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Shortfall in high-end warehouses bites

With a growing economy, companies are now expanding capacity and opting for larger and better equipped Grade-A storehouses

Milliam Murigi @millymur1

Demand for new warehouses in Nairobi is far outstripping supply as local and international companies seek for high quality facilities with improved designs for their products.

According to recent research by Tilisi Developments dubbed, The warehousing market in Kenya, Kenya is currently facing an acute shortage of warehousing.

The research shows that current availability of warehousing in Kenya stands at 6.9 million square feet while demand is running at 23.7 million square feet.

The research revealed that the rate of growth in demand for new warehousing is also accelerating with more than 67 respondents, out of the 200 interviewed, seeking new facilities. Over half of those searches been in the last one year.

“During research we found out that 16 per cent of respondents had sought new warehousing facilities in 2017/2018 compared with nine per cent the previous year, six per cent in 2015/2016 and five per cent in the two years prior to that,” said Tilisi co-Chief Executive Officer, Kavit Shah.

E-commerce increase

A significant factor in this has been the growth of e-commerce. A joint report by the Communications Authority of Kenya and the Kenya National Bureau of Statistics found that 27 per cent of Kenyan firms are now selling products online. Additionally, improved infrastructure such as the Standard Gauge Railway is also driving new warehousing needs.

“This impact is set to grow, based on the average growth in the logistics industry. Turn over in Kenya has reached Sh 947 billion (US$9.4 billion) in 2015 having risen by an average of 13 per cent year”.  

By December 2017 Kenyans had spent Sh10 billion on e-commerce platforms up from Sh7.6 billion in 2014.This has created a rising need for easily accessible warehouses. However, ease of access and location were cited as the greatest warehousing issues.

Currently Kenya’s retail growth rate is the second fastest in Sub-Saharan Africa, running only behind Cameroon’s 58 per cent from 2015 to 2021. According to a report by international market research company Euromonitor, the pressure on warehousing and logistics is only set to become more acute.

According to the research, 31 per cent of the businesses surveyed have suffered commercial setbacks caused by the warehousing shortage in Kenya in the last five years.

The impact was most severe in pharmaceuticals because this is the sector that mostly needed new warehousing in the last three years followed by logistics and Fast Moving Consumer Goods (FMCG) industries.

Of all surveyed sectors, only the horticulture sector planned 100 per cent of its storage based on current needs, used its own space for extra storage as it searched for new options and reported zero impact from warehouse shortages.

The rise of Grade A warehousing facilities is another key issue for the country because these warehouses offer improved designs and facilities compared to the predominantly Grade B and C warehouses currently in use. Majority of warehouse users are willing to pay higher rents for facilities that save them other operational costs such as cost of utilities eg electricity, labour, water among others.

“Sixty one per cent of the respondents said that they would pay more for warehousing in a well located logistics park with grade A facilities. Of the 39 per cent unwilling to pay more for better facilities, the majority were SMEs”.

So far, Africa Logistics Property (ALP), the only company constructing Grade A warehousing not only in Kenya, but also in the larger East Africa, is planning to put up 150,000 square metres of modern warehousing in two different projects at Tatu and Tilisi Industrial Parks.

“So far, we have developed over 1.5 million square metres of modern warehousing in emerging markets over the last 10 years, something that shows that such facilities are in high demand,” said ALP CEO, Toby Selman.

Go-downs are too small

ALP is currently working with multinational and regional companies across Africa, developing modern grade-A logistics and distribution warehousing infrastructure in Kenya, East Africa, Cote d’Ivoire, Nigeria, Morocco and Egypt.

According to the report, the quality of the currently available facilities represented the greatest problem with pallet height being one of the key issues. This is because most go-downs are built to a height of 4-5 metres limiting the scope for pallet stacking.

Kenyan warehousing is primarily made up of small-scale go-downs ranging between 1,076 and 3,200 sq ft, which is roughly the size of a three bed-roomed house.

This sizing contrasts with other global markets. In the US the warehousing market is dominated by warehouses of an average 184,693 sq ft, equivalent to the size of three football pitches.

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