distributions, as shown by Namibia s GINI coefficient. The Namibian economy is closely linked to SA s with the Namibian dollar pegged one-to-one to the SA Rand. Namibia receives 30%-40% of its revenues from the Southern African Customs Union (SACU). Volatility in the size of Namibia s annual SACU allotment complicates budget planning. Namibia s economy remains vulnerable to volatility in the price of uranium. The rising cost of mining diamonds, increasingly from the sea, has reduced profit margins. Namibian authorities recognize these issues and have emphasized the need to increase higher-value raw materials, manufacturing, and services, especially in the logistics and transportation sectors. Offices The office sector is still seeing demand, especially for A-grade office space with undercover parking. Enquiries are mostly for offices with a GLA of between 200m 2-650m 2. Average achieved gross rentals are between US$11.22-US$14.96/m² with rental escalations of 8%-10% and operating cost escalations of 10%. Lack of parking is a concern in the CBD office market which in turn is fuelling decentralized office developments in future. Areas expected to see office activity this year include the northern, central and southern areas of Windhoek CBD. Retail Retail property has performed well over the past 12 months and this trend is expected to continue, with demand focused on medium to large retail developments. Spaces of between 150m 2-350m 2 are most in demand, at rentals of between US$18.71-US$23.38/m 2 with average lease terms of three to five years. Key retail developments in Windhoek include: The Grove Mall (or Mall of Namibia) measuring approximately 54,000m 2 in the residential area of Kleine Kuppe; The new Mega Build Centre located in Kleine Kuppe, a mixed light industrial/retail project; and The Auas Valley Shopping Centre upgrade in the Southern Industrial node is a centre that is currently being refurbished and will be completed in September Windhoek is the most active retail market, with Swakopmund and Walvis Bay also seeing some activity, along with scattered developments in the northern parts of Namibia.

36 The Broll Report I 2013/ Industrial Performance in the industrial property sector has been somewhat slow with little growth in rentals during Forecasts for 2014 suggest that an over-supply may emerge. Average achieved gross rentals are US$3.27-US$5.14/m 2, typically for a three- to five-year term. Rental escalations are 9%-10% and operating cost escalations are 10%-12%. New developments include a light industrial-type retail centre in the Kleine Kuppe residential area; and smaller industrial spaces in Northern Industrial from 150m 2-500m 2. Demand for spaces with yards and ample parking is high. Industrial nodes to watch in the next 12 months are Southern Industrial, Northern Industrial, Brakwater area and Prosperita. Strong demand has sprung up for storage facilities within Windhoek. Ease of Doing Business Overall (189 countries) Sub-Sahara (47 countries) Change in Rank Starting a business No change Dealing with construction permits Getting electricity Registering property Getting credit Protecting investors No change Paying taxes Trading across border Enforcing contracts Resolving insolvency No change Source: International Finance Corporation

37 The Broll Report I 2013/ Nigeria Size: Population: Unemployment: Literacy rate: Inflation rate: Interest rate: GDP annual growth: GDP per capita: 923,768km² million (Dec 2012) 23.9% (Dec 2011) 61% ( ) 8% (Jan 2014) 12% (Feb 2014) 7.67% (Dec 2013) US$2, (Dec 2012) Nigeria is the largest country in West Africa, bordered by the Republic of Benin to the west; Cameroon to the east; Niger to the north; and the Atlantic Ocean on the south. With 36 states and a federal capital territory, the country is the most populous in the region. Initially colonized by the British, Nigeria won its independence in 1960 and transitioned to a democracy in For the commercial and industrial property sector, Lagos State is the centre of activity and is thus the focus of this market profile. Nigeria s economic growth is 7%, but is highly dependent on oil, which has left other sectors somewhat under-developed. Forecasts for 2014 suggest sustained growth, driven by two key initiatives: Reform of the power sector, which has been largely privatized, and is expected to reduce business operating costs in the long term by as much as 30%; and Improved transport infrastructure, which in Lagos State includes the water transport, light rail and road networks; For the real estate sector itself, there are a range of key opportunities and risks that need to be factored in for the coming 12 months: Public sector real estate projects could be negatively affected by uncertainty around the 2015 elections, while private sector developers and investors might delay development and investment plans; Lack of available large parcels of land is viewed as a constraint to real estate development. Prime land is typically fragmented, and prices are high. Furthermore, there can be concerns about transparent land titles and ownership documentation. An opportunity which could attract a lot of activity and supply to the real estate sector (mainly residential) is the recently inaugurated Nigerian Mortgage Refinance Company which, when operational, would inject new funds to the housing sector at affordable interest rates. A key risk is uncertainty leading up to the general elections in 2015, something that could hamper economic activity, as could terrorist threats from Islamist groups in the northern part of the country. Offices Demand for A-grade office space continued apace in 2013, with Victoria Island in particular seeing several leases signed at an average rental rates in excess of US$800/m 2 a year. Prime-grade properties have recently achieved rental rates of US$1,000/m 2 a year. Grade-A properties of between 500m 2-700m 2 are in high demand, especially in Ikoyi, which remains a preferred location for companies in Victoria Island, Lagos Island, Lekki and the Lagos Mainland. The majority of enquiries are driven by multinational, blue-chip companies seeking better premises with state-of-the-art facilities that comply with international standards. Supply has responded to higher demand and there is an increase in the amount of A-Grade space being brought on-stream. Based on the current development pipeline, more than 200,000m 2 of both prime and A-grade properties is expected to come to market in the next months in Victoria Island and Ikoyi. Retail and Leisure The retail market in Nigeria continues to expand on the back of steady demand. The most attractive locations for development in the retail sector often fall in Lagos and Abuja due to access and infrastructure. Other cities like Port Harcourt, Kano, Owerri, Enugu and Onitsha are also providing opportunities due to population growth trends and household demographics.

38 The Broll Report I 2013/ In 2013, construction started on several new retail sites including Festival Mall in FESTAC, Jabi Lake Mall in Abuja and Delta Mall in Warri. Line shops of between 50m²-150m² are in demand, with expectations that demand for larger premises could rise significantly in the future as new international retailers enter the market. Net rentals for premises under 150m², depending on the location and quality of the mall, range from US$55/m²-US$90/m². Retail malls in Lagos and Abuja demand higher rentals than in other cities achieving an average net through-rental, excluding anchors, of between US$55/m²-US$65/m². With the exception of unfortunate cases like Woolworths, retailers are performing well. Quality fashion and food brands are becoming more prominent in the retail landscape as the appetite of international brands to enter the market increases and the pool of local franchisees and licence holders matures. Challenges that the retail sector will need to confront in 2014 include the inflow of grey goods, and legislation surrounding those grey goods. On the positive side, it is expected that a number of currently banned retail products will be unbanned creating the opportunity for landlords to improve the tenant mix of shopping centres. Recent international brands to enter the Nigerian retail sector include Hugo Boss, Domino s, Lacoste, TM Lewin, Cold Stone, KFC, Puma, Etam, Wrangler and Benetton. In addition, there are a growing number of new retail brands that we can expect to see trading in Nigerian malls in the near future, like Gap, Tommy Hilfiger and Inglot. As part of the broader retail sector, leisure and entertainment has enjoyed its fair share of growth. A number of new hotels opened in Lagos, like the Intercontinental on Kofo Abayomi Street, Victoria Island. Expectations are that the leisure sector will continue to grow in The leisure and hotel industry has gained a great deal of traction over the past decade. CBO Capital reported that Nigeria was the choice investment destination for hotel development in Africa in The table below summarizes key retail developments to be completed in the next 36 months: Shopping Centre Location Approx. Size (m 2 ) Anticipated Date Delta Mall Warri 15,000 Q1, 2015 Ado Bayero Mall Kano 24,000 Opened Q1, 2014 Osapa Mall Lagos, Lekki 10,500 Q4, 2015 Festival Mall Lagos, Festac 11,000 Q4, 2014 Port Harcourt Mall Port Harcourt 13,000 Q2, 2014 Jabi Lake Mall Abuja 26, Calabar Mall Calabar 12, Lekki Royal Gardens Lagos, Lekki 30, Asokoro Abuja 30, As global markets approach recovery, the Nigerian hotel industry has experienced a flurry of interest from international brands into Lagos, Abuja, Port Harcourt, Calabar and Enugu. These international brands have correctly identified the large deficit in luxury hotels and rooms. According to a report by W Hospitality group, Nigeria had approximately 7,500 rooms in the pipeline for 2013 alone. Many of the international hotel brands are leveraging or trying to gain access to partnerships to allow them to deliver their hotels locally. Marriot International, for example, acquired Protea Hospitality Group for US$188 million, which signifies their commitment to working on the African continent. With regard to the future, Transcorp announced that they would be introducing eight new luxury developments before 2020 in Lagos and Abuja; Marriot aims to deliver three fivestar properties (two in Abuja, one in Lagos) before the end of It is expected that these competitive offerings will reduce the average room rates from the current US$300 per night. Furthermore, it was reported that the entry of internationals like Marriot would drive imported service delivery and serve as an industry benchmark. Likewise, a strong improvement in general service delivery will be experienced due to increased competition. Industrial Still largely underdeveloped, the demand for industrial space driven by economic growth and business expansion - continues to outstrip supply, especially when it comes to clean, light industrial premises for the logistics and manufacturing sectors. Activity in the Nigerian industrial sector is meagre in comparison to the office, residential and retail sectors. This sector is largely unstructured, with demand for industrial real estate outstripping the current supply. The launch of the National Enterprise Development programme by the government is poised to boost the industrial sector. Tariff increases for imported goods in certain sectors will encourage local investment and production. As an example, the Federal Government announced an increase in tariffs for car imports to help boost local production and assembly in late This government strategy will increase demand for industrial real estate in the country. Furthermore, favourable legislation to improve transparency whilst allowing for more affordable production costs is expected to lead to an improved manufacturing industry, which should in turn complement the industrial sector.

39 The Broll Report I 2013/ Residential Residential property continues to experience tremendous growth, with a number of new developments completed last year in Lagos State. Focus areas for developers are the Lekki- Epe Axis and the Lagos Mainland commercial centres of Yaba, Ikeja and Surulere. An example of successful residential development is the Lekki Gardens Estates, along the Lekki-Epe Expressway. Phases 1, 2 and 3 are sold out and Phase 4 has broken ground. The opening of the Lekki-Ikoyi Bridge provided a boost to the real estate market in Lekki Phase 1, thanks to a resultant dramatic reduction in traffic congestion. Luxury serviced apartments are in demand in Victoria Island and Ikoyi, although tenants are demanding more value for their money, or a reduction in rent. There is a steady increase in enquiries for two-to-three-bedroom apartments, and up to five-bedroom detached houses for purchase, and housing estates in particular are popular, not least because of the perceived greater efficiency of private developers in providing bulk infrastructure and services. Major New Development - Eko Atlantic City Eko Atlantic City is a new city being built on land reclaimed from the Atlantic Ocean, along the Bar Beach shoreline in Lagos, Nigeria. The development is a joint venture between the Lagos State Government and South Energyx Nigeria Limited. The mixed-use project will occupy some 10km², eventually be home to 250,000 people and provide jobs 150,000 people. Reclamation is halfway to completion and bulk service provision is already underway. Eko Atlantic City is spread over six well-planned districts Ocean Front, Harbour Lights, Business District, Eko Drive, Marina District and The Avenues. The city is designed to include waterfront areas, tree-lined streets, an efficient and integrated transport system, and mixed-use plots that will combine residential areas with leisure, commercial and retail facilities. Ease of Doing Business Overall (189 countries) Sub-Sahara (47 countries) Change in Rank Starting a business Dealing with construction permits Getting electricity Registering property No change Getting credit Protecting investors Paying taxes Trading across border Enforcing contracts Resolving insolvency No change Source: International Finance Corporation

40 The Broll Report I 2013/ Rwanda Size: Population: Unemployment: Literacy rate: Inflation rate: Interest rate: GDP annual growth: GDP per capita: 26,338km² million (Dec 2012) 30% (Dec 2008) 71% ( ) 2.4% (Jan 2014) 7% (Feb 2014) 3.9% (Sept 2013) US$1, (Dec 2012) Rwanda s economy relies heavily on funding from international donors, who shut down funding flows last year after allegations emerged of government complicity in guerrilla activities in the North Kivu province of the Democratic Republic of Congo (DRC). The eventual capitulation of the M23 guerrillas stabilised matters somewhat and donor funding has resumed, enabling a reduction in domestic borrowing and allowing the economy to rebound. In broad economic terms, the demand for exports has increased thanks to an improved global economy reaching US$290 million in the first half of This represents a significant 46% growth year-on year. Although economic growth is not expected to reach the 8% level seen in 2012, forecasts suggest that 7% in 2013 is realistic, with a further uptick to 7.5% in Nevertheless, construction on major projects continued apace last year, notably: Kigali Convention Centre: expected completion in March 2014; Kigali City Building: expected completion in February 2014; and The 22,000m² Market Shopping Centre complex: expected completion in June 2014 Vision City Commercial Centre: anticipated to commence November 2014 to February 2015 The new Marriott Hotel in Kigali is now complete and work has started on an apartment complex that kicks off phase one of the Sheraton complex in Nyarutarama. Ground has also been broken on the mixed-use 30,000m² Kigali Heights development which adjoins convention centre and will be completed in two phases. Offices Development and business activity is overwhelmingly centred in Kigali, and the only substantial presence in the district areas is with the Regional / Provincial governments, the banks and local retail. Government tenants still dominate the demand for office space, and the state has purchased two office complexes developed by the Rwanda Social Security Board. One will be occupied by the Ministry of Health; the other by three as yet unnamed government departments. Major companies, banks and insurance firms seem well catered for in existing office buildings. Demand for offices from NGOs - historically quite high appears to be stable and there is little indication of foreign direct investment by significant global organisations. The new Market Shopping Centre will bring 11,000m² of prime office space onto the market, but demand has been muted to date. The prime-grade Grand Pension Plaza building is, however, fully let. Top rentals are between US$17 US$19/m² with operating costs at about US$2-US$2.50/m². Asking rentals are typically achieved by landlords. No escalation is applied to leases under three years in length, and then at only 3% in year three. Leases terms are typically for two to five years, and no installation allowance is paid.

41 The Broll Report I 2013/ Industrial Recent industrial development is located almost entirely in the Special Economic Zone (SEZ) established near Kigali International Airport. Developed by Prime Economic Zones Ltd, the first phase of some 80 stands, averaging 10,000m 2 in size, is reportedly sold out at an asking price of US$30/m 2. However, less than 25% of these stands are developed. The adjoining second phase of 55 stands is to be launched in March this year. The SEZ reflects Rwanda s strategy to position itself as a regional distribution hub and thus better serve established supply corridors into the DRC and Burundi. Rentals in the SEZ are hard to confirm as properties are owner-occupied. Retail and Leisure The retail market is dominated by small traders and open market places, with 90% of the population employed in mainly subsistence agriculture. The formal, middle-and-upper-income shopping sector is well catered for in smaller centres, with Nakumatt and Simba the dominant supermarkets. The commercial centre envisaged as part of the ambitious Vision City project in Gacuriro, an upmarket suburb of Kigali, will add decentralised retail and residential space to the mix. There is a further 7,500m 2 of space opening for trade in the Market Shopping Center in Kigali CBD. Top asking rentals are US$20 US$23/m 2, with similar lease terms to the office sector. Ease of Doing Business Overall (189 countries) Sub-Sahara (47 countries) Change in Rank Starting a business Dealing with construction permits Getting electricity Registering property Getting credit Protecting investors Paying taxes Trading across border Enforcing contracts No change Resolving insolvency No change Source: International Finance Corporation

42 The Broll Report I 2013/ Articles of Interest Corporate Real Estate Builds the Tenant Power Base Corporate Real Estate (CRE) aligns property strategy to business strategy, creating opportunities for innovation within a real estate portfolio, and to enhance business functions. An effective CRE strategy needs to achieve four key outcomes. 1. Engage with a variety of stakeholders, in both the private and public sectors. One of the keys to building better partnerships between landlords and tenants is a mutual understanding of the value creation specifically generated by the tenant and their lease. For instance, how many tenants can quantify the contribution of their lease to the investment assets within their landlord s portfolio? Gerber asks. A similar big-picture understanding can lead to harnessing the profits of green buildings by structuring green leases to maximise total benefit across parties. 2. Analyse and understand relevant, accurate information and more importantly the implications of that information. Qualitative and quantitative measurement, along with an analysis of transactions and strategies, ensures that the portfolio holding structure is optimised to suit corporate requirements. Removal of internal biases adds to the benefit of third-party validation and verification in compiling, assessing and presenting a recommended strategy. Well-informed corporate occupiers are more powerful, he says. 3. Seize opportunities to unlock value in a corporate real estate portfolio. Significant value can be created at any stage of the property cycle by a structured approach to CRE with an independent and impartial partner. Unique experience and expert perspectives expand the universe of possibilities. The core question is always: what can we do differently? explains Gerber. 4. Craft strategies - and the flexibility - to manage future uncertainties. An end-to-end CRE service-provider allows for a holistic view across the spectrum of strategic and operational considerations. Controlling the value chain from strategy and implementation, to the full suite of estate management functions provides key advantages. Implementing a CRE strategy carefully matches innovative and efficient property solutions that align types of users, location, demand and supply. Delivery according to the organisational objectives is crucial whether those aims are cost savings, space utilisation efficiencies, productivity gains or reputational value. Cut and Paste Retail Does Not Work in Africa The rise of the middle class throughout Africa, increased access to online shopping information and the ease of global travel are all impacting the demand for upmarket and branded products. As a result, African consumers are, in general, more familiar with international brands than those from SA. For local retailers to successfully compete, they need to up their game by increasing their marketing budgets, yes, but also by delivering quality products at competitive prices, combined with excellent service. SA retailers likewise need to understand how shoppers elsewhere in Africa differ from local consumers. In fashion, for instance, there s often no seasonal shopping. Nigeria, for example, is hot year round. Sizes are also important and different to Europe and SA. Some 50% of men s shoe sales are sizes larger than size 10. And, while there s a market for luxury goods, prices that are noticeably above those of Europe won t be tolerated. With the mobile phone boom in countries like Nigeria along with increasingly tech-savvy populations - SA retailers can leverage both digital and social media marketing opportunities. Overall, SA retailers prepared to change their models to suit local expectations are likely to find their place in emerging African markets. The African Development Bank for example estimates that the middle class is expected to grow from 355 million people, to 1.1 billion in the next 45 years. Put differently, the middle class will grow from 34% of the continent s population to 42%. It s a unique window of opportunity for SA retailers to gain a firm foothold in a marketplace on a continent where consumers are brand loyal and value good service, which in general is in short supply. But now is the time to do it, or they may miss the bus.

43 The Broll Report I 2013/ Finding a Formula that Works for Africa Demand for contemporary commercial and residential space continues to grow apace in southern Africa and beyond, stimulating increased supply. And while mixed-use projects are few and far between, they are seeing more play in African retail markets. The question is whether or not a mixed-use model works for Africa. A mixed-use development integrates a combination of uses: retail, office, residential, hotel and recreation, or even institutional uses, aimed at a live-work-play environment. Without doubt, mixed-use developments offer advantages. Traffic congestion and urban sprawl tend to be mitigated by mixed-use projects, which are also able to offer users a secure environment. Furthermore, space usage can be effectively optimized; and the developments provide both convenience as well as a pedestrian-friendly environment. The question is: is this just a trend? Or are these types of developments fulfilling the demands of the government, investors or citizens in Africa? asks Heidi Rix. In African culture, the community is of greater importance than any single individual. Indeed, the community is seen to define the individual. Mixed-use developments, as a community within a community, speak to that philosophy of community at least in theory. Some recent projects, however, have been aimed at the higher end of the income scale, making them inaccessible to all spheres of the population. And given the preference for free-standing family homes, the recent development of high-rise residential buildings is out of step with demand. The challenge with mixed-use developments, however, lies in their financial feasibility. Finding the balance of uses and meeting consumer demand is tricky, especially as financial institutions already perceive mixed-use projects in African markets as risky. Successful mixed-use developments also require the buyin of local officials, business owners, interested citizens and tribal leaders through an extensive public participation process. The planned Garden City development in Nairobi, Kenya and the Exchange in Accra, Ghana are just two examples that developers and investors will be watching closely in the coming year. Ultimately, there is no fixed formula to determine whether a mixed-use development in Africa will be successful, as each African market is unique. Business Mobility as the Future for SA Logistics Business mobility reaches far beyond traditional rail and road transport between countries. It s about close collaboration between governments, the private sector and the logistics industry to facilitate the flow of goods and thus stimulate the economics of cross-border trade. To create business mobility, governments need to work closely with the private sector to create innovative strategies for enhanced regional trade. And right now, the potential for growth within the sub-saharan African region is significant and largely untapped. Trade between African countries accounts for around 10% of total trade. In comparison, regional trade in South America and Asia amounts to 22% and 50%, respectively. Simply put, enhanced trade relies on better connectivity. The Southern African Development Community (SADC) region is characterised by poor regional connectivity. Botswana, Malawi, Zambia and Zimbabwe are landlocked, infrastructure is a widespread challenge, and the region as a whole is isolated from international markets due to limited or poor inland connectivity. This poor connectivity exacts a high price. Estimates show 30% of Africa s GDP is attributed to the cost of logistics. SA s logistics costs are the lowest at almost 13% of GDP, but still considerably above the global average of 7.5%. To alleviate the logistics challenge, SADC has initiated several multi-national trade and logistic corridors which are aimed at linking consumer markets with key economic centres and trade ports across the region. Over the last few years, the main transport corridor for the movement of cargo from SA into SADC has been the North- South corridor through the Port of Durban in KwaZulu-Natal. Several new corridors have been created and classified as either developed corridors, growth corridors, or long-term corridors. Some 60% of cargo imported through SA is destined for Zambia, the DRC and Angola. The remaining 40% is transported to Zimbabwe, Mozambique and Malawi. About half of the cargo is trucked by road from Durban; the balance is trans-shipped by coastal shipping or moved by rail. But the movement of cargo cross-border is hampered by longwinded bureaucratic processes and unnecessary delays at border posts. There is little alignment between governments and trading agencies, resulting in a great deal of red tape. There have been cases with as many as twenty-five different parties involved at some border posts, and up to forty different documents required to allow ongoing passage of goods, says Elaine Wilson, Broll s Divisional Director of Research. Within SA, however, road and rail infrastructure is well developed. Inland freight volumes rose across the board in both 2011 and 2012 at 4.9% in tons and 1.8% in tons, respectively, with highest growth recorded along KwaZulu- Natal Gauteng and Western Cape Gauteng corridors. Over the same period, rail market share increased slightly although rail infrastructure needs to be improved to handle increased demand. What is sure is that the development of connectivity not only facilitates trade, but also provides a key economic to catalyst land and property development. Did You Know? Logistics and related developments The importance of the logistics sector as well as the government s emphasis on strengthening the industrial sector has resulted in a number of proposed developments that will be a catalyst for logistics and related uses. Some of these include:

44 The Broll Report I 2013/ Harrismith Logistical Hub (Free State) Harrismith is situated at one of SA s major interchanges, i.e. the intersection of the N3 and N5 highways. The project here has been proposed to ease traffic congestion occurs on the N3 highway as a result of heavy haulage transport, as well as to reduce freight costs. The N3 highway between Johannesburg and Durban is the busiest long-haul freight transport corridor in SA and the Harrismith Highway Junction is the largest truck stop in the southern hemisphere. Tambo Springs Inland Port and Logistics Gateway (Gauteng) This inland port is planned on 1,037 hectares along the N3 highway, some 17km from Heidelberg, 22km from the City Deep Terminal, and 25km from ORTIA. More specifically, the port will be situated on the southern periphery of both Johannesburg and Ekurhuleni, and on the Johannesburg/ Durban road freight and rail corridor. The port will be well-connected to various transport networks including the country s main sea ports, ORTIA, and large industrial and distribution nodes. The port will house warehousing, distribution, manufacturing and shipping via enhanced supply-chain and operating efficiencies. Vaal Logistics Hub (Gauteng) The Vaal Logistics Hub is envisioned at the existing Vaalcon Container Depot, which is situated in Vereeniging and primarily used for the steel industry. The idea is to generate greater efficiencies at the hub. Sentrarand (Gauteng) Sentrarand is located on an existing, large marshalling yard. Desired land uses in the development include both commercial and industrial uses, from warehousing, to freight and logistics. Cato Ridge Dry Port (KwaZulu-Natal) This dry port is planned on the outskirts of Durban next to the N3 freeway and the Cato Ridge shunting yards. The purpose of the dry port is to reduce traffic congestion at the Port of Durban, as well as in the CBD, by allowing container and bulk cargo to be railed from the port directly. If the dry port is developed, the take-up of land would reflect a strong demand from logistics and transport services moving into the area. Clairwood Logistics Park Clairwood Racecourse, located 5km from the Durban dig-port, would potentially be developed and renamed Clairwood Logistics Park. The development is intended to service the dig-port by providing a convenient location for freight and logistics companies wanting to be within easy reach. The Evolution of the Property Manager Raising The Bar Broll Property Management is welcoming the changes being seen in property management disciplines on the back of an increasingly more competitive and demanding property investment sector. Solid property management fundamentals remain at the core of exceptional property management. However, property managers are evolving into more than just real estate managers, but managers of key relationships. While it s true that property consists of bricks and mortar, property is also about people, says Broll director of investor services Heidi Rix, pointing not only to owners and investors of property, but also tenants, shoppers and service-providers. Strong relationships, solid networks, objective research and effective property management metrics are all key elements. She elaborates: In the current market, property managers require a combination of skills and experience. Some of those core attributes include: A comprehensive insight and understanding into client business requirements and planning; A thorough knowledge of key income drivers for any property investment; Research-led management; Knowledge of new and existing, relevant, applicable legislation; The ability to track and analyse a range of metrics from Key Performance Indicators (KPIs) on property portfolios, to Service Level Agreements (SLAs) signed with an array of service-providers The insight to make recommendations for both strategic and operational interventions; and The skill, ownership and accountability to be proactive and not just reactive. Property managers today are more informed about the requirements of landlords, changing market conditions, new developments and technology than ever before. And that includes a working knowledge of green buildings, tenant retention strategies and alternative revenue generation, says Donovan Agar, Broll s divisional director of property management. Plus, of course, excellent financial management and analysis skills. Budgeting and financial forecasting is a science in its own right and property managers are expected to have up-todate market knowledge, supported by relevant research and benchmarks. Asset managers need monthly updates of where their investments or funds will be at any given point in time to help manage increasingly knowledgeable investors and markets. Property management as an industry has unfortunately suffered from a lack of proactivity in the past, but this is changing. Broll Property Management has revived the concept of a proactive property manager, which is proving very successful. Challenges do remain, however especially in finding, securing and keeping experienced, and respected property management staff. Broll for example continues to train, upskill and mentor industry and internal property managers through its Broll Academy, supported by on- the-job training, mentorships and graduate internship programs. In its unique approach to clients, Broll encourages collaboration, working in tandem with landlords and their teams to achieve common goals. Innovative property management is well-placed to tackle industry and economic challenges, using strategies like specialised leasing teams to focus on managed portfolios and keep vacancy rates to a minimum. Technological advances, changing client needs and landlord expectations will continue to impact on the role of the property manager over the next few years. Property managers will need to stay informed to deliver excellent service to not only landlords but also tenants, adds Agar.

45 The Broll Report I 2013/ Sources BetterBond Business Day Live Catalyst Fund Managers CBRE Data.un.org Department of Tourism eprop Commercial Property News HIS Global Insight Howarth I-Net Bridge International Finance Corporation International Monetary Fund Investment Property Databank South Africa IOL Lightstone Luxury Hotel Awards Ooba PricewaterhouseCoopers - South African Hospitality Outlook: Professor Francois Viruly Property 24 SA Commercial Property News SAnews.gov.za South African Reserve Bank South African Revenue Services Statistics SA STR Global Tourism Grading Council of South Africa Tradingeconomics.com World Travel Awards

46 The Broll Report I 2013/ Services Group CEO Malcolm Horne Tel: mhorne@broll.co.za Investor Services Property management Asset management Retail leasing and projects Research Contact: Heidi Rix - hrix@broll.co.za Transactional Services Office broking Industrial broking Investment broking Research Contact: Elaine Wilson - ewilson@broll.co.za West Africa Contact: Leonard Michau - lmichau@broll.co.za SADC (excludes South Africa) Contact: Ronel Judin - rjudin@broll.co.za East Africa Contact: Jonathan Yach - jyach@broll.co.ke Contact: David Alcock - dalcock@broll.co.za Tenant Services Corporate Real Estate Services Contact: Ken Gerber - kgerber@broll.co.za Facilities Management Contact: Rowland Gurnell - rgurnell@broll.co.za Valuation and Advisory Services Contact: Roger Hunting - rhunting@broll.co.za

47 The Broll Report I 2013/ Contact Us South Africa Johannesburg 27 Fricker Road, Illovo, Johannesburg, 2194 Tel: Fax: Bloemfontein 2 Press Building, Ground Floor Offices, Cnr Second Avenue and President Steyn Street, Westdene, 9301 Tel: Fax: Cape Town 14th Floor, The Terraces Building, 34 Bree Street, Cape Town, 8001 Tel: Fax: Durban 2nd Floor Podium, John Ross House, 23/35 Margaret Mncadi Avenue, Musgrave, 4001 Tel: Fax: Port Elizabeth 73 2nd Avenue, Newton Park, Port Elizabeth, 6045 Tel: Fax: Pretoria Sanwood Park, Building 6 Ground Floor, 379 Queen s Crescent, Lynnwood, Pretoria, 0081 Tel: Fax: Nelspruit Office 12B, 7th Floor, Nelspruit Sanlam Centre, 25 Samora Machel Drive, Nelspruit, 1201 Tel: Fax: Africa Ghana 7th Floor, Ridge Tower, 6th Avenue, Ridge PMB CT485, Cantonments, Accra, Ghana Tel: Fax: Website: Kenya Fedha Plaza, Mezzanine Floor, Mpaka Road, Westlands, Nairobi, Kenya Tel: Fax: Website: Indian Ocean (Mauritius, Madagascar, Seychelles and Reunion) Suite 2IJ, 2nd Floor, Raffles Tower, Ebene, Mauritius Tel: Fax: Website: Malawi Ground Floor, Kabula House, Chilembwe Road, Blantyre, Malawi Tel: Fax: Website: Namibia Zanlumor Building, 2nd Floor, Post Street Mall, Windhoek Tel: Fax: Website: Nigeria 3rd Floor, The Octagon, 13A, A. J Marinho Drive, Victoria Island, Lagos, Nigeria Tel: Fax: Website: Rwanda 8th Floor, Grand Pension Plaza, Boulevard De La Paix, Nyarugenge, Kigali Tel: Fax: Website; Zambia Manda Hill Mall, Cnr Great East Road and Manchinchi Road, Lusaka, Zambia Tel: Fax: