Industrial Property in Kenya
Kenya's master plan provided for all industrial property and development to be based south of the railway line. In Nairobi, this was and is known as the Industrial Area.
Initially, the area consisted mostly of heavy and light manufacturing properties and buildings. These structures were intended to house specialized equipment used to produce goods or materials. The buildings typically have three-phase electric power, heavy ductwork, pressurized air or water lines, buss ducts, high-capacity ventilation and exhaust systems, floor drains, storage tanks, and cranes. The land they were set up on was specifically planned for their set-up.
Warehouses or distribution buildings were developed next. They provided storage space greater than the manufacturing space and facilitated logistics due to their large ceiling space and large doors that allowed for goods to be loaded for supply distribution. Warehouses also may have had a small office to support the work carried on therein.
As industrialization, importation, and assembling of machinery increased, showrooms became a common feature. They combined retail display space with the extensive onsite storage and distribution offered by warehouses to accommodate those interested in the sale of machinery. A greater percentage of the room would be set up for display and sales.
The Shift Beyond Industrial Area
Up until two decades ago, the industrial property market consisted of these three property types — manufacturing buildings, warehouses, and showrooms — with manufacturing buildings occupying over 50% of the market. Over time, however, Industrial Area was unable to support the rate of industrialization in Kenya, and as a result, industries started spilling over into other areas such as Ruiru, Thika, and even further out of Nairobi.
A major game changer in the industrial property market was the set-up of industrial parks and Special Economic Zones. These are similar to Industrial Area in that they are developed to house industries, but are cheaper in terms of land price, offer better quality construction and finishes, better infrastructure, and already have high-capacity power and water connectivity in place.
Industrial parks such as Tatu, Northlands, Tilisi, and Infinity have been able to meet the need created by the rundown buildings, poor infrastructure, expensive land, congestion, and lack of room for expansion in Industrial Area. As a result, they have blossomed into industrial niches out of Nairobi offering industrial land and property already set up for business. The government offers incentives to those who set up trade and business within these parks and within Special Economic Zones.
Flex Buildings
As manufacturing and e-commerce SMEs continue to increase, the demand for manufacturing buildings, warehouses, and showrooms has also increased. This has in turn proliferated the creation of a new property type: Flex buildings — buildings capable of housing a wide range of uses, including office space, research and development, showroom retail sales, light manufacturing, and even small warehouse and distribution uses. They typically feature lower ceilings than warehouses and a higher amount of office space than other industrial property types.
Cold Centres
Cold centres provide temperature-controlled and monitored warehouses, and may combine this service with transport and logistics centres so as to deliver cold room services to their clients. Some of their clients include those in the agricultural sector, meat, poultry and seafood sector, food manufacturing sector, supermarkets, quick service restaurants and hotels, and pharmaceutical companies.
Cold rooms are able to prolong shelf life without compromising on the nutritional and aesthetic value of goods. Nairobi boasts of over 10 cold storage centres alone. These are set to increase as the demand for cold rooms grows with increased business activity.
Data Centres
A data centre refers to a building or a group of buildings used to house computer systems and associated components, such as telecommunications and storage systems that are critical to business continuity. Initially, data centres were simply a room (server room) with connections to all IT equipment on the same premises. However, modern data centres are now facilities connecting an onsite infrastructure to a cloud infrastructure where networks, applications, and workloads are virtualized in multiple private and public clouds.
Modern data centres are majorly stand-alone properties with large infrastructure essential to hosting large quantities of sensitive information. The larger portion of data centres in the market are currently for the telecommunication and banking sector giants — these are called Enterprise data centres as the data is held for their internal use. The remainder (colocation and cloud data storage centres) are created for outsourcing. Infrastructure stability, cloud security, and physical security are key elements of data centres, with a big chunk of their expenses going into round-the-clock provision of these services.
Green and Eco-Industrial Parks
Despite major strides in industrial property establishment, the industries located within industrial properties are major contributors to pollution in the world and the country. Modern industrial property types have stepped up to be environmentally friendly by absorbing green measures in their construction and energy consumption. These include harvesting solar energy, water and waste recycling, and use of green materials in construction.
These measures have gone a long way in inclining developers to set up eco-industrial parks. Though still on slow supply and demand, eco-industrial parks may mark the change for industrial property to move from pollutants to sustainable and green property.
Our View
In our view, the industrial property market will continue to evolve and become more modernized so as to suit the new market and dynamic world we live in. We further foresee an increase in supply of industrial property types to address the new business coming in and being set up in the country.
Despite being once viewed as a risky asset class, industrial real estate is now emerging as an attractive investment due to its role in economic development in the country. It has been noted among the asset classes the government has increased funding for and provided tax breaks. We expect more industrial properties to be developed in line with increased manufacturing business in the country.
Eco-industrial parks are set to increase in supply and demand. Further, this could be leveraged to promote more inclusive and sustainable action to promote industrial competitiveness in line with climate change goals.
Source: Sterling Real Estate Advisory