Demand for Industrial Property Soars

Credit: crown

The Africa Prime Industrial report by JLL projects a growth in the total demand for prime industrial warehouse in 11 countries in Sub-Saharan Africa. The countries include Cote d’Ivoire, Egypt, Ethiopia, Ghana, Kenya, Morocco, Mozambique, Nigeria, South Africa, Tanzania, and Uganda. According to the report, 11 countries have the highest growth potential in the continent based on their GDP outlook, ease of doing business, market transparency, commercial real estate strength and transport infrastructure.

The report estimates that the total demand for industrial space in these countries stands at over 15million m2 as at quarter two of 2017. This is driven by growth in retail and manufacturing, improved infrastructure and competitive labour costs. Furthermore, in the supply in these markets is already inadequate while demand is expected to grow by about 5million m2 over the next decade thus presenting investors great opportunities and excellent growth prospects for the prime industrial sector in Africa.

The key challenges for African prime industrial real estate sector include slowing demand from major trade partners particularly the European Union and China, who have reduced their demand for African products. Also, commodity dependent countries have recently been hit with low commodity prices that have adversely affected their economic outlook. To that end, Deloitte estimates that global commodity prices will only return to pre-2013 levels by 2020.

Another challenge is the currency volatility and current account deficits which was a result of the slump in commodity prices and is an alarm towards macro-economic instability. In addition, there is the recurrent issue of infrastructure shortages in many African countries which the World Bank estimates will require annual investments of $90 billion to overcome. The list is incomplete without mention of the continent’s security concerns.

Regardless of the risks, opportunities abound in the prime industrial sector. First, there is the increasing growth of e-commerce in Africa aided by the penetration of internet devices which by the end of 2016 stood at over half a billion people. The industrial sector will also benefit from the use of drone technology in making deliveries. Legalization of drone technologies in Africa, as in other parts of the world, will reduce the need for transport infrastructure ion logistical operations.

And then there is the potential for Africa’s manufacturing and farming sectors to grow tremendously over the next few years. McKinsey projects that Africa could double its manufacturing output by US$1 trillion over the next decade and the farming sector is also expected to grow in order to meet increasing demand. These developments will ensure robust growth in the prime logistics sector. Other positive factor include the growth of household income in these African countries, rapid urbanization occasioning greater demand for logistics services, inter-regional and international trade and rising GDPs.

In terms of demand, East Africa shows the most promising demand and growth dynamics over the next decade. Ethiopia is the main driver of growth in the region, with new demand for industrial space forecasted to grow at 6.0% per annum. Kenya and Tanzania also have good prospects with growth forecasted at 3.6% and 4.6% year on year. By quarter one of 2018, total demand in East Africa should surpass total demand in West Africa for the first time.

In the short-term, countries in East Africa show the most potential to grow their prime industrial sectors while West African countries like Nigeria present long-term opportunities.

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