REITs to drive commercial real estate growth in Morocco

REITs required to invest at least 60 percent of assets in property.

Image used for illustrative purpose. A man works at the construction of the new urbanization in Saidia, near Oujda, November 23, 2007. REUTERS/Rafael Marchante

Image used for illustrative purpose. A man works at the construction of the new urbanization in Saidia, near Oujda, November 23, 2007. REUTERS/Rafael Marchante

REUTERS/Rafael Marchante
31 May 2016

The roll out of new investment vehicles is helping stoke growth in Morocco's commercial real estate sector.
Last year Morocco passed legislation allowing for the creation of real estate investment trusts (REITs). Under the law, REITs are required to invest at least 60% of their assets in real estate, while the remainder can be invested in other assets to help diversify their investment portfolio.  

In early 2016 the European Bank for Reconstruction and Development (EBRD) joined forces with Moroccan retail distributor Label Vie Group by investing in its retail real estate subsidiary Vecteur LV (VLV). The aim of both the EBRD and Label Vie is to launch the country's inaugural REIT and attract more investment in Morocco's real estate sector. 

Real estate has traditionally been an attractive asset class in Morocco, particularly in recent years. The sector accounts for the largest share of foreign direct investment (FDI) inflows, according to the most recent figures from the Moroccan Investment Development Agency (Agence Marocaine de Développement des Investissements, AMDI), at 38.6% of the total.

Fiscal reforms

While return on investment (ROI) on real estate averages around 9% in Casablanca - double the 4.5% average in Paris - investors have been slow to invest in Morocco's commercial capital, as the high level of taxation on investment effectively eliminates the difference in ROI, according to Nawfal Bendefa, CEO of VLV.

"International investors were expected to enter this investment segment after the new law on REITs; however, this will only happen after the fiscal framework is in place, which we understand should happen next year. Without this fiscal framework, the ROI is not attractive enough for international investors," Bendefa told OBG.

 "The next financial bill due in December is expected to include a tax package which would complete the law passed earlier this year," he said. "Currently, companies acting as REITs are taxed according to common law provisions."

Amendments to the fiscal framework, particularly tax incentives, are expected to launch REITs in Morocco, with as many as five or six new REITs expected in the coming years, according to Bendefa.

Growth on the horizon

The introduction of REITs comes in anticipation of substantial growth in commercial real estate.

On the back of strengthening household purchasing power, shopping malls in particular are set to increase, with seven new malls expected to open by 2020, bringing the total to 18 and doubling the available retail space in malls, according to local media reports.

The retail sector has a positive outlook in Morocco due to a growing middle class, rising levels of urbanisation - with 60% of the population currently living in urban areas - and an increasingly competitive and modern retail market.

"With 11-13 sq metres of modern retail space per person in Morocco, compared to 23-24 sq metres in Tunisia and more than 200 sq metres in France, modern retail has significant room for growth in the kingdom," Bendefa told OBG.

Total office stock in Casablanca is also set to increase, according to real estate consultancy CBRE, with supply expected to increase from more than 1.6m sq metres in 2015 to over 2.1m sq metres by 2020 - almost double the stock available in 2010.

Much of the new commercial space coming on-line stems from large-scale developments, as opposed to the construction of standalone buildings. One such example - Casablanca Finance City - is set to offer one of the city's largest AAA-grade office space developments, with some 700,000 sq metres.

This should come as welcome news to industry stakeholders, who experienced a challenging year in 2015, due to a cooling economy and a mismatch between office stock and user needs.

Take-up of office space in Casablanca experienced a 51% contraction last year, from 57 lease signings in 2014 to 28. The decline was primarily due to a scarcity of supply corresponding to user requirements in terms of size, services and letting conditions, according to the CBRE.

The new developments, such as the AAA-grade office space, should go some way to address this issue, providing a more diversified office stock.

© Oxford Business Group 2016