alexa Logistics firms’ push for lower rent hits building of high-end godowns - Daily Nation

Logistics firms’ push for lower rent hits building of high-end godowns

Wednesday September 21 2016

A Siginon aviation exports warehouse in Nairobi. Scarcity of high quality warehouses in Nairobi has created opportunities for real estate developers. PHOTO | FILE

A Siginon aviation exports warehouse in Nairobi. Scarcity of high quality warehouses in Nairobi has created opportunities for real estate developers. PHOTO | FILE 

By OTIATO GUGUYU [email protected]

Developers have slowed down construction of top-end storage facilities because logistics firms are generally not willing to pay the asking price, a new report shows.

The Logistics Africa 2016 report compiled by global property consultancy Knight Frank, shows the firms are willing to pay Sh600 per square metre while developers need Sh900 per square metre to break even.

Prime logistics space in Nairobi currently commands a rent of Sh402 ($4.2) per square metre per month, a relatively low figure largely due to the quality of existing structures.
“Occupiers are willing to pay about $6 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 $9 per square metre per month due to existing building practices and lack of economies of scale,” Ben Woodhams, managing director Knight Frank Kenya, said.

Logistics firms want properties built to high technical specifications that support modern retailing, distribution and manufacturing practices.

“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,” said Mr Woodhams.

As a result, the scarcity of high quality warehouses in Nairobi has created abundant opportunities for developers, even on a speculative basis.

Mentor Management Limited (MML) in its first ever Industrial Market Report, said while the industrial sector has not attracted institutional or overseas investment, there was speculation that it would offer the new frontier for growth.

Last year, the Nairobi County government issued record levels of planning approvals for multi-unit, developer-led industrial/warehouse developments, at 280,000m², the majority of which are expected to be delivered in the next two years.

The industrial market in Nairobi absorbs around Sh3 billion a year in investments — excluding land costs — compared to Sh20 billion that goes into commercial office sector.
The report also states that trend stretches across the continent which overall lacks the supply of quality logistics space.

However, with growth of Africa’s middle classes and the associated expansion of its consumer markets, there is rising demand for high quality logistics space from retailers and consumer goods manufacturers seeking to expand their African operations and improve distribution networks and supply chains.

Traffic congestion within major cities for instance Lagos, which has restrictions on lorry movements during the day, forces deliveries to be made at night.

“It can therefore be in the interests of both local governments and property developers for logistics parks to be located well away from busy city centres. Congestion around seaports and competition for limited warehouse space has also led to a trend towards the development of inland dry ports,” the report reads.

In Nairobi, the new by-passes around the Kenyan capital have enabled a freeing up of transport routes and the intersections of these new roads have become hotspots for logistics parks such as Tilisi, Tatu Industrial & Logistics Park, Northlands Commercial Park, Infinity Industrial Park and Nairobi Gateway Logistics Park.

Typically, the existing stock of warehousing is old and mainly based in Industrial Area giving outlying area accessible to the city due to improved road infrastructure huge potential.

MML reported that Embakasi in Nairobi currently tops in the supply of warehouses for lease or sale, with Industrial Area leading in owner-occupied warehouses.

However, in 2015, warehouse take-up was as high in Kiambu County and Mavoko sub-county as in Nairobi, with land being cheaper in the city’s outer perimeters currently benefiting from improved accessibility to the airport as a result of new infrastructure.

Despite current major projects including the East African standard gauge railway which aims to connect Kenya, Uganda, Rwanda and South Sudan to the West Africa rail loop comprising Côte d’Ivoire, Burkina Faso, Niger, Benin, Togo and Nigeria, road and rail links between key economic hubs remains patchy.

Large parts of the Trans-African Highway network, first conceived by the United Nations Economic Commission for Africa in the 1970s, remain unbuilt and many sections are in poor repair and essentially unusable as trade routes.

Knight Frank says this was mainly caused by a shift in investments by key developers such as Actis and RMB Westport, responsible for many of sub-Saharan Africa’s most modern property developments, who have to date largely focused on retail and office projects and there has been limited activity in the logistics sector.

However, logistics development activity is on the rise, and Actis is a partner in York Commercial Park, a modern development in Lusaka, Zambia, which is Actis’ first major logistics project in Africa.

The report says cost of moving goods in Africa is, on average, estimated to be two or three times higher than in developed countries and transport costs can represent as much as 50-75 per cent of the retail price of goods. The poor quality of road and rail networks forces logistics companies such as DHL Express to transport the majority of its cargo by air.