Regional overview

Africa

⏱ 4 min read

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A continent in transition

Author: Wendy Cerutti, Regional Real Estate Lead, Africa

Propelled by rapid population growth, economic activity across many parts of Africa is accelerating, and investment in digital infrastructure, retail and commercial is increasing. However, significant hurdles to growth remain across the continent.

Surging population growth is set to radically reshape economies across Africa. The United Nations forecasts that, by 2050, 2.5 billion people will live in Africa, accounting for more than a quarter of the world’s population.

High birth rates mean a significant proportion will soon enter the workforce and start contributing to economic activity. According to the International Monetary Fund’s April Outlook, GDP growth is set to pick up in 2024 to 3.8 percent in sub-Saharan Africa, and then again in 2025 to 4.0 percent.

Despite this labour boost, specialist skills for construction remain in comparably short supply in many locations – a situation that was exacerbated by the COVID-19 pandemic, when many overseas consultants and contractors left the market. This is made clear by the hourly wages paid to site foremen in major cities, which are significantly higher than the salary for other roles. In Cape Town, a key investment market, they earn US$14.6 per hour, compared with the US$6.2 average.

Current tendering condition

Future market outlook

Dislocated supply chains, along with a persistent stop-start cycle of financing, delayed approvals and bureaucratic complexities, continue to challenge construction programmes. One consequence has been an increase in programme lengths – with delays commonly stretching to over five weeks in Nairobi, Lagos, Cape Town and Harare.

Despite the challenges, demand for construction services is only set to grow, given the urgently increasing need for real estate and infrastructure to serve the continent’s booming population and accelerating digitalisation, as the internet becomes increasingly accessible.

Construction cost escalation in hot sectors

In South Africa, this is already translating into sustained investment which, when combined with a general inflationary environment, is creating cost escalation: in Cape Town and Johannesburg, average costs are forecast to increase by 6.8 percent this year, although this is a reduced rate compared to the 7.7 percent seen in 2023.

Demand for commercial space is a contributing factor. As expectations for the workplace increase, the cost to build a high-rise prestige office in the centre of Cape Town is now US$1,284.1 per m², up from US$1,265.1 per m² last year.

Recovery in the tourism sector is also fuelling activity. Building a five-star hotel now costs US$1,629.0 per m² in Cape Town, and US$1,549.5 per m² in Johannesburg. Elsewhere, too, the opportunity to attract increasing visitor numbers is generating work. In Lagos, the cost to build a luxury resort is US$1,923.0 per m².

Throughout the continent, the need for data centres to keep up with growing demand for IT infrastructure is also being recognised. Construction hubs include Kenya, Nigeria and South Africa. In Nairobi, the cost of data centre construction is US$8.49 per watt, according to our 2023 Data centre cost index.

Some clients are tackling the impacts of these rising prices by building data centres in bordering countries, where costs may be lower. For example, many developers are looking to Ghana, where construction is more affordable than Nigeria, though close enough for the Nigerian population to benefit from centres’ data capacity.

In Johannesburg, it comes with a price tag of US$1,146.2 per m², compared with US$1,130.1 per m² in 2023.

How do you think supply chain will perform in the coming 12 months?

Approximately, how has programme length changed over the past 12 months?

Growing pipelines

In all locations, under 50 percent of projects are committed to net-zero carbon. While environmental regulation remains light overall, awareness of climate issues within the political consciousness is growing. With nations across the continent due to head to the polls this year, we could expect to see new sustainability pledges from governments, which may impact investment.

For the construction industry, political change will affect more than just the importance placed on the road to net zero. Over the next year, it could also result in more public sector tenders, adding to the increasing opportunities for work being created across Africa. Survey respondents across most locations expect the market to get warmer over the next year.

To get ahead of the curve and prepare for a busy pipeline of work, the sector should start laying long-term plans. As part of this, new priorities, including environmental issues, as well as strategies to mitigate ongoing market challenges, should be considered.