7 Mar 2019 - Kenya (Nairobi)
Charles Hector Whitmee
This week I am in Nairobi looking at the industrial land market. With an oversupply of office space, shops, homes and hotels, industrial is perhaps the only sector in and around Nairobi which currently has a buzz around it.
In 2018, JLL reported that total demand for industrial property in East Africa surpassed that of West Africa for the first time, with Ethiopia and Kenya being the main drivers of growth. In fact, the same study projected that demand for industrial property in Kenya would grow by 3.6% year-on-year over the next decade. This is in large part due to major infrastructure projects which have begun to attract foreign investment into Kenya, as the country seeks to become the regional logistics hub for East Africa. These infrastructure projects include:
- Nairobi’s major highway improvements include the Eastern Bypass, Western A104 highway and expansion of the Mombasa-Nairobi Highway.
- Three International airports in Kenya and the expansion of smaller airports.
- The Standard Gauge Railway (“SGR”), the first phase of which provides upgraded passenger line and cargo transportation between Mombasa and Nairobi has been completed. The subsequent phases of the SGR aim to connect Nairobi to Naivasha, and eventually Uganda and Rwanda. This project aims to improve in-country and the regional transport networks as well as reduce cargo and commuter costs and inefficiencies.
- A 32-berth port in Lamu, Kenya (construction of the first three berths are to be completed by 2020).
- Lamu Port and Lamu-Southern Sudan-Ethiopia Transport Corridor commonly referred to as the LAPPSET project is one of the largest regional east African projects. It aims to provide connecting ports, pipelines, roads and railways between Kenya, South Sudan and Ethiopia (construction is ongoing).
However, the market has reacted slowly to this increase in demand, in part due to instability caused by the 2017 general election. It is estimated that the demand for industrial property is currently up to three times greater than the supply. As a result, there are several new major developments in the pipeline, in and around Nairobi, whose focus is on the creation of industrial space, as investors seek to capitalise on the high demand. The most notable examples being:
- Tatu City Industrial Parks 1&2
- Tilisi Logistics Park
- Nairobi Gate
- Infinity Logistics Park
- Albizzia Downs Estate Logistics Park
The value of industrial land has increased steadily since 2014, and this is likely to continue as supply struggles to keep pace with demand. Developers and land owners, buoyed by recent trends, often quote prices substantially above market rate and so, establishing the true value of industrial land can require a bit of digging.