Pathways to Prosperity: Sustainability in Africa

Three core principles underscore this opportunity:

1. Most of Africa’s commercial property stock is yet to be built.
2. Africa can apply learnings from more mature markets to avoid the challenges that they’re currently facing.
3. Africa has an opportunity to tap into significant amounts of sustainable linked finance with a unique offering, while occupiers on the continent will become increasingly stringent on ensuring their real estate meets the correct sustainability standards.

Africa stands at a pivotal crossroads, facing not just a challenge, but a critical imperative to leapfrog the developed world in creating a sustainable built environment. The stakes could not be higher. Failure to seize this opportunity and rapidly decarbonise could lead to catastrophic consequences for the continent and beyond.

The risks of inaction are severe and far-reaching. Without a swift transition to sustainable practices, Africa's burgeoning cities could become locked into high-emission infrastructure for decades to come, exacerbating climate change and its devastating impacts. This could result in increased vulnerability to extreme weather events, resource scarcity, and economic instability, potentially undoing years of development progress.

However, by embracing innovative, low-carbon solutions in its built environment, Africa has the unprecedented opportunity to avoid the mistakes of the developed world and chart a new course towards a resilient, sustainable future. This is not merely an option, but a necessity for the continent's long-term prosperity and security.

By leveraging cutting-edge green technologies, sustainable materials, and efficient design principles, Africa can create urban spaces that are not only environmentally friendly but also more liveable, economically viable, and resilient to climate impacts. This approach could position Africa as a global leader in sustainable development, attracting investment, creating green jobs, and improving quality of life for populations present and future.

The message is clear: the cost of inaction far outweighs the investment required for sustainable development. By embracing green building and renewable energy, Africa can avoid the pitfalls of carbon-intensive development and position itself as a global leader in sustainable urban growth. The time to act is now – the future of the continent, and indeed the world, depends on it.

Africa has the opportunity to proactively adapt to the impacts of climate change while simultaneously meeting sustainable development goals. The continent’s vast human and natural resources mean we can rapidly expand into labour-intensive and environmentally conscious modern industries, not least of all being green building and infrastructure development. Part Two of our research series examines why Africa should capitalise on these opportunities and advance decisively.

1. Climate Risk

Africa has the lowest contribution to greenhouse gas emissions globally, with the United Nations Energy Programme (UNEP) labelling the continent’s annual contribution as negligible. Estimates of the region’s annual share in emissions range between 2% and 4% per year, with South Africa, Egypt, Algeria, and Nigeria bearing the highest emissions levels within the continent. In 2023 South Africa accounted for c. 42% of total GHG emissions for Africa, but only around 1.2% of global emissions. In 2018, buildings accounted for 61% of total final energy consumption in Africa, and 32% of total process-related carbon dioxide (CO2) emissions. The real estate sector is one of the highest emitters of greenhouse gases globally, producing around 30% of the world’s total emissions each year, while simultaneously consuming almost 40% of the globe’s energy (UNEP, 2024). Building operations account for 70% of the sector’s emissions, and 30% stem from construction, highlighting the significant role the built environment plays in shaping a more sustainable future.

Despite the continent’s low carbon footprint, Africa remains disproportionately vulnerable to climate risks, with negative implications for the continent’s food security, biodiversity, poverty eradication, economic growth, and human health. Climate change acts as a risk-multiplier, amplifying the intensity of extreme weather events, increasing unpredictability, and exacerbating vulnerabilities. Between January 2021 and September 2022 approximately 4% of the continent’s population was affected by either drought or floods, amounting to 52 million people. Surface temperatures in Africa are rising across all regions, outpacing the global average over both land and oceans (GCA, 2022). 

It is anticipated that by 2030 urbanisation in Africa will increase the extent of urban land exposed to arid conditions by around 700% relative to the year 2000. It is also projected to increased exposure to high-frequency flooding by 2,600% across West, Central, and East Africa (GCA, 2022). The exposure to extreme heat for urban populations is also projected to increase dramatically. These are only two of the imminent and measurable risks faced. 

Jupiter Intelligence’s City Climate Hazard Scores are designed to assess and quantify the climate-related risks faced by cities. Both the present Hazard and Change scores for seven specific climate-related risks are calculated in order to determine a city’s Overall score. The Hazard scores typically measure the likelihood and severity of each of the seven risks, while the Change scores go beyond these to incorporate vulnerability and exposure factors. The specific climate risks in question are:

1. Flooding
2. Wind
3.  Heat
4. Drought
5.  Fire
6.  Precipitation
7.  Cold
    

Karachi, Pakistan faces the greatest climate risk globally, with an overall score of 94.8 as at August 2024, scoring scored above 90 across the Wind, Drought, and Precipitation categories. Dublin boasts the lowest Overall score at 0.9, followed by Manchester (1.4). Within Africa’s largest cities, the city most at risk is Lagos, Nigeria (75.6) and least at risk is Cape Town (5.9) which ranks among the 15 least at-risk cities globally. 

One climate-risk element where Africa is especially vulnerable is the ‘Heat’ category. Seven of Africa’s largest cities fall within the top thirty most at-risk cities in the world, with Kinshasa’s score of 94.5 ranking the city second overall. Additional cities at high risk of this hazard include Accra, Lagos, Luanda, Abidjan, Cairo, and Dakar. Most of the cities assessed also possess change scores upward of 60 which is significant and suggests that there is room for improvement.

The impact of climate change on Africa’s food systems is already demonstrable. According to GCA, climate change resulted in a 34% reduction in agricultural productivity since 1961 – more than in any other region. A 1.5°C temperature rise will likely result in reduced yields for olives in North Africa, sorghum in West Africa, and tea and coffee in East Africa. A 2°C increase would negatively affect staple crop yields throughout most of Africa. if global warming was to reach to 3°C level, agricultural labour capacity could be reduced by 30–50% in Sub-Saharan Africa, due to a sharp increase in the number of extremely hot days (temperatures exceeding 40°C). Livestock production would also be under threat.

Climate change is already happening, and we must act now to avoid its most detrimental effects. Extreme climate events – heatwaves, flooding, storms, and droughts – are increasing in both severity and occurrence. Since all buildings can be affected, the impacts of climate change have moved beyond academic discussion and are seeping into the very fabric of real estate, demanding attention, adaptation, and action.

2. Economic Risk

The link between climate risk and economic risk in Africa is significant and multifaceted. Climate change poses substantial threats to economic development and stability due to the continent’s agriculture dependence, limited adaptive capacity, and water stress, among other factors. Climate change could also lead to adverse tourism, foreign investment, and energy sector challenges. These interconnected risks create a complex economic landscape where climate change acts as a risk multiplier, potentially exacerbating existing economic challenges and creating new ones. 

It has been estimated that 30% of the US’s GDP is dependent on favourable and predictable weather conditions. The most obvious is the agriculture sector, however several others are also significantly impacted by weather patterns. Aggregates for African countries vary given the diversity of economies and development stages of various countries; however, despite the ongoing transition away from agriculture-based to more service-oriented economies, the agriculture sector still plays a significant role. This means that an even greater than 30% proportion of the regional economy is impacted by weather patterns, particularly since the sector is mostly rainfed and employs the majority of the workforce across sub-Saharan Africa. 

Source: Oxford Economics

The need for better climate resilience is even more urgent for Africa, as many small changes in weather patterns resulting from climate change will erode food system productivity, causing losses of assets through events too small to attract global or even national attention. Most of the sector’s employment vests in smallholders and subsistence farming that is particularly vulnerable to climate variability. Considering that the agriculture sector provides employment for around 60% of the continent’s population and accounts for c. 25% of GDP, it is critical to keep enhancing the resilience of the sector while simultaneously tackling the global challenge as far as possible.

Case Study 1: South Africa

South Africa offers several case studies to demonstrate the impact that climate events have on the economy and commercial real estate. One example is the severe drought faced by the Western Cape in 2017. Large tranches of the private sector undertook projects to minimise water usage in their properties and provide alternate water supply sources to minimise disruption and ensure continuity of operations as the metropole neared “Day Zero” when municipal water stores were forecast to run dry. Notwithstanding these interventions, residential and commercial asset values and demand fundamentals dropped markedly as the region was considered too risky for investment. The tourism sector that drives a significant portion of the region’s GDP was also adversely affected.

Another recent case study is severe flooding that savaged parts of KwaZulu-Natal in 2022. Unseasonably high rains (combined with failing infrastructure) resulted in major damage to and loss of commercial and residential property. In fact, scores of industrial warehousing and manufacturing facilities were destroyed, resulting a notable stock shortage. The cost of infrastructure and business losses from those 24 hours of heavy rain amounted to an estimated US$2 billion.
In recent decades, several African economies have been severely affected by climate-related disasters. The Centre for Research on the Epidemiology of Disasters’ (CRED) EM-DAT database shows that from January 2021 to September 5, 2022, over 54 million people on the continent were affected by disasters linked to storms, droughts, wildfires, floods, and landslides. Eastern Africa has been the most affected overall, particularly by drought, whereas flooding is estimated to have resulted in the costliest damages measured by percent of GDP between 2000 and 2018.

In the report “Economics of Climate Change in Africa” the AfDB estimates the macroeconomic consequences of climate change at the national level in the 2020s, 2030s, and 2040s, based on a low warming scenario that corresponds with the “below 2°C world” and a high-warming scenario (“above 4°C world”). The projected potential impact on GDP per capita compared to a baseline scenario within each region is approximated as the following: 

Research published by the World Bank and United Nations in 2011 estimates that African country’s GDP per capita was about 8% lower than their baseline scenario between 1970 and 2010 due to climate-related events. This phenomenon is referred to as the “adaptation deficit” and serves as a true admonition of the juncture we are facing. Similar research places the adaptation deficit at between -15% and -10% at various intervals between 1960 and 2005. The above ‘worst case’ approximation of -16% in Eastern Africa translates into annual GDP per capita growth nearing 0.5% lower than the baseline growth every year between 2015 and 2050. Some of the literature suggests that these econometric-based approaches underestimate the potential impact.

Across nearly all African countries, if global warming is held up to 1.5°C rather than allowed to rise to 2°C, GDP per capita is projected to be at least 5% higher by mid-century, and 10 – 20% higher by 2100, excluding the impact on the informal sector. An investigation into the impact of climate change conducted by the IMF asserts that climate-induced disasters have a lasting impact on the sub-continent, especially droughts. According to the report medium-term annual economic growth can decline by 100bps with the occurrence of one additional drought. The negative impact is reportedly eight times that in emerging market and developing economies in other regions.

Ninety percent of the jobs in Africa and 75% of the continent’s economic output come from the private sector. A decisive response is thus crucial for the private sector to survive and thrive. Further to that, Africa has the largest youth population in the world, a demographic is particularly vulnerable to the impacts of climate change. Most employment within this demographic is informal on farms or in urban households, and therefore the youth are not yet significantly engaged with the climate crisis and are often excluded from community-level political activities and leadership roles. But the youth “bulge” also offers important opportunities. This population is more educated than previous generations meaning they can provide the workforce needed to expand the manufacturing sector, to improve agricultural productivity through climate-smart practices, and to increase formal employment in cities, if policies and investment is aimed specifically at accelerating green and resilient growth.

Per the IMF, albeit costly, financing climate resilience and climate change mitigation efforts will be more cost-effective than frequent disaster relief. According to their estimates, climate change adaptation in sub-Saharan Africa could amount to USD 30 – 50 billion each year between 2020 and 2030 – the equivalent of 2-3% of regional GDP. That said, these estimates are lower than frequent disaster relief payouts.

In short, climate change affects economic activity through a variety of channels, both directly measurable and not. Households, businesses, and governments could adapt their behaviour as climate change continues, reducing the negative externalities as far as possible. A crucial, and actionable, component of this is developing a more sustainable commercial real estate market.

3. Obsolescence Risk

The business case for resilience and the cost of inaction

JLL’s “The Green Tipping Point” reveals an increasing disconnect between the demand for and supply of low carbon office space in mature cities and markets. Increasing regulatory pressure, stakeholder demands, and financial incentives are all and individually compelling property owners and occupiers to prioritise sustainability in the real estate decisions. The shift is changing investment strategies and operational decisions, emphasising the integration of green building certifications, energy efficiency measures, and sustainable practices across the industry.

There are several reasons for this shift in occupier demand. In 2021, ten of the biggest climate disasters globally cost USD 170 billion in insured losses, a tally that does not account for disruptions to business continuity, as well as broader human costs. As weather patterns become less predictable and extreme weather events more frequent, the risks to asset values will mount. One estimate has put US$1 trillion of real estate at risk of coastal flooding in the U.S. alone. Given that most Africa’s major cities are located along coastal regions, the relative risk here is even greater. 

Occupier demand is increasingly linked to carbon commitments, and to align operations with these commitments, corporates are prioritising buildings that are energy efficient, electric, and powered by clean energy. An emphasis is also placed on construction that prioritises lowering embodied carbon where possible. Soon such carbon commitments will impact leasing decisions made at scale, to the extent that investment in low carbon buildings within these more mature markets will start to pay dividends in as early as 2025. With an exponentially increasing number of corporates signing up to net zero targets and an ongoing focus on minimising operating costs, demand for space that is aligned with these goals will increase.

Organisations that don’t implement climate mitigation and adaptation strategies therefore face a heightened risk of disruption, damages, and higher operating costs (insurance and maintenance) alongside lower revenues due to the disruption to operations and property downtime. Resources such as energy and water will also become more expensive for companies which haven’t adopted measures to reduce consumption, and in mature markets increased regulations around climate risk reporting will impose compliance mandates for large businesses. This also affects the property owner, since less resilient buildings will become harder to insure and see lower tenant demand, meaning values will fall.

Extreme climate events are already affecting asset pricing and liquidity. Prices typically decline after climate events, particularly in locations not used to extreme weather. Over time, repeated events can lead to significant prices discounts and lower demand. In Hong Kong, for example, following a typhoon in October 2018, a multifamily residential building saw unit prices fall by 14% and not recover to pre-typhoon levels still four years later. Non-green buildings also do not support the global transition to net zero, posing a challenge to property owners, as such buildings will become increasingly difficult to let or sell.

The legitimacy of these climate risks is such that the narrative has transitioned away from the ‘green premium’ presented in resilient buildings to the ‘brown discount’ associated with non-sustainable options. Although the brown discount associated is not necessarily guaranteed (particularly in less mature markets), MSCI data from 2023 shows a discount of up to 20% in London for properties of average performance versus a premium of 25% for efficient, top-rated properties. This is linked to the concept of value preservation and risk mitigation. These buildings are harder to finance and insure, and more so as banks and investors set their own decarbonisation targets.

From an investment perspective, investors are already recognising that liquidity, debt, and pricing, are being affected by a building’s energy and emissions performance. Already, projections show that the average stranding year for real estate is 2024 (GRESB). JLL research from January 2024 found that 50% of UK investors surveyed identified occupier requirements as one of the biggest ESG drivers behind decisions to buy or bid on an asset. Investors and owners should thus seize this opportunity and prioritise measurable emissions reductions across assets. The NZC transition is hence an opportunity to attract investors and tenants willing to pay top-dollar rents for pace that meets their needs.

Case Study 2: MSCI South Africa Green Annual Property Index

The MSCI South Africa Green Annual Property Index for 2023 continued to support the investment case for sustainable, resource-efficient real estate. Since the inception of the index in 2016, the sample of green-certified offices outperformed the non-certified sample by 24%. For 2023 green-certified Prime and A-grade offices produced a total return (5.8%) that was 150bps higher than comparable, non-certified properties. this outperformance was a combination of higher capital growth (due to superior net income growth) and lower discount rates. 

Regulatory pressures also play a growing role in investor demand for sustainable buildings, although at this stage this is more prevalent in mature markets. Local case studies include eThekwini Municipality’s 2021 ‘eThekwini New Buildings Green Policy” which puts in place some regulations to have all new buildings constructed according to net zero carbon requirements from 2030 and Kenya’s hosting their first national forum on Buildings and Climate Change in May 2024, bringing together national policy makers and business leaders, signalling the rising awareness of the built environment as a critical sector for climate action in national policy for the country.

In conclusion, the ‘brown discount’ is driven by both key stakeholders in commercial real estate. Occupiers are demanding more sustainable premises in an effort to lower utilities costs, minimise potential disruptions to business continuity due to climate events, and maximise the health benefits their facilities hold for employees. Investor demand is shaped by the drive for value preservation, better financing options, and heightened physical longevity.

Africa faces disproportionate climate risks despite its low carbon footprint. These risks pose significant threats to the continent's economic development, food security, and overall stability. The real estate sector, as a major contributor to global emissions, has a crucial role to play in mitigating climate change and adapting to its effects.

The economic consequences of inaction are severe. Climate-related events have already impacted GDP growth across African regions, with projections indicating potentially substantial losses in the coming decades. The private sector, which drives most of Africa's economic output and employment, must take decisive action to survive and thrive in this changing landscape.

For the real estate industry, the shift towards sustainability is not just an environmental imperative but also a business necessity. The growing demand for low-carbon space, driven by regulatory pressures, stakeholder demands, and financial incentives, is creating a clear divide between sustainable and non-sustainable properties. This trend is leading to the concept of a 'brown discount' for non-green buildings, affecting their value and attractiveness to both investors and occupiers.

Investors and property owners who proactively adapt their portfolios to meet these new demands stand to benefit, while those who delay may face significant risks of asset obsolescence and value depreciation. The transition to net-zero carbon presents an opportunity to attract premium tenants and investors, potentially yielding higher returns and more resilient assets.

In conclusion, the African real estate sector must embrace sustainability not only as a response to climate risks but as a strategy for long-term economic viability and growth. By doing so, the industry can contribute significantly to the continent's climate resilience while capitalising on the opportunities presented by the global shift towards sustainable development.