Pioneer developers back industrial real estate as new area of industry growth
An under supply of A-grade quality warehouses, and high demand by tenants for quality spaces, has presented a number of new opportunities for development in East Africa.
In Kenya, the industrial scene is slowly starting to grow and it is soon expected to change the landscape of the country, largely due to key logistics developments like the Africa Logistics Properties (ALP) developments in Tatu City and Tilisi, Acti’s new foray into the sector, as well as Infinity Industrial Park.
According to the Broll Kenya Market Report for the first half of 2017 that was launched today 5th April 2017, undersupply of high quality warehouses still remains one of the key challenges within the industrial market along with lack of multiple access points from warehouses to major highways, increase levels of traffic in and around Nairobi, and incomplete government projects which are meant to boost the manufacturing sector.
“Kenya’s strategic location makes it a critical transportation hub for logistical warehousing,” said Gordon Bell, Director and Head of East Africa’s Operations for Broll Property Group.
Unpacking this growing trend, this year’s EAPI summit once again feature’s leading real estate development and investment companies from over 23 countries, including representation from all country members of the East African community.
This year’s EAPI Summit agenda focused on unlocking new areas of growth for East Africa’s real estate markets. In keeping with the growing interest and opportunities in the regions’ logistics industry, the summit has been able to bring together the sectors largest investors, developers and operators. CDC, Emerge Developments, The IFC, Actis, ALP, Improvon, Chandaria Group and Bollore Logistics all shared their views on how to tap into East Africa’s lucrative industrial sector,” said Kfir Rusin, managing Director of API Events.
The cost of moving goods in Africa is said to be on average, two or three times higher than those in developed countries and transport costs can account for as much as 50-75 per cent of the retail price of goods. The recent announcement of the CDC Group , in partnership with the IFC, to invest in ALP’s Nairobi developments, shows growing investor support for developments on the continent and in particular Kenya.
The existing logistics and supply chain industry across Africa is extremely fragmented and inefficient due to a lack of quality-fit-for purpose infrastructure. This has hampered the development of much needed supply chain and distribution operating efficiency improvements,” said Tobby Selman, CEO Africa Logistics Properties.
“Africa Logistics Properties is addressing this by developing the first pan-African portfolio of built for purpose modern grade-A logistics and distribution centres across key target Africa capital cities for the occupier rental market. Our first two projects will be in Nairobi and our pipeline sketches across Sub-Saharan and North African Cities,” he said.
The Lack of quality international standard warehousing space has long been a constraint on business growth and economic development. Such new developments now aim to improve operational efficiencies by reducing waste from poor storage, increasing the speed of product delivery and improving product security.
Commercial property development within Sub-Saharan Africa has, over the last decade been concentrated on both the retail and office sectors, while logistics development has been side-lined, often due to uncertainty over market demand.
Increasing volumes have ensured demand for high quality space from retailers and consumer goods manufacturers seeking to expand their African operations and improve distribution networks and supply chains. A number of logistics and industrial parks are still in the pipeline as part of wider urban developments such as Rendeavour’s Tatu City near Nairobi and Roma Park in Lusaka. Well situated near main ports, these locations have been identified as hotspots for logistics developers.
It is yet to be proven however, that occupiers can be attracted in large numbers into the new developments:
“Although clearly dissatisfied with their existing accommodation, occupiers need to accept that gaining the efficiencies of modern space could mean moving further out of town and may lead to increases of up to 50 per cent. This will be the big test for for Actis and ALP,” said James Hoddell, MD of Emerge Developments.
“Looking at the rapid growth of demand for warehousing in East Africa, the future of the African logistics sector is a tropic we can no longer ignore. There are important questions that need to be answered, as affordability is still a problem. Can the industry adopt technology to bring the building costs associated with warehousing down? In terms of return on investment, how does warehousing compare with commercial and retail sectors? These discussions will be important for the future growth this sector on the continent,” said Rusin.
With more than 400 delegates, the two day summit will also discuss the move into Kenya’s counties, new infrastructure projects, student housing, retail oversupply vs opportunity, as well as the growing role of pension finds in East African real estate.