Africa Logistics Properties (ALP), a specialist property firm that acquires, develops and manages modern warehouses across the continent, has launched its first 49,000 square-meter of modern Grade-A warehousing facility. The facility, which was announced earlier this year, is located at ALP North Industrial Park in Nairobi, Kenya, with 75% of the facility pre-leased.
The launch, announced this September, comes at a time when other segments of the commercial, retail and residential real estate market are struggling to achieve total occupancy of 75%.
“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 ALP Chief Executive Officer, Toby Selman.
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 real estate sector player, Tilisi Developments.
This shortage contrasts sharply with overbuild in some other real estate segments. The oversupply of commercial space in Nairobi reached 4.7 million square feet in 2017, while retail space oversupply reached 3.7 million square feet. Meanwhile, the supply of mall space rose by 41.6% last year, even as demand stagnated.
As a result, the occupancy rate for new retail centers is now running at between 60% and 75%, based on a 2018 Kenya Market Update report from leading realtor, Knight Frank.
This shifting balance of supply and demand has also changed relative investment yields, with commercial and retail yields falling from 11% three years ago to 8% by 2017, while residential property yields are now running at 5.6%. This has moved warehousing yields to pole position within real estate, at 8.5%.
“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.
The 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% from a 17-year running average of 38%, 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, which result in denser storage capacity and reduces the cost per pallet by up to 30%.
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.