Investors eye large quality Warehousing space in Kenya

Toby Selman, CEO at Africa Logistics Properties (ALP) during the launch of North Industrial Park.

In recent years there has been a noticeable trend towards an increase in demand from distribution and logistics-type operations seeking to relocate to where large quality warehousing space and large yards are available.

In response to growing demand, Africa Logistics Properties (ALP) becoming the first group to develop A-grade warehousing in Kenya.

The East African country's central bank has forecast growth of about 6% for 2018, and ALP CEO Toby Selman says Kenya needs to offer better industrial space to companies that want to use it as a distribution centre.

The Kenyan industrial market is dominated by small-scale grade C warehouses, or godowns, that are of a relatively poor quality and do not meet the standards that demanded by manufacturers, e-commerce companies and pharmaceutical suppliers. 

Selman says ALP is building logistics warehouses at a yield of 8.5%. This is while office and retail yields have fallen from about 11% three years ago to about 8%, while residential property yields are now at 5.6%.

“With Nairobi being East Africa’s key trading hub, businesses operating in the region are demanding access to warehousing facilities that are able to offer operational and costs efficiencies and safety and security, allow adoption of modern technology and double up as urban distribution centres,” said Selman.

ALP’s first project, ALP North, worth $60m, was opened in September this year with a pre-let occupancy of 75%. This is while according to Knight Frank’s Kenya Market Update Report for 2018, the occupancy rate for new retail centres is between 60% and 75%.

ALP North is situated at Tatu Industrial Park, along the Nairobi Northern bypass, and measures 49,000m² on a 9ha piece of land.

“The near complete uptake of ALP North prior to launch speaks to the fact that the product is addressing a specific need, meeting a specific demand that had not been addressed until now,” said Selman.

ALP is currently constructing its second project, ALP West, which is twice as large as the first one,  at Tilisi Industrial Park, along the Nairobi Southern bypass, measuring 100,000m² on an 18-hectare piece of land. Users will be able to rent space from 1,000m² to 20,000m² from 2020 onwards.

The units have been designed to feature 12m high operating eaves instead of the four meters of roof space offered by godowns, which enables pallet stacking of up to 8m high, reducing the cost per pallet by 30% to 40%.

“The quality of the warehousing ALP is offering just does not exist elsewhere in Kenya and East Africa at the moment,” said Selman.

The warehouses also offer large column grids of 12m by 24m, roller shutter doors at dock height, adequate water storage, integrated offices, large yards and wide roads.

ALP’s parks are strategically located on the country’s key peripheral routes connecting Kenya’s largest airport, Jomo Kenyatta International Airport and the country’s main cargo route from Mombasa port to Western Kenya, Uganda and Rwanda.

“With transportation cost as a percentage of total logistics costs in the region of approximately 40%, inventory handling costs estimated to be about 24% and warehousing taking up 26%, where warehouses are located is critical,” said Selman

Companies operating from ALP’s facilities would take 30 minutes to access Jomo Kenyatta International Airport and 25 minutes to connect to the new Standard Gauge Railway’s inland container depot in Embakasi, Nairobi.

“Cargo movement from Mombasa Road has reduced from a previous five hours to taking as little as 20 minutes. We are in discussions with a number of companies that are currently located on Mombasa Road that want to consolidate and move their operations to our parks,” said Selman.

The multi-tenant warehouses allow local and regional companies in the logistics, retail, light industrial, fast-moving consumcer goods (FMCG) and e-commerce sectors to enjoy grade-A logistics warehousing for the first time.

Tenants include Freight Forwarders Solutions, the contract logistics arm of regional logistics group Freight Forwarders Kenya, Copia Global, an e-commerce distributor in Kenya and Kensta Group, East Africa’s largest paper and print distributor. 

They have signed long-term leases of up to ten years.

ALP is backed by institutional shareholder investors CDC Group, which is a UK development-finance institution, The World Bank Group, DOB Equity, Maris and Mbuyu Capital.

Selman said that in the next five years ALP intended to invest in Uganda, Ethiopia, Nigeria, Morocco, Egypt and Cote d’Ivoire.