Leading the charge on the warehousing front

For decades, developers have given the logistics market a wide berth, preferring instead to concentrate on residential, retail and office space.

“Kenya has experienced exponential growth in various sectors of the economy and population. Yet, this has been in contrast to the slow growth of quality warehousing to support and sustain it. This has led to the country experiencing a demand that is outstripping supply,” Kavit Shah, co-CEO of Tilisi Developments Limited, said last year.

However, this is about to change with developers planning mega projects on this front.

Take, for instance, the case of Africa Logistics Properties, which plans to develop Kenya’s first Grade-A logistics warehousing at two sites in Nairobi’s neighbourhood.

Sitting on 22 acres at Tatu Industrial Park in northern Nairobi is ALP North, a 50,000-square metre logistics and distribution complex consisting of three separate warehouses.

Construction of the first unit commenced in June 2017 and is due for completion in July, a month ahead of schedule. The two others are at different stages of construction.

Then there is ALP West, another project on a 49-acre site in Tilisi on the Nairobi-Limuru Highway.

It is projected to house a 100,000-square metre logistics and distribution warehousing complex. ALP will apply a “design, construct and manage” business model so as to retain quality in the warehouses.

But ALP is not alone. Coming up on 200 acres off the Eastern Bypass in Nairobi is Sh12.5 billion Infinity Industrial Park. It broke ground for construction on October 14, 2016.

Tilisi’s project

The other big player is Tilisi, a real estate developer who set aside 86 acres of its 400-acre mixed development for construction of warehousing facilities. It is in Tilisi that ALP has 49 acres.

ALP remains one of the most formidable players, with experience in developing and leasing prime industrial and logistics properties in key cities across Africa. Last week, Home & Away visited the site of ALP North in Tatu City.

At the main entrance located on the Ruiru-Kamiti Road, graders roared to create a grand entrance. As we went further inside, there was little indication that Tatu City will transform into the glorious development with heavenly lifestyles depicted in the glossy brochures. A coffee farm on one side and shrubs on the other punctuated the dusty route inside.

But looks can be deceiving for it is here that ALP chose to invest part of the Sh6 billion set aside for the local warehousing projects.

Leading this onslaught is Toby Selman, a real estate investor and developer with 15 years experience on the industrial warehousing sector in emerging markets.

Before coming to Kenya, Selman was an investment partner at 90 North, a UK-based Middle East-backed real estate private equity.

At 90 North, Selman originated, structured and closed several European warehouse investments in Germany and Norway.

At Raven Russia PLC, he was part of the team that raised $800 million (Sh80 billion) in equity commitments to develop the largest warehouse property portfolio in Russia, a feat he hopes to duplicate in Kenya.

Disrupting the market

“Investments in logistics are disrupting the local market and bringing costs down. Businesses are moving out of traditional hubs in favour of new suburbs that are well connected with modern infrastructure,” says the father of two who began his business career in real estate finance with Barclays Capital in London and Paris.

According to Selman, warehousing development is what will drive forward Kenya’s agenda of becoming an industrialised and net exporter of commodities.

“You look at the current trend and see how many foreign firms are setting base in Kenya. I can guarantee you that they will need modern warehouses,” he says.

But Selman is aware that for investors to open their wallets and bid for space in the new warehouses, the structures must meet global standards. With such high standards, the key challenge was to find a contractor who understood his vision.

“We understand where local contractors are coming from. Most of them are not used to such fine quality of construction. As an example, I spent quite some time convincing them why the floor needed intense compressing several times before it was fully paved. That is not the norm when laying a normal floor,” says Selman. Nevertheless, his labour has already paid off with some of the biggest names in the logistics sector signing up for considerable space in the ongoing projects.

Freight Forwarders Solutions, the contract logistics arm of leading regional logistics group Freight Forwarders Kenya, has signed a 10-year lease for ALP’s entire first warehouse complex of 14,000 square metres.

This is equivalent to the size of some of Nairobi’s larger shopping malls such as Galleria or Greenhouse.

ALP has also signed a long-term lease for nearly 4,500 square metres warehousing space with Copia Global, an e-commerce distributor that specialises in supplying rural Kenya.

This interest in warehousing is, however, not sudden. As Kenyans galloped towards gated communities and towering office buildings, surveys showed the logistics segment was all but ignored. And when these other areas started slowing down, it was only a matter of time before warehousing stepped up. Last year, financial services firm Britam Asset Managers said Nairobi was likely to welcome multi-billion shilling investments as international logistic hubs operators launch operations in the East African region.

The report indicated that Grade-A warehouses were largely being sought after by property investors who are setting base in Kenya.

Knight Frank also noted that the newly created by-passes around Nairobi had enabled a freeing up of transport routes and the intersections had turned the areas into hotspots for logistics parks where Tilisi, Tatu Industrial & Logistics Park, Northlands Commercial Park, Infinity Industrial Park and Nairobi Gateway Logistics Park pitched tent.

At the time, Ben Woodhams, MD of Knight Frank Kenya, said: “Occupiers are willing to pay about Sh600 per square metre per month in Nairobi for the same quality of space they would find in South Africa or Eastern Europe.”

In its 2017 , JLL, a global commercial real estate firm, said demand for industrial space in East Africa would experience its highest growth in 2018.