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NAIROBI INDUSTRIAL MARKET REPORT
READY FOR THE NEXT WAVE?
APRIL 2016
In association with
+254 20 3744903/4 | www.mmlea.com
2
Industrial Market Outlook
While the Nairobi industrial market is starting to attract interest from a number of potential investors, and there is an obvious shortage
of international – quality accommodation, it is yet to be demonstrated that occupiers are prepared to pay the rents required to provide
institutional levels of return on this higher quality stock.
Construction cost for a typical warehouse ranges between KES25,000 to KES40,000 per m2 while a high bay, dock level warehouse
construction cost would analyze to an average KES60,000 per m2. An example of a high bay warehouse project in the market is the
Imperial Logistics Pharmaceutical Warehouse located along Mombasa Road.
Planned developments by Actis at Northlands Commercial Park may well be the first developer-led project to reach these international
standards.
Industrial Nodes
Supply
• The developer-led supply of speculative warehouses located in traditional
multi-unit Industrial Parks was highest in 2014 at approximately 120,000m²2
followed by approximately 100,000m²2 achieved in 2012. However, 2015
experienced a drop of supply to approximately 76,000m2.
• The Embakasi area is leading in the supply of warehouses for lease or sale
while the main Industrial Area is leading in supply of warehouses for
owner occupation.
• The sector has traditionally been owner-occupied. However, in the last
three years, the market has gradually transitioned to having 35% of the
market supply developed for owner occupation and 65% released into
the market for either sale or lease.
• As yet, the industrial real estate sector has attracted limited institutional
or overseas investment and the vast majority of speculative stock is
developed by local diversified industrial groups generally on surplus land
in their operating portfolios.
Figure 1: Industrial Park Warehouse Supply (m2 ) Pre 2010 to 2016/17F
(Nairobi/Mavoko/Kiambu)²
140,000
120,000
100,000
80,000
60,000
40,000
20,000
-
• The industry is expecting an increase in supply as 2015 registered the
highest industrial building plans approvals by Nairobi’s County
2 the majority of which is expected to
Government of circa 280,000m²
be delivered in the next two years.
500,000
99,423
78,862
72,407
76,353
65,430
400,000
300,000
200,000
29,411
100,000
Pre 2010 2011
2012
2013
Supply (m²)
2014
2015 2016/17SF
-
Cummulative Supply (m²)
*Source: MML
Figure 2: Nairobi Warehouse Building Plan Approvals 2009-2015
300,000
264,749
250,000
200,000
Approvals
600,000
120,562
175,161
127,598
150,000
100,000
50,000
-
*Source: NCC
278,594
258,074
114,576
52,913
2009
2010
2011
2012
2013
2014
2015
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Take-Up
• The average occupancy across the sector is currently sitting at around
90%.
Newer, better- quality space tends to show higher occupancy than poor
quality space. Most of the upcoming projects expected to be delivered in
the next year or two have registered healthy interest and pre-lets/
presales of approximately 70%.
• Warehouse take-up in the peripheral areas of Kiambu County and
Mavoko sub County are expected to match Nairobi’s take up in 2015.
This is because these areas are becoming more popular compared to the
typical industrial areas due to increased development on cheaper land in
these areas and improved accessibility to the airport through the
bypasses.
Specification
• Warehouses with a height of 8m and above have competitive advantage
over those with less than 8m.
Figure 3: Occupancy Levels Over Time (Pre 2010 to 2016/17F)
120%
100%
91%
88%
80%
80%
70%
60%
40%
20%
0%
Pre 2010
2011
2012
2013
2014
2015
2016/17SF
*Source: MML
Figure 4: Average Floor-to-Ceiling Height (m) For Business Parks Per
Location
11.0
12
10
• Warehouses in Embakasi area have the highest floor-to-ceiling height of
an average of 11m, while warehouses in Baba Dogo area have the
lowest average floor-to-ceiling height of 7.5m.
Pre-commitment to projects
under development
99%
91%
90%
9.0
8.0
8
9.0
7.5
6
4
2
• The average floor-to-ceiling heights are below the levels required by
international businesses who utilize racking systems. In these cases,
occupiers require 11-12m eaves height capable of taking 7 pallets
vertically stacked.
• The more spacious the hard standing area the more attractive the
warehouse is to prospective tenants. Most developments provide for a
hard standing area of between 8m to 10m for vehicles’ loading and
parking. Secure external storage areas are extremely rare.
• The average warehouse unit size ranges from 600m²2 to 1,000m².2
However, there are handful smaller unit schemes offering approximately
400m2 inter-connected bays with the option of joining two or more units
to get larger space.
• There are very few speculative developed units available either below
2
400m²2 or critically above 1,000m²,
suitable to large scale storage and
distribution.
Warehouses in Embakasi area have the highest
floor-to-ceiling height of an average of
11m, while warehouses in Baba Dogo area have
the lowest average floor-to-ceiling height of 7.5m.
0
Athi River
Syokimau
Juja
Baba dogo
Embakasi
*Source: MML
Figure 5: Ground Coverage Analysis
80%
70%
60%
50%
40%
30%
20%
10%
0%
71%
60%
Embakasi Athi River
57%
57%
Juja
Ruiru
65%
54%
57%
Syokimau Industrial Ruaraka/
Baba Dogo
area
*Source: MML
2
Figure 6: Average unit (size m²)
Industrial Parks
1,200
1,000
800
600
400
200
-
1,000
900
800
600
600
700
*Source: MML
Rental Market
• Rental rates have increased slowly in the recent years. The Embakasi
2
area offers the highest average rental rate of KES 44/Ft²/month
compared
2
to the other industrial zones which averages to KES 32/Ft²/month.
• Warehouses with close proximity to the international airport, a railway
line, cheap labour and spacious hard standing area are achieving the
highest rents of an average of KES 35 – 45/Ft 2/month
exclusive of service charge.
• Generally, the industry has experienced a slow down of rental growth
over the last three years.
Embakasi area offers the highest average
2
rental rate of KES 44/Ft²/month
2
Figure 7: Industrial/Business Parks Warehouse Average Rent KES/Ft²/
Month
50
45
40
35
30
25
20
15
10
5
0
44
32
30
Syokimau
Juja/Ruiru
35
32
23
Athi River
Ruaraka/
Baba dogo
Embakasi
Industrial
area
*Source: MML
The industry has experienced a slow down
of rental growth over the last three years.
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Sales Market
Figure 8: Industrial/Business Parks Warehouse Average Sale Price KES/Ft²2
• The sales market has been smaller than the rental market. Only 25%
developer-delivered warehouses have been for sale while the majority
are built to let.
2
• Sales range from KES 4,000 - 9,000/Ft².
The Industrial Area and Embakasi
Area register the highest average sale rates of KES 7,000/Ft²2 and 6,000/Ft²2
respectively mainly attributed to the high cost of land and proximity to
JKIA compared to industrial parks that are further afield. Saku Business
Park currently offers the highest sales rate of approximately 9,000/Ft².2
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-
7,200
5,828
4,795
4,301
4,516
3,000
*Source: MML
Industrial Area and Embakasi Area register the
highest average sale rates of KES 7,000/Ft²
and 6,000/Ft² respectively
Only 25% developer-delivered warehouses
have been for sale while the
majority are built to let.
Industrial Serviced Plots
• The demand for light industrial serviced plots has been on the rise in the
last three years. This market is mainly driven by manufacturing companies
who are acting upon their expansion strategies and getting involved in
land banking in areas that are currently not as congested as the main
Industrial Area. Demand is being met in the past by large upcoming mixed
use developments with industrial zones like Northlands Commercial Park,
Tilisi, Tatu City, Infinity and Konza Tech City.
• Peripheral areas such as Syokimau, Mlolongo, Athi River, Ruiru and KikuyuLimuru are gaining popularity for light industrial serviced plots because of
relatively cheap land and improved accessibility to JKIA through the
bypasses. The land prices in these areas ranges from KES 33m – 45m per
acre. Conversely, land prices of light industrial areas in Nairobi’s Industrial
zones like the Industrial Area, Ruaraka/Baba Dogo and Embakasi Area
ranges from KES 80m to over KES 100m per acre.
• A challenge for many potential purchasers of sites in peripheral locations
is connected to infrastructure. This is particularly relevant to industrial
users, who generally have higher power and water requirements than
warehouse occupiers. It should be noted that none of the vendors of
serviced sites’ have yet invested in full infrastructure provision, the full
costs of which usually range from KES 5m to KES 12m per acre
depending on location.
Figure 9: Average Land Price (KES) Per Acre
100,000,000
90,000,000
80,000,000
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
-
Ruiru/
Tatu
Athi River
Industrial
City/NorthernThika town
area
Eastern Bypass
2013
2014
Ruaraka/Baba Syokimau
Dogo
2015
*The above land prices are indicative figures, we advise that the client carries out an
official valuation as each plot of land has unique characteristics
*Source: MML
The demand for light industrial
serviced plots has been on the rise
in the last three years.
Peripheral areas such as Syokimau, Mlolongo, Athi River, Ruiru and KikuyuLimuru are gaining popularity for light industrial serviced plots because of
relatively cheap land
• As an average, land prices have been appreciating between 2013 and 2014 at an average rate of 15%. Although, rates of growth of industrial
land in Ruaraka/Baba Dogo, Athi River, Industrial Area and Northern/Eastern Bypass have slowed down over the last 2 years land pricing is
still a major impediment to industrial development. Conversely, Ruiru and Syokimau areas have enjoyed accelerating land price growth of
approximately +5% in the last year.
About MML
MML, based in Nairobi is the leading development services provider in the East African real estate sector with 28 years of experience and a team
of 36 local and ex-pat professionals active on creating some of the finest property assets in the region. The company is currently overseeing a portfolio
of development projects for a variety of clients with a combined value of over USD 750m in the capacity of project and development managers.
Key Contacts
James Hoddell
[email protected]
+254 715 000 669
Vivian Ombwayo
[email protected]
+254 712 718 379
Kelvin Muoria
[email protected]
+254 725 872 666
Ivy Kimotho
[email protected]
+254 711 464 105
COPYRIGHT ©MML.2016. This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has
uncertainties that may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views expressed in this
report. No investment or other business decisions should be made based solely on the views expressed in this report.