The key drivers influencing prime warehousing demand in Africa

Written by Boniface Abudho, Africa Research Analyst, Knight Frank.

Throughout our quarterly publications, The Africa Industrial Market Dashboards, we have reported a persistent need for top-tier warehouses across Africa. This demand remains unmet in most African nations, consistently surpassing the available supply.

An example of the long-standing inadequacy of high-quality warehousing is in Nigeria, where many multinational corporations opt to conduct their operations in self-owned, purpose-built facilities in Ikeja, Sagamu, and Agbarawe. This trend highlights the strong demand for prime warehousing space, which currently amounts to 300,000 sqm.

In contrast, the Kenyan market has seen a more responsive approach from developers in meeting the growing demand for prime warehousing space, delivering over 170,000 sqm of speculative warehousing in the past five years. Before this, the prime market was limited to just a few developments. Further improvement in warehousing supply is expected to occur with the plans of developers such as Improvon and Africa Logistics Properties to deliver over 400,000 sqm of speculative space to the market by the end of 2024.

Although most warehouses are constructed speculatively, absorption rates remain high, largely fuelled by the agriculture and Fast-Moving Consumer Goods (FMCG) sectors. Unsurprisingly, the average occupancy rate is presently at 80%.

The strong demand is evident not only in the active development pipeline but also in the rent performance, indicating a thriving market.

So, what are the key drivers for the heightened demand for prime warehouses in Africa? We examine some of them below:

1. Heightened e-commerce activity

While the penetration of e-commerce was already rising pre-Covid, online sales revenues increased by over 28% to $27 billion in 2020 compared to 2019 across Africa. This growth is expected to continue, with e-commerce revenue predicted to nearly double to $46 million by 2025, according to Statista. As a result, demand for warehouse and distribution space is expected to increase.

One country where this trend is particularly evident is South Africa, where there is a steady demand for new, modern, and efficient distribution centres. This has resulted in the outperformance of all other asset classes, delivering an overall income return of approximately 9.2% and capital growth of 0.8% in 2022.

In addition, global e-commerce giants are also fuelling this flight to quality trend. This has been evidenced by Amazon's inauguration of the largest logistics centre in Africa against the backdrop of its formal entry into Egypt.

2. Increased Infrastructure developments

The rapid advancement of major industrial corridors in Africa in recent years has considerably impacted the transformation of the warehousing and logistics sector, which has been hindered by inadequate infrastructure for quite some time. For example, the Logistics Performance Index (LPI) of 2018, a World Bank survey that evaluates the logistics' friendliness' of countries through feedback provided by operators, indicates that logistics infrastructure across sub-Saharan Africa received a score of 2.20 out of 5. This underscores the necessity for increased investment in the sector, especially compared to Germany, which earned the highest LPI ranking of 4.37.

On a positive note, our estimation indicates that rail and road projects exceeding a total of $400 billion are underway throughout the continent. The implementation of these projects is expected to promote intercontinental trade in Africa.

Notably, in Eastern Africa, the augmented infrastructure development along the northern corridor connecting Kenya to Uganda and the Democratic Republic of Congo (DRC) has yielded the construction of over 150,000 sqm of prime warehousing in Nairobi over the last six years. Almost 90% of all the stock has been delivered in this period.

3. Government-led initiatives

Governments across Africa have intensified their efforts towards promoting manufacturing and industrialisation to stimulate economic growth following the pandemic. This has resulted in heightened competition for foreign investment, prompting the adoption of new industrial policies and the subsequent proliferation of special economic zones (SEZs) throughout the continent. According to the UN Centre for Trade and Development (UNCTAD), there are presently more than 180 SEZs in Africa, with an additional 51 in development. Notably, Kenya boasts the highest concentration of SEZs, with 61, followed by Nigeria with 38 and Ethiopia with 18.

Moreover, various governments are taking steps to encourage the establishment of industrial parks in designated areas to attract foreign direct investment. For instance, the Ethiopian Industrial Parks Development Corporation was established in Ethiopia to facilitate the construction of more than 15 million sqm of warehousing space in just six years. This initiative has generated over $735 million in government revenue and created over 80,000 job opportunities.

Similarly, Uganda's government has intensified its efforts to promote industrialisation by announcing plans to expand the Kampala Industrial and Business Park (KIBP) by 4 million sqm. The expansion is set to increase the number of companies at KIBP to 500 and the total number of employees to 200,000, generating annual tax revenue of $540 million when fully operational.

Other government initiatives aimed at promoting the continent's agricultural potential have contributed to a further strengthening of demand. For example, Uganda offers a 100% exemption from taxes on income derived from agro-processing. Similarly, Zambia is taking steps to revitalize the agricultural sector by renovating old agro-processing facilities and facilitating the creation of new supply. 

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