This is the next big thing in real estate

Reports indicate that the best days for residential, retail and office segments might be behind us; for developers that is. What with analysts touting oversupply and prices that have stagnated? One segment, however, has received less attention than the rest over the years, and with Nairobi’s stature as an economic hub, this neglect is showing.

This is the logistics segment; warehousing to be exact. Warehouse parks could just be the next property investment frontier in real estate if trends, statistics in the market is anything to go buy.
This is due to increasing demand from shippers who are seeking safe storage of their shipments for distribution or onward transit to neighboring countries.

According to Siginon Group Managing Director Meshack Kipturgo, the demand is also attributed to various factors including a growing interest in Kenya as a business hub.

He says Kenya’s unique geographical position has made it a key transit point for cargo destined for the local market as well as into the region.

“Today, the growth of SMEs in Kenya has exploded and contributed to an increase in logistics services such as warehousing. In addition, a number of importers today have turned to utilisation of leased factors of production, which are cheaper for retailers as opposed to the importer absorbing the cost and risk of running a non-core operation such as logistics while running the enterprise,” he said.
Siginon Global Logistics, part of the Siginon Group, is a logistics player that has invested heavily in warehousing. The firm boasts of nearly 300,000 square feet of warehouse capacity in its Nairobi and Mombasa operations licensed to handle cargo that is general, bonded or on transit to regional destinations.

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“The general cargo warehouses have the highest demand with customers largely importing shipments such as textiles, pharmaceuticals, spare parts and chemicals among other commodities,” adds Winstone Akweyu, the Operations Manager at Siginon Global Logistics.

Reports have, however, established that Nairobi lacks an adequate supply of quality logistics space, pushing some firms to invest in their own custom-built facilities.
The Knight Frank Logistics Africa 2016 report – a review of Sub-Saharan Africa’s emerging logistics property sector – noted that occupiers of prime warehouses demand properties built to high technical specifications that support modern retailing, distribution and manufacturing practices.

Just last week, Africa Logistics Properties (ALP) announced the launch of a Grade A logistics and distribution parks for the international and local occupier rental market in order to improve much needed supply chain infrastructure in the country.
The company announced two land purchases situated in the Northern and Western outskirts of Nairobi; unveiling the purchase of 22 acres at Tatu City, in Ruiru, and 49 acres from Tilisi, towards Limuru. The two warehouse parks will offer international standard warehousing to multinational and local regional companies.

Kenya is among many African nations suffering losses from inadequate warehousing facilities, with the cost of moving goods in Africa estimated to be up to three times higher than in developed countries, accounting for as much as 75 per cent of retail prices.
Opportunity
As a result, the report says the scarcity of high quality warehouses in Nairobi has created abundant opportunities for developers, even on a speculative basis

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“Typically, the existing stock is old and mainly based in Industrial Area,” said the report. Prime logistics space in the capital, it says currently commands a rent of US$4.2(Sh420) per square metre per month, a relatively low figure largely due to the quality of existing structures.
Ben Woodhams, Managing Director Knight Frank Kenya, said: “Occupiers are willing to pay about US$69 (Sh7,100) per square metre per month in Nairobi for the same quality of space they would find in South Africa or Eastern Europe.

However, local developers are struggling to provide such quality for purpose-built properties at less than US$9(Sh927) per square metre per month due to existing building practices and lack of economies of scale.”
Toby Selman, the Co-Founder and CEO of ALP says economic development in Africa now rests significantly on the development of modern grade A industrial and logistics warehouses.

ALP has, this month, also agreed terms with an international company for the park’s first rental lease, for 14,000 square metre of warehousing, in Kenya’s largest industrial lease to date. ALP recently completed the first closing of its oversubscribed initial fundraising, raising $50 million(Sh5.1 billion) from CDC Group, the UK’s development finance institution, and from IFC, a member of the World Bank Group.

Other institutional investors include Maris, a Nairobi based private investment business focused on sub-Saharan Africa, and Mbuyu Capital Partners, an African focused UK based asset manager.
Out of the 20 cities surveyed across Sub-Saharan Africa, Luanda has the most expensive rents for logistics space at US$21 (Sh2,163) per square metre per month, owing to limited supply, followed by Abuja at US$12 (Sh1,236), Accra at and Maputo both at US$10 (Sh1,030).

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Nairobi’s prime warehouse rents compare to the likes of Kigali and Harare, which average US$4 (Sh412) per square metre per month, and Lilongwe at US$3.94 (Sh405) for similar space. “Due to a lack of supply, some occupiers are forced to develop their own property and then ultimately revert to a sale-and-leaseback arrangement as it’s not their core business to own property,” Woodhams said.

Logistics services are today driven more to meet the customer demands for convenience and efficient service delivery. With growth of Kenya’s position as a key business hub in the region, sufficient investments are needed to match demand.
Source: The Standard