Pathways to Prosperity: Sustainability in Africa

Three core principles underscore this opportunity:

• Most of Africa’s commercial property stock is yet to be built.

• Africa can apply learnings from more mature markets to avoid the challenges that they’re currently facing.

• 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.

Introduction

Africa is undergoing a rapid transformation. By 2050, the continent’s population is forecast to grow by 1.3 billion, which will account for more than half of the world’s projected population growth. The continent is also home to some of the world’s fastest-growing economies, which together with accelerated urbanisation presents both challenges and opportunities. Higher urban densities have and will continue to lead to higher carbon emissions, heightened demand for commercial and residential accommodation, and a greater overall ask of the built environment. In 2018, buildings accounted for 61% of total final energy consumption in Africa, and 32% of total process-related carbon dioxide (CO₂) emissions. Therefore, unless the continent’s rapid expansion is accompanied by a shift towards renewable energy and a low-carbon economy, climate change will pose a more significant threat to Africa’s resources and way of life. In addition, due to the pace of population growth and urbanisation taking place, there is an urgent need to meet rapid delivery of resilient homes and buildings, while avoiding ‘locking’ emissions in inefficient construction. Therefore, the role of the built environment is more distinct than ever, particularly across the continent’s fastest-growing cities.

However, amidst these challenges lies a compelling opportunity. Many African countries are poised for rapid economic growth and can establish a sustainable foundation that surpasses modern green building norms or practices. Investing in green construction offers numerous benefits, including but not limited to fostering growth and addressing crucial issues such as employment, climate change, and poverty.

Consequently, an increasing number of countries on the continent are shifting their focus towards constructing greener cities. Green buildings (whether officially certified or not) not only reduce carbon emissions, but they also further improve the health and wellbeing of tenants, attract higher rents, and benefit from reduced energy costs. By prioritising sustainability, Africa has the potential to showcase its commitment to a greener future while simultaneously addressing its unique challenges and harnessing opportunities for growth.

Part One: The state of green building in Africa

Across Africa, the concept of sustainability is recognised and pursued differently. Environmental protection often takes a backseat, despite Africa facing the most severe climate-related challenges of any continent (Intergovernmental Panel on Climate Change, 2022). While some countries such as Nigeria and Ethiopia have actively aligned their objectives with global sustainability imperatives such as the Paris Agreement of 2015, most nations across the continent are focused on more urgent matters such as economic development, food security, water scarcity, and overall societal well-being. Corporate commitments are accelerating the urgency toward creating a more sustainable built environment, with market forces acting much faster than the regulatory environment. The commercial case for making buildings more sustainable can be summarised into three key points: 1) mitigate mounting costs from climate risks; 2) meet rising demand for sustainable buildings; and 3) adhere to increased regulation.

Although buildings and building practises may be sustainable or environmentally beneficial (and the latter often is in smaller-scale construction sectors in Africa) without independent verification or certification thereof, certification offers additional advantages in terms of recognition, standardisation, and market value. Certification further enhances the credibility of sustainability related claims, as well as providing more standardised and quantifiable metrics to benchmark performance and which are beneficial for goal setting and reporting purposes. Additional benefits associated with certification are linked to financial incentives and regulatory compliance, among others.

Green building certification

There are three prominent green building certifications applied in Africa, namely LEED, EDGE, and Green Star.

LEED (Leadership in Energy and Environmental Design), which was established by the U.S. Green Building Council (USGBC) in 1998, evaluates the environmental performance of buildings. The USGBC works closely with local partners to ensure that the rating system reflects regional priorities and addresses specific environmental challenges in different regions. LEED certified buildings are more popular in Kenya, Nigeria, and South Africa. While the rating system’s primary focus is on environmental sustainability, it does recognise that social aspects play a crucial role in sustainable development. The involvement of both design intent and as-built performance allows LEED to encourage sustainable design and construction practices while also ensuring that the building’s performance aligns with the intended sustainability goals.

EDGE (Excellence in Design for Greater Efficiencies), developed by the International Finance Corporation (IFC) in 2014, aims to assist developers and designers to make sustainable design decisions that are affordable and practical EDGE’s main objective is to promote resource-efficient buildings by focusing on the three key areas of energy, water, and materials. It. EDGE evaluates buildings based on the projected performance based on their design. The energy, water, and materials usage of the project is compared to a baseline building that represents the local standard practice. Projects need to achieve a minimum percentage improvement (20%) in each category to qualify for certification.

The Green Star rating tool, developed by the Green Building Council of South Africa (GBCSA) in 2008, is the most prevalent rating system in Africa. The tool compares ten categories that focus on various environmental and sustainability facets in building design, construction, and operation: energy, water, materials, innovation, emissions, socio-economic, transport, Indoor Environment Quality, management, and land use and ecology. There are four tools within the Green Star suite that are appropriate for different stages in a building’s lifecycle, precincts, new buildings and major refurbishments, interiors, and existing buildings.

Since the Green Star certification was developed based on the specific environmental, regulatory, and social circumstances in South Africa, it is not necessarily appropriate for all African countries. That being said, the Green Star Africa certification programme, after being launched in 2017, has led to the GBCSA certifying projects across the continent. The Green Star Africa venture seeks to collaborate with other emerging Green Building Councils (GBCs) to adapt the tool for certification in their respective countries by including unique adaptations. To date this concept has been applied to Botswana, Ghana, Kenya, Mauritius, Morocco, Namibia, Nigeria, Rwanda, Tanzania, Uganda, and Zambia.

Currently, there are 12 Green Building Councils (GBCs) in Africa. The first was established in South Africa in 2007; the most recent addition is the Morocco Green Building Council, established in 2023. South Africa has the most, green certified buildings on the continent, with over 1,000 certifications awarded. This amounts to over 14.3 million square meters of more sustainable commercial real estate and includes 26 certifications in other African countries.

LEED and EDGE are also common certification systems in Africa. At the end of 2023, there were 125 LEED-certified projects on the continent, with an additional 18 certifications awarded in YTD 2024. This amounts to well over two million square meters of sustainable commercial building inventory. While details such as location, type, and size are confidential for many projects, among the known samples, the office sector dominates in terms of the types of properties that are LEED certified, followed by industrial and warehousing.

The first LEED certifications in Africa were awarded in 2010 to properties in the Republic of the Congo, Egypt, and South Africa. There are now LEED certified buildings in 24 African countries and LEED registrations in 34 countries. Egypt (32) and Morocco (31) boasted the highest number of LEED certifications in August 2024. Following a lull in certifications between 2017 and 2021 there has been an exponential rise in the number of certifications. An average of 12.4 certifications were awarded annually between 2019 and 2023. Eighteen have been awarded in the first eight months of 2024 alone.

In addition to the 143 certifications, there are 399 LEED registered projects across the continent. Registrations similarly stagnated between 2017 and 2019, however there has been an exponential rise since. By the end of August 2024 69 projects had been registered for certification, compared to the 57 total registrations noted in 2023. Should these all materialise and achieve their desired certification, there will be an increase of over 11 million square metres of sustainable real estate on the continent.

EDGE is a newer rating system on the continent, with the first EDGE certification being awarded to office, retail, and logistics projects in Kenya and Ghana in 2018. South Africa has the most EDGE certified properties, followed by Kenya and Ghana. According to the Green Building Information Gateway there is approximately 8.8 million square metres of EDGE-certified buildings available in Africa. This is presumed to include residential (single and multi-family) and commercial properties. As is the case with the aforementioned rating tools, the office sector boasts the dominant share of green-certified stock, followed by logistics and warehousing, and retail.

There has been a rapid adoption of this rating tool since 2018, with an estimated 150+ certifications awarded during the first eight months of 2024. This is more than double the total for 2023. It should be noted that the EDGE certifications include both Preliminary and Final certifications, with the former relating to the design stage. It is therefore permissible that not all these properties will be completed or may not reach the milestones calculated during the design phase. It is also noteworthy that EDGE certification in sub-Saharan Africa is commonly sought within the affordable housing market. This market segment has been excluded from our analysis.

Demand Drivers

South Africa

The growth of green buildings in South Africa was initially driven by larger REITs, with the first Green Star certification being awarded in 2009. These parties were interested in the financial benefits associated with green building, as certified buildings command increased rental premiums and higher capital values. Listed companies such as REITs were becoming obligated to track, report, and improve their ESG scores and performance, and the adoption of green building reflected adherence to these mandates. Initially green building certification efforts from REITs were directly solely at office buildings, as this is where the benefit was most notable. The office sector remains the prominent asset class for green building certifications.

Since then, green building certifications have expanded to cover all sectors. Industrial tenants have intense power and water consumption needs and given the unstable municipal grid in South Africa and other African nations, developers have identified the opportunity to attract better quality tenants through incorporating more efficient power and water supply sources into their baseline specifications. In South Africa, REITs are also using wheeling and solar power generation opportunities to diversify their property revenue streams, as they can sell independently produced power back to tenants and local authorities at favourable rates. This trend is especially evident within the retail sector, where the large roof expanses are ideal for solar PV systems.

It is important to note that in many cases these green building features and initiatives are being implemented without green building certification being sought (nor obtained). There is thus a growing trend, in South Africa at least, where properties are not necessarily being certified, but they are being ‘greened’.

Once green building certification and green building initiatives have become more commonplace, financiers also have also begun to drive the CRE sustainability agenda through offering various lending facilities with preferential terms for green buildings. Two elementary options have been developed with the advent of green building in South Africa – green loans, and sustainability-linked loans. Green loans are most similar to conventional loan agreements, although the core distinction is that funds are put toward a specific green purpose, rather than general corporate purposes.

Within the sustainability-linked facility, a green building’s performance is continuously assessed against a predetermined set of metrics. Meeting annual sustainability targets provides the borrower with a pricing advantage, while failing to do so results in the opposite. A crucial aspect of the sustainability-linked facility is that the responsibility of substantiating performance lies with the borrower, who must provide audited certificates to the financier. On one hand, this arrangement benefits the borrower by fostering greater awareness of their utility management and usage, thereby presenting opportunities for optimisation. On the other hand, the borrower incurs additional expenses in obtaining the audited statements to satisfy the requirements of the financiers. This can pose challenges, especially for smaller entities, where feasibility may be an issue.

The use of loan proceeds forms the cornerstone in classifying an instrument as green, and/or sustainable. The determining frameworks change regularly, however at present green buildings comprise a core loan category. At ABSA qualifying properties are “green buildings that meet regional, national, or internationally recognised standards or certifications” and eligible properties include commercial or residential buildings with minimum Green Star, EWP, LEED, or EDGE ratings or whose power supply or heating/cooling systems are being replaced with more sustainable alternatives. A crucial benefit (from a climate resilience perspective) associated with such sustainability-linked finance is that it transcends the ‘theoretical’ nature of green building certification (which is highly design based) and focusses on the actual or operational performance of these buildings.

Following the push from real estate funds and financiers, CRE occupiers are also furthering the green building initiative. One facet of this segment demand for sustainable buildings stems from large corporates seeking to become energy independent or address ESG targets placed on them from various stakeholders. This is particularly evident in South Africa’s office sector, where most of the (fairly limited) prevailing demand is directed toward green buildings. Occupiers are becoming increasingly more aware of the benefits of occupying green buildings on their workforce and goodwill valuations, as well as their bottom line in terms of the operational cost savings benefits associated with energy-efficient buildings.

A final driver of the sustainability regime in Africa’s built environment is the local operating environment. Despite having some of the lowest per capita carbon emissions figures globally, the continent is largely reliant on non-sustainable power generation, and for various reasons power supply is often unstable. Back-up power generation capabilities are imperative, to ensure business continuity. Similarly, the less advanced infrastructure availability in many cities (a situation exacerbated by the rapid urbanisation of these cities) means that water security is an issue. Developers must include back-up water supply measures and often also include features such as more water efficient sanitary ware in their fitouts.
 

Africa (excluding South Africa)

Within the rest of Africa, the demand drivers of green building differ. Outside of South Africa, the continent’s first green building was the World Bank office in Upper Hill, Nairobi. This was an occupier-driven development, with the World Bank mandating the sustainability credentials. Unlike in South Africa where REITs (developers) constructed green buildings because of the associated rental premiums, developers in Kenya viewed certification as an opportunity to differentiate their product in a market that was otherwise oversupplied. At this stage it is thought to be virtually imperative for developers to offer, at a minimum, EDGE certification for new developments to attract new (high calibre) tenants.

Another driver of demand is occupiers who want EDGE certification as a minimum quality assurance as it relates to their leased space. However, this portion of demand (namely multi-nationals) is limited to prime submarkets and insufficient to drive the development of standalone new assets. The remainder of the market, being lower-grade offices, is predominantly let to local businesses and SMEs for whom cost/affordability is of greater concern than the sustainability features of the properties they occupy.

As has been the case in many parts of the globe, occupiers can very quickly catalyse the pace at which green buildings are in demand. We expect global trends to mandate multinationals in Africa to have limited optionality when it comes to occupying buildings with the right sustainability credentials. This presents a significant opportunity for developers looking to move ahead of the curve, developing quality green buildings in markets that have high multinational presence relative to the supply of green buildings.

Financiers are also becoming more involved in furthering sustainable CRE investment elsewhere in Africa. In 2022 Standard Bank, Absa, and Nedbank jointly created a debt restructuring deal with Grit Real Estate Income Group Ltd. (Grit) to a value of around USD306 million. The term loan and revolving credit facility is linked to the fund’s ESG, carbon emissions reduction, and gender-equality targets, with the funds put toward facilities linked to Mozambique, Ghana, Zambia, and Senegal. The facility is structured to create an opportunity for the borrower to deliver scalable and sustainable real estate developments. Grit is a major investor in the continent’s formal CRE market, and the abovementioned deal constituted the largest transaction ever recorded for Africa’s real estate sector (excluding in South Africa). Green finance on a smaller scale is not yet widespread in Africa, however the Grit deal could catalyse higher rollout and adoption of such.

Conclusion:

In conclusion, Africa’s sustainability landscape is characterised by both challenges and opportunities. The continent is undergoing rapid urbanisation and economic growth, which presents challenges such as higher carbon emissions and increased demand for accommodation. However, Africa is well positioned to address these challenges, thanks to its unique advantages.

Africa’s commitment to a more sustainable future is evidenced by improving adoption of green and energy-efficient buildings. There are three prominent certifications in Africa, namely: LEED, EDGE, and Green Star. These certifications promote sustainable design and construction practices, as well as better operating performance. While South Africa has the most green-certified buildings on the continent, the demand for sustainable buildings is growing in other African countries as well. Investors and Occupiers are needing to pivot to buildings with sustainable credentials and ultimately the ratings and certifications available in Africa need to align with global standards to ensure these benefits can be available to those entering Africa.

Herein lies the biggest opportunity for Africa, not only within sustainable real estate but real estate at large. Africa could see a significant influx of capital into the real estate sector if there can be a better alignment with global ratings and taxonomy. Europe has taken a lead when it comes to sustainability in the built environment and Africa’s relative proximity, together with the abundance of natural resources and the ability to provide unique “social” impact solutions within an ESG framework, provides an opportunity to present African real estate more competitively on a global stage.

There are several driving factors for green buildings in Africa. In South Africa, REITs initiated the growth of green buildings, attracted by the financial benefits such as increased rental premiums and higher capital values. Corporate commitments, market forces, and regulatory requirements are also accelerating the adoption of sustainable practices. The availability of sustainable financing options, such as green loans and sustainability-linked loans, further supports the sustainability regime. Numerous case studies are available to demonstrate the positive impact of green building initiatives and showcase Africa’s commitment to sustainable design, construction, and operational practices.

Overall, while Africa faces unique challenges, such as unstable power generation and water scarcity, the sustainability landscape of Africa's built environment is promising. The continent has the potential to lead in sustainability by using the nascency of its CRE markets to its advantage. Whereas most of the world is focused on the need to retro-fit properties, Africa will remain development dependent for the next few decades and can adopt best-in-class technology and practice to ensure that the outcome is a sustainable one.