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Industrial property in Kenya

• Kenya 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 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. Further 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 on for supplies 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. Thus, a greater percentage of the room would be set up for display and sales.
• Up until two decades ago, the industrial property market consisted of these three property types referred to  above with manufacturing buildings occupying over 50% of the market. Overtime though, 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 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. Further the government offers incentives to those who set up trade and business within these parks and within Special Economic Zones.
• Further as manufacturing and e-commerce SMEs continue to increase, the demand for manufacturing buildings, warehouses and showrooms have also increased.
• This has in turn proliferated the creation of a new property type: Flex buildings, that is, buildings capable of housing a wide range of uses, including office space, research and development, showroom retail sales, light manufacturing research and development, and even small warehouse and distribution uses. They typically feature lower ceilings than warehouse and a higher amount of office space than other industrial property types.
• The latest entries into the industrial property market are Cold Centres and Data Centres.
• The former provides temperature-controlled and monitored warehouses and may combine the service with transport and logistic centres so as deliver the cold room services to their clients. Some of their clients are those in the agricultural sector, Meat, Poultry & Seafood sector, Food Manufacturing Sector, Supermarkets, Quick Service Restaurants & Hotels and Pharmaceutical companies.
• Cold rooms are able to prolong shelf life without compromising on the nutritional and aesthetic value of a good. Nairobi boasts of over 10 cold storage centres alone. Thees are set to increase as the demand for cold rooms increases with increase in business activity.
• 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-infrastructures where networks, applications and workloads are virtualized in multiple private and public clouds.
• Thus, modern day data centres are majorly stand-alone properties with large infrastructure which are 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 type of data centres are called Enterprise data centres as the data held for their internal use.
• The remainder of the data centre types (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 having round the clock provision of the services.
• 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 thus 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 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 and known to be 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