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Parole d'experts Rencontre

Why listed real estate investments can play a pivotal role in driving economic growth post Covid-19

Listed real estate

Bronwyn Knight CEO and co-founder of London and Mauritius listed Grit Real Estate Income GroupLISTED real estate has for long been viewed as an alternative asset class. With Real Estate Investment Trust (“REIT”) status becoming more mainstream in the new millennium, listed property increasingly attracted interest as a result of its stable, predictable income streams and relatively high yields, to the extent that it now forms part of most equity portfolios.

Covid-19 impacted global markets and industries the world over. Listed property in Africa was no exception, with significant pressure on valuations due to concerns around tenant sustainability. Interesting to note, though, is that the diversification of the sector resulted in considerable discrepancies as not all subsectors were affected the same: Whilst economic lockdowns impacted the hospitality and retail sectors most, other subsectors such as corporate offices, corporate accommodation, light industrial and logistics bounced back relatively quickly. Supply chain disruptions because of the pandemic in fact increased demand for logistics and warehousing space.

The different responses by African governments had a significant impact on how their respective economies weathered the pandemic, which in turn impacted the recovery of listed real estate. In most countries across Africa, the “work-from-home” phenomena did not have a significant impact on corporate office leases as limited ICT infrastructure and electricity supply resulted in most corporates returning to work sooner.

In Mauritius, we were encouraged to see strong government support for the hospitality sector through the Mauritius Investment Corporation, including liquidity support, which in turn allowed for the resumption of lease repayments. Our expectation is that recovery will be further bolstered by strong international tourism inflows as travel restrictions normalize.

The retail sector across the continent experienced cyclical and seasonal shifts that were exacerbated by the onset of Covid-19. There are some encouraging early signs of recovery, however, driven by increased demand from especially international retailers. At the same time, we’ve noticed an increased demand for healthcare and digital assets such as data centres and support towers especially across Africa, as the continent rapidly continues to digitise.

The emergence of these new real estate sub-sectors provides an ideal opportunity for economies such as Mauritius to diversify its mainly tourism dependent economy. The current development of world class specialist healthcare facilities on the island provides an ideal opportunity to position Mauritius as a regional medical hub, which can easily be combined with medical tourism.

“New emerging real estate asset classes will offer increased diversification opportunities for listed real estate, whilst at the same time supporting growth in the region of operation”

We further believe that the expected exponential growth in data consumption will stimulate demand for digital infrastructure such as datacentres and towers across the continent. From a return-oninvestment perspective, the construction of digital infrastructure is much quicker and considerably less capital intensive than with more traditional asset classes such as shopping centres or commercial offices. The rising demand for digital infrastructure assets has also changed its risk profile due to long-term contracts with investment grade tenants. This annuity income, together with the potential for higher yield, lower volatility and generally low correlations make investment in digital infrastructure an attractive diversification strategy.

We see sale-andleaseback transactions as a third emerging listed real estate opportunity across Africa. These transactions allow large corporates to move their real estate assets off balance sheet by disposing of them to a specialist landlord and leasing the asset back at market related rates. Sale-and-leaseback transactions provide a significant cash injection to the corporate which is often used for expansion and are often linked to significant refurbishments or upgrades implemented by the new landlord.

We believe that going forward, new emerging real estate asset classes such as healthcare, digital infrastructure and innovative transactions will offer increased diversification opportunities for listed real estate, whilst at the same time supporting growth in the region of operation.


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