EAC boosting office and retail markets

October 4, 2015

The establishment of the East African Community (EAC) as a single market has brought enormous benefit to the industrial sectors of member countries, with some positive spill-over for the office and retail markets, according to Research in my possession.Researchers expects a ramp-up in the supply and demand of industrial and office space in EAC markets in the short to medium term as more small and medium-sized enterprises and multinational companies establish themselves in the region with exception of war torn Burundi.In particular, the logistics market is expected to grow and develop in Kenya, Uganda and Tanzania given the strong emphasis under the EAC blueprint for infrastructure development and the gradual elimination of non-tariff barriers across member countries.The lift in the industrial market will in turn bolster the growth in office demand, as more multinationals enter the market and more regional SMEs expand.In particular, the financial and legal services sectors in regional markets could grow on the back of rising infrastructure development and the proposed liberalisation of the region’s capital markets, the report states.

Kampala Skyline as seen in this photo I took late recently
Kampala Skyline as seen in this photo I took shows a huge infrastructures coming up in Uganda’s capital.The country is a founder member of East African Community

More foreign retailers are also projected to venture into EAC, building on the momentum they have charted in the last few years.Tourism is a bright spot for member countries, as the EAC blueprint focuses on enhancing air and land transport infrastructure and regional cooperation to attract more visitors to the region.One of the researcher revealed to your blogger that while EAC still needed to overcome hurdles and limitations, the region should remain an attractive proposition for businesses and commercial real estate with the implementation of the EAC serving to strengthen regional development.The impediments to growth are varied. The report cites the possibility of an ill-managed institutional supply pipeline, which may result in volatility in retail rents. This could delay or even deter retailers from expanding.The under-supply of skilled labour also poses a challenge for the office and industrial sectors in the short to medium term, which might in turn hamper the expansion of high-value industrial manufacturers.The disparity in the skill sets between countries also limits the positive effects of the proposed free flow of skilled labour within EAC.Another limiting factor would be the lack of complementary real-estate investment policies to promote the liberalisation of investment policies and a free flow of capital. Often, real-estate investors are deterred by restrictions on foreign land ownership especially in Tanzania and the short duration of leases in countries like Kenya and Rwanda.

A pro-investment environment will be required to encourage further inflow of foreign direct investments and improve the overall development process in EAC. Therefore, a review of land-ownership policy for acquisition purposes may be necessary to allow more foreigners to participate in real-estate development, said the report recommends.Still, market observers remain optimistic about the real-estate capital inflows, going by the strong track record the EAC region has charted in the last decade.Real-estate investments within EAC recorded $16b in capital inflow between June 2005 and June 2015.For the last five years, from 2009 to 2014,Kenya reigned as the top investor in the EAC market at 36 per cent of total investment volume, with Chinese, Indians and Americans leading in the capital injection.In tandem with the increase in cross-border investments into the EAC market, a prominent shift has been seen in capital distribution across all EAC countries in recent years.EAC has played a key role to liberalise the investment markets in the region to pave the way for foreign investments within individual member states. The diversity in the development of the real-estate markets in EAC provides investors a broader investible universe for their investment strategies. Investment into the EAC real-estate market is therefore expected to grow as investors seek alternative markets for their real-estate portfolios.

Contador Harrison