Nairobi warehouse supply grew 15 percent in the last quarter of 2018 driven by the standard gauge railway (SGR) and the Jomo Kenyatta International Airport (JKIA).
The Broll Property Intel’s latest Kenya Logistics Snapshot Report shows warehouse supply in the city stood at an estimated 1.2 million square metres, from close to 1.1 million square metres as at a similar period the previous year.
B-grade warehouses account for the highest market share of approximately 920,000m², followed by C-grade at 241,000m² and A-grade warehouses at 61,000m².
B-grade warehouses comprise those built between five and 10 years ago featuring standard floors, fitted office units and adequate truck turning angles.
A-grade warehouses were built within the last five years and feature-hardened floors, reinforced concrete electric fences and 24 hour security. C-grade warehouses or ‘godowns’ were built over 15 years ago and rely on city council for water supply.
During the period under review, godowns largely supplied in the main industrial area, showed a decline while A-grade warehouses increased mainly in Nairobi’s peripheral areas.
“This points to the changing face of the Nairobi market, which is now increasingly able to satisfy the demand for quality stock,” said Vivian Ombwayo, Broll Kenya’s Head of Research and Valuations.
Embakasi area accounts for 43 percent of the total warehouse supply, followed by Athi River and Syokimau at 15 percent and 14 percent, respectively.
Overall, Kenya’s logistics market continues to grow in size aided by manufacturing, transport and storage sectors as well as establishment of Special Economic Zones (SEZ).
“Kenya is the most advanced economy in East Africa and one of the largest in the sub-region. With GDP growth picking up from around five percent in 2017 and projected to come in around 5.9 percent for 2018, the country has experienced increased investor confidence and foreign direct investment inflows,” says Elaine Wilson, Director of Broll Property Intel.
There are currently two privately owned SEZ’s in Kenya, which include the 907-acre Tatu City, located in Kiambu County, and Africa Economic Zones on a 700-acre site, located in Uasin Gishu County.
The SEZ status offers tax concessions such as VAT exemption, capital deduction of 100 percent of the cost of buildings and machinery, and income tax of 10 percent for the first 10 years and 15 percent for subsequent years, which is less than the standard 30 percent.
A non-resident enterprise, developer or operator in a SEZ also benefits from a reduction of withholding tax on interest payable from five percent to 15 percent.
On the occupancy front, the report showed that logistics occupancy levels registered a year-on-year increase of four percent in Q4 2018.
“The highest interest growth, from 67 percent in 2017 to 77 percent in 2018, was noted for A-grade warehouse units, as most of the operators seem to appreciate higher specifications, which eventually translates to lower operational costs,” it notes.
The report highlights that Kenya’s logistics market has continued to develop over the past decade, from the typical low specification godowns, to higher quality A- and B- grade warehouses.
“With improved infrastructure, most operators are now considering relocating to less congested areas away from Nairobi City, such as Kiambu and Machakos counties where there is availability of relatively cheap land,” said Ms Ombwayo.