Emerging & Frontier MarketsAssessing Risk & Opportunity2015

Andrew Heard, Global Occupier Services, Research

Emerging And Frontier MarketsWhat is an emerging / frontier market?

“A society evolving into a market-oriented economy, possessing the following potential characteristics:

• Increasing economic freedom• Gradual integration within the global

marketplace• An expanding middle class• A growing population• Improving standards of living and social

stability and tolerance• An increase in cooperation with

multilateral institutions• Technological advancements

All of which provide prospects for economic growth and opportunities for occupiers and investors alike”

Emerging And Frontier Markets Backdrop

RAPID GROWTH

• A shift in the core of the global economy • Search for higher returns on investments and opportunities of new

growth markets for occupiers• Substantial increases in capital flows and business activity• Real estate and infrastructure improvements

BUT RISKS RISING

• Challenges of global integration• Downside risks are becoming more pronounced• Shocks in more mature locations are now impacting emerging

market growth prospects

• Secular stagnation between more mature and less mature markets

EMERGING & FRONTIER MARKET REPORT

Assessing the macro BUT • Putting risks into context • Taking into consideration business and real estate realities• Takes into consideration the views of market experts

30YRSNet capital flows in emerging

markets have fallen for the first

time in 30 years.Institute of International Finance

10%2020 Nominal GDP growth

forecasts in emerging markets have

been revised downwards by 10%

since 2012.IMF

$4.3TNPrivate foreign currency borrowing

in emerging markets 2015.Institute of International Finance

$1TNOutflows of private capital from

developing economies 2015.Institute of International Finance

4

Emerging And Frontier Markets Global headwinds to growth in emerging markets

Structural downgrade in China

Ongoing Geopolitical tensions

Lower commodity prices

Weakening global trade

Financial turbulence in a global context

Strength of the US Dollar

ADVANCED ECONOMIES

EMERGING ECONOMIES

Growth Potential

Capital Flows

• Lower oil and all other

commodity prices

• A sharper than expected

slowdown in China and

prospects for further

financial market volatility

• Appreciation of the US

dollar

• Increased geopolitical

tensions

Emerging Market Risk Index 2015What is it, what is included and why?

• The Index evaluates the risks of acquiring office space

• The report assesses relevant property indicators for over 40 countries

• The Index utilizes best-in-class published data regarding operating conditions – such as transparency and corruption risk – in addition to economic and political stability criteria

• The Index takes into consideration a survey using ‘best in class’ property operators in each region assessing the ease and speed of acquiring office space in these markets

Emerging Market Risk Index 2015Operational environment and real estate realities

• How transparent is the overall property market?

• How easy is it for foreign companies to own commercial property?

• How easy is it for foreign companies to lease space?

• How quickly are transactions concluded?

Emerging Market Risk Index 2015Drivers and impacts at local level

Rank Macro level Property costs / time Real estate realities(Survey)1 Botswana UAE Botswana2 Qatar Saudi Arabia Ghana3 Saudi Arabia Bahrain Uruguay4 Oman Thailand South Africa5 South Africa Qatar Morocco6 Uruguay Colombia Turkey7 Bahrain Vietnam Tunisia8 Panama Oman Indonesia9 Senegal Peru Argentina

10 Peru Mongolia Zambia

33 Uganda Zimbabwe Algeria34 Cote D'Ivoire Bangladesh Vietnam35 Angola Myanmar Oman36 Lebanon Lebanon Myanmar37 Nicaragua Tanzania Honduras38 Kenya Senegal Angola39 DRC Algeria Saudi Arabia40 Zimbabwe Uruguay Qatar41 Myanmar Argentina Libya42 Libya Nigeria Mongolia

INDEX RANK

30% 20% 50%

INDEX WEIGHTING

8

Emerging Market Risk Index 2015Index Results

Africa• African economies remain attractive securing 5

places within the top ten

• Botswana remains the most transparent market for occupiers

• South Africa and Ghana remain attractive retaining their positions within the top 5

Americas• Uruguay offers a strong operational profile, low

corruption risk and a strengthening political environment

• Risers also include Mexico, Argentina, El Salvador and Colombia

Asia Pacific• Vietnam, Indonesia and Philippines have fallen

with ease of property ownership, rising costs for registering property being the main challenges

New Entrant• Turkey offers occupiers more advanced

infrastructure, strong trade links and ease of property acquisition

AfricaDavid Green ProAfrica Property Services

Africa

• A continent-not a country.

• 54 individual countries

• 1,1 billion people

Sub Saharan Africa:• 48 countries • with a population of 915 million• of these 692 earn less than $2.5 per day with two thirds of

this number earning less than $1.5 per day

Urbanisation:• 350 million Africans are urbanised today but this number

will double by 2050

Urbanisation and Infrastructure

+

Africa’s young population will drive the demand for real estate and different types of real estate. Across Africa there will be continued urbanisation

Continent with youngest population

Growing middle class

350 million Africans are urbanized

today but this will double by

2050 +

Game changers / Drivers of growth

“Trillions of dollars will need to be invested in infrastructure in Africa in the medium term.”Armien Tyer, Head Investment Cluster, Absa Wealth and Investment ManagementAfrica Asset Management 2020

“There is a strong emotional attachment to property in Africa making it a key investment class.”Stewart Rider, Chief Operations Officer, StanlibAfrica Asset Management 2020

Development of the financial services industry and an increased range of investors

Urbanisation & Infrastructure

Growing middle class

Demographic dividend

Building the future of Africa

Drivers for Growth in AfricaYoung population drives demand for real estate. Continued urbanisation, expansion of current cities and rise of new cities

Export of natural resources and agriculture remain key sources of growth, but will expose certain countries to increased risk

Industrialisation will continue, accompanied by rapid growth in the retail sector

Infrastructure shortages will create opportunities for investment

Influence of government policy and legislation on the decision to invest will increase, while local partnerships will become increasingly important

Continued advancement within pension fund, stock exchange and banking regimes will facilitate investment, and an increased range of investors will drive demand for real estate

Technology will impact on business and building practices as well as consumer behaviour

Sustainability will become entrenched in building design and occupier requirements

Huge expansion in

citiesUnprecedented

shifts in population

‘Sustainability’ transforms

design

RE capital takes financial centre

stageTechnology disrupts

RE economics

Growth ratchets up competition for assets

RE 2020 six predictions

The global investible real estate universe will expand substantially, leading to a huge expansion in opportunity, especially in emerging economies

Fast-growing cities will present a wider range of risk and return opportunities

Technology innovation and sustainability will be key drivers for value

Collaborating with governments will become more important

Competition for prime assets will intensify further,

A broad range of risks including new risks will emerge

RE 2020: Megatrends

Occupiers in Africa

• Occupiers drive sustainable solutions

• When considering these drivers for growth it is important to realise that there are also very specific risk factors underlying the development of Africa namely:

•Political instability•Complex legal regimes•Lack of economic diversity•Social instability

• Timeframe of the investment and restrictions to exit strategy•Currency volatility

Urbanisation and Infrastructure

Dar es Salaam

Luanda

Lagos

Nairobi

Kinshasa

Douala

Dakar

Abidjan

Ibadan

Addis Ababa

Accra

Johannesburg

Al-Qahirah (Cairo)

Al-Iskandariyah (Alexandria)

El Djazaïr (Algiers)

Cape Town

Dar-el-Beida (Casablanca)

Durban

0% 20% 40% 60% 80% 100% 120% 140%

Growth of African cities% increase, 2010 - 2025

Sub-Saharan Africa’s power shortage = US$ 400 billion investment

Independence Power in Africa report

Sub-Saharan Africa infrastructure spend will reach US$ 180 billion per annum by 2025

PwC Capital Projects and InfrastructureOnly 16% of all road are paved in sub-Saharan Africa

Christine Lagarde, MD of the IMF,Infrastructurene.ws

Source: United Nations Population Division; World Urbanization Prospects, the 2014 revision

“67% of Africa CEO’s

see urbanisation

and demographic shifts having

a major impact in

next 5 years”

Retail in Africa

• Africa has 2085 shopping malls of which

•1945 are in South Africa

and

•140 are elsewhere in Africa

Retail Snapshot

NigeriaLagos & Abuja

South AfricaGauteng (Jhb &

Pretoria)

GhanaAccra

KenyaNairobi

Population 24 million 9.62 million 4 Million 3.36 million

Main Shopping Centres Palms and Ikeja Mall

Sandton City, Eastgate, Rosebank,

Cresta, Menlyn

Accra Mall, Marina Mall, A&C Mall and

West hills

Westgate, Thika road, Two Rivers and

Sanit Centre

Total Formal Retail (sqm) 87,450 18,500,000

20,000sqm of quality retail and ca.

12,000sqm of lower grade

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