Is Warehousing The New Investment Frontier?

Africa Logistics Properties last week launched its first 49,000 sqm of modern grade –A warehousing at ALP North Industrial Park with 75 percent of the facility pre-leased at a time when other segments of the commercial, retail and residential real estate market are struggling to achieve total occupancy of 75 percent.

“The near-complete uptake of ALP North prior to launch speaks to the scale of the warehousing shortage in Kenya. But it also demonstrates that real estate requires developers to concentrate on the genuine areas of market need,” said Toby Selman, CEO of ALP.

The demand for grade-A warehousing, which delivers significant cost savings and efficiency for users, currently far exceeds supply in the country, with warehouse users reporting that finding suitable facilities is frequently impossible, according to recent research by Tilisi Developments.

This shortage contrasts sharply with overbuilding in some other real estate segments. The oversupply of commercial space in Nairobi reached 4.7m sqft in 2017, while retail space oversupply reached 3.7 m sq ft. Meanwhile, the supply of mall space rose by 41.6 percent last year, even as demand stagnated.

As a result, according to Knight Frank’s 2018 Kenya Market Update report, the occupancy rate for new retail centers is now running at between 60 and 75 percent.

This shifting balance of supply and demand has also changed relative investment yields, with commercial and retail yields falling from 11 percent three years ago to eight percent by 2017, while residential property yields are now running at 5.6 percent. This has moved warehousing yields to pole position within real estate, at 8.5 percent.

“The proportion of pre-leasing has also been driven by the quality of the warehousing, which just does not exist elsewhere in Kenya and East Africa at the moment,” said Selman.

That scarcity has driven far higher pre-leasing by ALP in Nairobi than is normal elsewhere. In the US, the pre-lease rate recently rose to 43 percent from a 17-year running average of 38 percent, according to a recent report by CBRE, a global leader in real estate services.

However, ALP’s distribution hubs have brought international design practices that now sharply boost efficiency and productivity. For instance, the new warehousing offers pallet stacking 12 meters high, instead of the four meters offered by others in the market, as well as large column grids of 12m by 24m, which results in denser storage capacity and reduces the cost per pallet by up to 30 percent.

The site also incorporates laser-leveled floors with an anti-scratch coating that bear up to 10 tonnes. These allow the incorporation of automation systems, such as dock levelers, mechanized loading conveyors, and fork-lift-mechanized loading, cranes and loading platforms, which together improve turn-around time and cut labor by up to 76 percent.

Traffic management flows also facilitate quicker turnaround times for trucks and deliveries, and the warehousing offers improved health and safety measures, firefighting systems with sprinklers, fiber optic telecommunications, and solar panels on rooftops for greater energy efficiency.

Located on the key peripheral routes connecting Kenya’s largest airport, JKIA, to the main transport corridors from Kenya to Uganda and Rwanda, “ALP’s strategic positioning further increases distribution and supply chain efficiencies,” said Selman.