An Overview of the Operational Real Estate Market in Africa

Dear Intelligent Investor,?

With what you now know about the revolution remote work is causing in the real estate market in Africa, your heart must have been moved to looking beyond traditional ways of investing in real estate.

Maybe you'd now be ruminating over various types of real estate you can invest in now to ride the wave of this transformation.?

Voila!?

You remember the concept introduced to you in the Real Estate Investment Spectrum by Use Class!

Operational real estate enjoys higher return on investment than residential, industrial and commercial real estate.

Wow! Wow! Wowwww!!!        

"How come I never paid heed to this? I want the highest returns for my investments."

But of course! After all, you are an intelligent investor in the realest sense -? you identify alternatives, select the most viable option and reap the attendant benefits.

Now your interest is really piqued. And as always, we at openhouse gat your back!

In this article, you'd get to better understand the concept of operational real estate, find out some types of operational real estate and appreciate why the African market is shifting focus to operational real estate.?

What is Operational Real Estate??

The Investment Property Forum defines operational real estate as “real estate investment where the return is directly and deliberately linked to the revenues and profits of the business conducted on or from the premises”.

Operational real estate refers to properties that generate income through their day-to-day operations. The value of these properties is often tied to their ability to generate rental income and profits.?

Unlike traditional real estate, which focuses on buying, selling, or developing properties for capital appreciation, operational real estate involves owning and managing income-generating properties. They usually enjoy higher returns on investment as well as higher income risk and greater volatility, given that income is no longer tied to a fixed rent.

Remember The Risk-Return Tradeoff:? "The potential return rises with an increase in risk." Simply put, the higher the risk, the higher the expected returns, and vice versa.

Types of Operational Real Estate

Operational real estate encompasses a diverse range of assets, including hospitals, hotels, data centers, logistics facilities, car parks, shortlets, student housing, lounges, co-working spaces, co-living apartments, cinemas, entertainment centres, storage,? maker labs, retail centers, office buildings and other commercial spaces.

?Healthcare Facilities

Investments in operational real estate are particularly noticeable in the healthcare sector, especially following the pandemic. As African economies advance, so does the demand for quality healthcare services. Investors are recognizing the potential of owning and operating healthcare facilities, ranging from clinics to specialized hospitals. This not only addresses a crucial societal need but also provides a stable income stream for investors.

Hospitality

Africa's rich cultural diversity and natural beauty make it an attractive destination for tourists. Consequently, there's a growing demand for hospitality services. Operational real estate in the form of hotels and resorts is on the rise, catering to both domestic and international travellers. This trend is not only boosting the tourism industry but also creating investment opportunities for those looking to capitalize on the continent's hospitality sector.

Logistics and Warehousing

With the expansion of e-commerce and a growing consumer market, the need for efficient logistics and warehousing solutions is evident. Operational real estate, in the form of distribution centres and logistics hubs, plays a vital role in supporting supply chains and ensuring timely delivery of goods. This sector is witnessing increased attention from investors seeking exposure to Africa's expanding economies.

Short-term rentals

Short-term rentals, commonly referred to as shortlets is a subset of operational real estate that includes properties rented out for brief periods, like vacation rentals or serviced apartments. They generate income based on short-term occupancy rather than long-term leases.

The Rise of Operational Real Estate in Africa

In recent years, the African real estate market has undergone a remarkable transformation, with operational real estate emerging as a key player in the industry. This shift in focus from capital appreciation to income-generating properties reflects a growing recognition of the value of assets that provide ongoing revenue streams, reshaping the traditional landscape of property ownership and management.?

A Northcourt report describes the unprecedented shift that occurred in Nigeria due to the pandemic. 2020 alone saw more changes attempted and actioned than in the previous 3 years. COVID induced lifestyle changes demanded that consumers focus on?groceries and pharmaceuticals, so healthcare, E-commerce, logistics and warehousing experienced substantial growth as opportunities were uncovered.

The real estate market in Africa is experiencing a paradigm shift, with operational real estate reshaping the way people view and utilise properties.

This sector is gaining traction due to several factors. One key driver is the continent's demographic shift. With an expanding middle class, increasing urbanisation and economic growth, there's a rising demand for facilities that support modern lifestyles and business activities.

"The most important thing is to obsessively focus on the customer. It’s our job every day to make every important aspect of the customer experience a little bit better." - Jeff Bezos

Operational real estate places consumers - the end users and occupiers - at its core. It is not merely about properties; it's about enhancing the experience of those who inhabit and utilize them.

Quoting Mike Bessell, CFA of Invesco Real Estate:

"It is clear that almost all segments of the real estate market are becoming increasingly operational; as investors we need to be ahead of this evolution"

Dear intelligent investor, embracing this perspective is not just a strategy. It is a necessity!

In our next article, we'd delve into why operational real estate in Africa holds an irresistible allure for users, thereby becoming an increasingly attractive proposition for investors.

Warm regards,?

RealTake with openhouse