BETTER RETURNS

Kenya's warehouse returns beat retail or residential space – report

Developers in Kenya have been responsive to the growing demand

In Summary
  • According to a Knight Frank Industrial report, industrial assets have a yield of 8.5 per cent on average compared to 7.5 per cent for both retail and offices.
  • Yield in real estate is a measurement of future income on an investment.
Tatu City in Ruiru subcounty, Kiambu county/FILE
REAL ESTATE: Tatu City in Ruiru subcounty, Kiambu county/FILE

Kenya's industrial assets command attractive yields unlike retail, offices and residential sub-sectors, making the sector more appealing to investors, a new report shows.

According to the latest Knight Frank Industrial report, industrial assets yield  8.5 per cent on average compared to 7.5 per cent for both retail and offices and 6 per cent for residential.

Real estate yield is a measurement of future income on an investment.

The report notes that developers in Kenya have been responsive to the growing demand, delivering over 170,000 square meters(sqm) of speculative prime warehousing over the last five years.

Prior to this, the market was confined to a very limited number of developments.

According to the report, the growth in industrial assets across Africa has been driven by governments ramping up initiatives on manufacturing and industrialisation.

In Kenya, manufacturing is one of the pillars under President Uhuru Kenyatta's Big Four Agenda.

The report further notes that increased competition for international investment has sparked a wave of new industrial policies leading to a boom in the creation of Special Economic Zones (SEZs).

The United Nations Centre for Trade and Development (UNCTAD) estimates that there are currently over 180 SEZs in Africa, with a further 51 SEZs under development.

Kenya has the highest concentration of SEZs at 61, followed by Nigeria (38) and Ethiopia (18).

Infrastructure development has been cited as another boost for the high yield of industrial assets.

Increased infrastructure development along the Northern Corridor linking Kenya to Uganda and the Democratic Republic of Congo resulted in more than 150,000 sqm of prime warehousing being developed in Nairobi alone in less than six years.

“Appetite for industrial stock remains strong across Africa, with investors attracted to the sector’s strong income profile and positive market fundamentals such as rising urbanisation levels,” said Tilda Mwai, Senior Analyst- Africa, Knight Frank

Mwai notes that with limited stock options, developers have had to act fast and plug this gap.

According to the report, markets like Nigeria present developers with an opportunity, recording the highest deficit of 1 million square kilometres.

Overall prime industrial rents have continued to portray a mixed performance in the continent.

At $10 and $9.80 per square metre(psm), Kinshasa and Dakar rank as the most expensive cities for prime warehouses in Africa respectively, while Blantyre ($2.50) is the cheapest.

Luanda, on the other hand, experienced the most substantial fall in average warehouse lease rates, which currently stand at $5.50 psm; down from $15 psm at the end of 2019.

Furthermore, prime rents have remained stable in some of the cities such as Cairo, Algiers and Maputo.