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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.