Download Addis Ababa City Report

May 2016
Addis Ababa City Report
Ethiopia
Addis Ababa City Report
May 2016
Market Overview
2016 GDP forecast
6.7%
City population
3.49 million
Real Estate Dashboard
Office
US$7-15/m²/month
Rent
Birr 150-325/m /month
2
Rent
Retail
US$9-25/m2/month
Rent
Birr 200-550/m²/month
Rent
JLL Property Clock
Rental
growth
slowing
Rental
growth
accelerating
The JLL Property Clock SM
Rents
falling
Rents
bottoming
out
Retail & Offices
Inflation
10.1%
Addis Ababa is the capital of Ethiopia, which has been
one of the world’s fastest-growing economies over the
past decade and has bold plans to become a major
regional manufacturing and energy hub. The economy
remains heavily dependent on the agricultural sector,
which accounts for 43% of economic output; this makes
the economy particularly vulnerable to adverse weather
conditions like the recent droughts which have exposed
weaknesses such as elevated domestic food prices.
Agricultural products include coffee, flowers, oil seeds, live
animals, fruits and vegetables.
The government is the primary driver of growth with large
capital allocations made towards infrastructure works
which have been planned to improve access to basic
services, create jobs and reduce poverty. Poverty is still
widespread however, and relief is heavily reliant on donor
support.
The Ethiopian economy only started to emerge in 1991
after two decades of socialist rule. Even so, state-owned
enterprises that run the country’s telecommunications,
power and banks do not operate effectively and there has
not been enough true commitment by the government to
encourage privatisation of industries or a market economy.
The overall business environment is mostly closed to
foreigners, and any FDI is restricted to certain sectors
such as construction, manufacturing and agriculture
Construction and development of real estate in Addis
Ababa is flourishing on the back of infrastructure
expenditure on road network improvements. High-rise,
mixed-use buildings across the city have been delivered
along main arterial routes primarily on small parcels of
land usually owned by one individual. All land is owned by
the government with the use of urban land granted via 99year leases. Leases or tenancy agreements are normally
signed for the duration of one year with bi-annual rental
payments made while parking and service charges are
typically paid annually by the tenant. Tenancy agreements
don’t carry rental escalations and are renewed at the same
or a renegotiated rate.
Investor Sentiment
Besides the notable growth and significantly improved business
environment, Addis Ababa continues to be a relatively closed
market to non-Ethiopians. Currently, foreign investments
are restricted to certain sectors of the economy with specific
incentives offered for manufacturing, agro-processing and
agricultural type investments. Land ownership is exclusively
vested in the State and local citizens. Foreign entities are only
allowed to develop and construct property with heightened activity
from Chinese firms in this space. The Ethiopian Investment
Commission database has on record at least 134 foreign licensed
real estate developers and contractors in Addis Ababa; however,
only 16 of them are noted as operational.
Addis Ababa has not experienced many transactions in the
market, in general due to market opaqueness, lack of information
and inadequate marketing, as well as the fact that no banks
provide debt facilities for real estate projects or asset finance. The
last notable commercial transaction recorded (that is available)
was the sale of the Bank of Abyssinia headquarters to the bank by
Saca plc for approximately US dollar 24 million in 2014.
“Besides the
notable growth
and significantly
improved business
environment, Addis
Ababa continues
to be a relatively
closed market to
non-Ethiopians.
Currently, foreign
investments are
restricted to certain
sectors of the
economy.”
Market Drivers
High GDP Forecast of 6.7%
Public Infrastructure
Favourable Demographics
$
Offices
Rent
US$7-15/m2/
month
$
Rent
Birr 150-325/m2/
month
Overview
The office sector in Addis Ababa is divided into three distinct areas of
activity: aid and development agencies; government and state-owned
enterprises; and local privately-owned businesses.
The African Union headquarters dominates the Addis Ababa skyline in
Kazanchis with NGO offices and foreign embassies also located in the
area and its surrounds. The main office nodes are in the City’s downtown,
which includes Meskel Square and Bole district, and the CBD, which
starts from Merkato and extends down to Mexico Square.
The buildings in the CBD are often single-tenant, occupied by government
bureaus, state bank enterprises and other parastatals. The downtown
area of Bole, Meskel and Piassa is fast becoming the main commercial
hub for local private businesses due to its good road infrastructure and
the route of the recently-opened metro running through it. Occupancy
levels here are high at around 90% when compared to other office nodes
where occupancies are usually as low as 35% to 40%. In the main
nodes, office developments are high-rise within mixed-used schemes and
are confined to small land holdings. Office buildings are generally poor
quality and accompanied by inadequate parking, property management
and maintenance services.
Foreigners are banned from owning telecoms, banking and retail
companies and this is limiting growth and demand opportunities for
investment-grade office space. Standard Bank opened an office in
Addis Ababa at the end of 2015 with hopes of tapping into the lucrative
Ethiopian market, but it faces challenges in a fast-growing economy
where foreign lenders are not allowed to operate.
“The office sector
in Addis Ababa
is divided into
three distinct
areas of
activity: aid and
development
agencies;
government and
state-owned
enterprises;
and local
privately-owned
businesses.”
Retail
GDP per capita
US$430
Rent
US$9-25/m2/
month
Rent
Birr 200-550/m2/
month
Overview
Merkato marketplace is the largest open-air market in Africa and serves
as Addis Ababa’s major retail trading hub for the wholesale and retail
distribution of fresh produce, clothing, home ware and various other types
of general merchandise. Smaller markets can be found close to the minibus
ranks and on major arterial routes. The markets are easily accessible for
most of the population, contain good-quality imported goods (mainly from
Asia) and are the widely accepted form of shopping for consumers.
A large number of formal retail shopping precincts are scattered across the
city. Retail layouts are not designed as per typical modern shopping malls
and instead normally form part of the lower floors of a multi-level, mixed-use
building comprising of office and sometimes residential components. The
retail component of these buildings can range anywhere from 2,000m² to
6,000m² and usually comprise of high proportions of apparel, jewellery and
home appliance offers. Shoa is the only supermarket chain in Ethiopia and
seven of its stores are in Addis Ababa. While the supermarkets are present
in shopping malls, they are usually located in more discreet parts with no
objective to attract higher footfall from a more prominent or high traffic
location in the mall.
Zefmesh Mall, one of the only solely retail buildings in Addis Ababa, is
planning to introduce lifestyle elements such as cinemas, food courts
and gaming arcades, which will make it the only mall in the city with a
comprehensive retail and entertainment offering.
The consumer market is limited by its low purchasing power, but the sheer
size of the population in Addis Ababa and even surrounding cities illustrates
the huge potential demand for better retail offerings. There are currently no
international retailers in the city; however, America’s Walmart and Kenyan
supermarket chain Nakumatt are rumoured to be interested in making
an entry. With the existing trade restrictions on foreign entities, only local
agents can be used to distribute international products and this is limiting
opportunities for higher-quality and truly competitive retail propositions.
“The consumer market is limited by its low purchasing power,
but the sheer size of the population in Addis Ababa and even
surrounding cities illustrates the huge potential demand for
better retail offerings.”
Commercial nodes
3
4
Merkato
Co
CMC District
mo
ros
Str
eet
CBD
2
2
Dembel City Centre
oro Ro
Bole
Getu Commercial Centre
Office nodes:
Bole
CBD
CMC District
Kazanchis
Merkato
Meskel Square
Mexico Square
Zefmesh Mall
Edna Mall
Airp
ort R
oad
d
oad
tR
KEY
ad
por
Air
1
Morog
Meskel Square
nge
5
Kazanchis
Me
Mexico Square
bet
Qele
Retail:
Dembel City Centre
Edna Mall
Getu Commercial Centre
Zefmesh Mall
Real Estate Outlook
Addis Ababa boasts considerable growth potential in a market that offers a stable political and economic
environment, very little crime and disorder, as well as a large consumer population in need of better goods
and services. Allowing market entry to foreign-owned entities would accelerate growth and improve economic
diversification; international companies would be able to further explore opportunities and take advantage of the
strong growth outlook and positive operating climate.
The real estate sector can play a pivotal role in the success and future growth of the city, but that will require
the country’s policies to be more accommodating for foreign real estate investment and ownership, embracing
transparent real estate practices of performance measurement and benchmarking, regulatory oversight and
a comprehensive deeds registry system. The non-availability of mortgage financing, as well as rigid foreign
exchange controls, will inhibit Addis Ababa’s chances of being a competitive real estate player in East Africa in
the short to medium term.
Contact Us
JLL Sub-Saharan Africa:
Craig Hean
Managing Director
Sub Saharan Africa
tel: +27 11 507 2200
[email protected]
Xander Nijnens
Senior Vice President
Hotels & Hospitality Group
Sub-Saharan Africa
tel: +27 11 507 2200
[email protected]
Ewout Holst
Director
Corporate Solutions
Sub-Saharan Africa
tel: +27 11 507 2200
[email protected]
Fadheelat Noor Mohamed
Associate
Research
Sub-Saharan Africa
tel +27 11 507 2200
[email protected]
Anthony Lewis
Director
Capital Markets
Sub-Saharan Africa
tel: +27 11 507 2200
[email protected]
Information Credit: Purenet
www.purenet-ethiopia.com
www.africa.jll.com
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016. This report has been prepared solely for information purposes and does not
necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been based on sources
we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report
is accurate or complete. Any views expressed in the report reflect our judgment at this date and are subject to change without notice.
Statements that are forward-looking involve known and unknown risks and uncertainties that may cause future realities to be materially
different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views
expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report.