Data centres offer a new lifeline to property investors

Data Centre. [File, Standard] Data centres have been identified as alternative investments in real estate as the business environment continues to evolve owing to changing consumption patterns of the market. A report by global property firm Knight Frank cites these changing consumption patterns to be the reason behind some retailers quitting the Kenyan market. In the report documenting how the Kenyan real estate market performed over the second half of 2022, Knight Frank urges investors in industrial warehouses to rethink their business. Just as data centres are emerging as another lifeline for investors in this sector, so is the warehouse business which the report notes that there is a demand yet what is in the market is not what is needed. Businesses, says the report, are looking for warehouses that are renewable energy-friendly and it happens there are not so many in the market. "Solar power is gaining popularity as the call for clean energy and the need to cut costs become critical," reads the report titled Kenya Market Update H2 2022. It references the Corporation for Africa and Overseas (CFAO), formerly Toyota Kenya's acquisition of a 35 per cent stake in one of East Africa's major providers of solar installation services, Ofgen. The firm(Cfao) has also installed solar panels in its existing facilities and will be doing the same in upcoming ones. "The push for renewable energy has also received a boost from the government of Kenya," adds Knight Frank noting firms like Solar One Limited which will be up and running by end of 2023 with intentions of serving some parts of the Nyanza region. "There is a rising demand for quality industrial facilities (Grade A) since an overwhelming number of the existing stock is outdated and does not meet the threshold standards for modern warehouses." The report notes data centres are gradually becoming popular to investors in the sector as the demand for internet and e-business continues to shift upwards. "Data centres provide a cheaper and more efficient IT capability than inbuilt servers. They offer cloud services and allow organisations to focus on their core functions," the report says. The report notes an agreement between IX Africa, a colocation data centre provider, with Helios Investment Partners, one of Africa's leading private equities, where the latter will invest up to Sh6 billion ($50 million) to help the former continue the development of its Nairobi campus. Icolo, another supplier of data centres, is noted to have completed their newest facility dubbed 'MBA2'. MBA2 is in Nyali and is the second iColo data centre in Mombasa, MBA2 has a capacity of 1.7MW and 13, 000 square feet of floor space. "Investors are always searching for the most profitable asset to invest in within their risk acceptance," the report says. Investment in alternative business lines like data centres and modern warehouses has become necessary when major drivers of the sector, like retail, are undergoing some adjustments. "Supermarket chains in Kenya have had contrasting fortunes with Naivas, Quickmart, Chandarana, and Carrefour continuing to expand while Uchumi, Tuskys, Nakumatt, Shoprite, Game Stores, and Choppies shutting down either through bankruptcy or exiting the market," the report notes. This, the report says, may perhaps be attributed to the low penetration of modern retail in Kenya. "A report by Boston Consulting Group (BCG) noted that 77 per cent of retail sales are made in traditional retailers (commonly known as duka)," says the report. "This depicts the existence of a large consumer base for supermarket chains to target as the number of middle-income earners continues to increase." During the period, the report documents that Carrefour opened three branches - Kilimani, Valley Arcade, and Nairobi central business district (CBD) - to increase its total branches to 19 while Naivas opened seven stores in Eldoret, Nairobi West, Uthiru, Meru, and Westlands - to take its total stores to 91 and strengthening its position as Kenya's retail leader. Chandarana Foodplus, a family-owned retail chain, opened their latest 26 stores at Azalea Square along General Mathenge in Westlands. Knight Frank also notes there is more potential in student accommodation and area that has not been fully exploited. This area currently is dominated by Acorn Holdings Limited(AHL) known for the Qwetu student hostels. "Of real estate assets in Kenya, purpose-built student accommodation (PBSA) has proven to be marginally above traditional real estate classes - a trend that is widely observable worldwide," the report says. In Kenya, says Knight Frank, PBSA generally registers a return of about 8 per cent while prime residential attracts returns of approximately 4.0 per cent. As investment in this sector increases, the returns may minimally fall. It is expected that in the foreseeable future, PBSA will remain more profitable as universities (public and private) struggle to accommodate the ever-increasing number of students," the report says.

Data centres offer a new lifeline to property investors

Get Full Access for Ksh299/Week.

Related Topics

Similar Articles

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

Similar Articles

Kenya braced for economic shockwaves from Iran war

New digital tax risks pushing traders off e-commerce platforms, report warns

Ruto strips agriculture body of coffee role in sector shake-up

Kenya's meat exports disrupted by Middle East war

DIGGER JOBS

Digger Motors

Digger Real Estate

Data centres offer a new lifeline to property investors

Get Full Access for Ksh299/Week.

Related Topics

Similar Articles

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS