Kenya’s logistics property markets have grown in warehousing supply to the tune of 15% year-over-year according to Broll Property Intel’s latest Kenya Logistics Snapshot Report released during the East Africa Property Investment Summit in Nairobi last week.

Nairobi’s supply of warehouses as at Q4 2018 stood at an estimated 1.2 million square metres, registering a 15% growth from close to 1.1 million square metres as at Q4 2017.

“The Kenyan logistics sector is directly impacted by the performance of all sectors of the economy and in particular the industrial sector, which includes the import and export of goods (warehousing). The country’s logistics market is largely driven by manufacturing, transport and storage, as well as wholesale and retail, while the establishment of Special Economic Zones (SEZs) has also facilitated the sector’s expansion,” Vivian Ombwayo, Broll Kenya’s Head of Research and Valuations

The analysis shows that generally, rents are quoted as net rents in Kenya shillings (KSh or US$)/ft²/month. Rents are payable on a quarterly basis in advance and excluding VAT payable of 16%. The report also highlights that “rent free periods” are not usual in the market, but in certain instances 1 month may be negotiated.

Average rental rates for logistics properties remained fairly unchanged in Q4 2018, in comparison to Q4 2017. However, A-grade warehouses achieved the highest net rental rates of between KSh50/ft²/month – KSh80/ft²/month. Still, rental rates vary depending on specifications, amenities and location.

On market distribution, B-grade warehouses account for some 920,000m² of space, taking up the highest share of the market. However, rental rates for B-grade warehouses were much lower, at between KSh25/ft²/month – KSh48/ft²/month. This variance in rental rates between grades is creating a two-tiered market, said Ombwayo.

‘The price of serviced industrial land within larger mixed-use projects, located in the peripherals of Nairobi County, recorded a 37% increase from an average of US$ 273,300 (KES 27,500,000)/acre in 2015 to US$ 374,383 (KES 37,666,667)/acre in 2018. However, y-o-y growth slowed down from 12% in 2016, 15% in 2017 to 7% in 2018,’ says the report.

The most active sectors in the uptake of logistics or warehousing space, include transport and storage (approximately 26%), manufacturing and engineering (23%), and wholesale (22%).

“The demand from these users are mainly driven by improved infrastructure, government support with regards to tax incentives and SEZ status, expanding retail platforms, and Mombasa Port’s throughput growth,” explained Ombwayo.

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The government through the Special Economic Zone Act of 2015, has facilitated the establishment of SEZs, aimed at reducing operational costs for potential investors while increasing the supply of logistics property. There are currently two privately owned SEZ’s in Kenya, which include the 907-acre Tatu City, located in Kiambu County, and Africa Economic Zone; a 700-acre site located in Uasin Gishu County.

Besides new SEZs, another key driver of growth and confidence in the market includes the expansion of port throughput attributed to major infrastructure investment into the new Standard Gauge Railway (SGR) link to Mombasa.

As a result, volume of port throughput grew by 10% in 2018, from 1.19 million Twenty-foot Equivalent Units (TEU) in 2017, to 1.31 million TEU in 2018, driven significantly by the driven by the Nairobi-Mombasa Standard Gauge Railway, which commenced commercial freight operations in January 2018.

The logistics sector is still underdeveloped in Kenya and growth is expected to continue in both near and medium-terms, especially as growing firms continue to demand A-grade warehousing space. In addition, the anticipated completion of the Nairobi-Nakuru SGR line due in 2019 is expected to prop up movement of goods and services, increasing demand along certain nodes.

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