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Increasingly, demand for warehouses is rising driven by growing consumer interest in online retail or e-commerce business. The demand is also driven by shrinking footfall in retail malls buoyed by reduced consumer purchasing power and COVID-19-induced movement restrictions.
Retailers have been compelled to downsize their space in the malls and send part of their wares to warehouses. “Some retailers are closing shop while those, still resilient enough to tag along, are reducing their space such that those that had been occupying 1000 square metres have downsized to 500 square metres, taking the rest of their stock to warehouses,” Gbenga Olaniyan, CEO, Estatelinks, confirmed.
While this is a major challenge for retail space (malls) landlords who have to contend with growing vacancy rate, it is a huge opportunity for investors in industrial real estate—logistics and warehousing.
“Demand for logistics and last-mile distribution centres are likely to remain strong investment opportunities for most of 2021,” Ayo Ibaru, COO at Northcourt Real Estate, said in a new report on logistics property market.
Nnenna Alintah, executive director, Occupier Services at Broll Properties, also confirmed in an email response to BusinessDay’s questions that there are significant gains in the warehousing and logistics sector, with strong demand recorded in the year till date. Demand, according to Alintah, is driven on a nationwide scale and not solely restricted to core markets such as Lagos or Port Harcourt.
“Prospective tenants are seeking very flexible lease tenures (3 – 12 months) for the storage of agricultural goods, minerals, other raw materials and finished goods. Coronavirus response measures in 2020 saw a rise in the demand for warehousing from wholesalers in the FMCG and pharma industries, while there was also contribution from online retailers of goods taking advantage of the limited mobility brought on by the virus,” Alintah said.
In Nigeria, Africa and across the world, investment interest in warehouses is growing. Mikano International has developed Karameh City Industrial Park located on a 120,400 square metres site in Ogun State. Besides administrative offices and road infrastructure, the warehouse has a gross leasable area (GLA) of 7,200 square metres.
Similarly, the World Food Programme (WFP) has established storage facilities for commodities and related equipment in hard-to-reach locations. There are over 30 mobile storage facilities, each over 8,500MT in Adamawa and Borno states.
Knight Frank, a property marketing and consultancy firm, in a recent report, notes that the logistics property sector has emerged as a growing focus for new development, revealing that new developments opened in 2016 included York Commercial Park in the Zambian capital Lusaka and the Agility Distribution Park at the Port of Tema in Ghana.
“Both projects offer built-to-suit units of a quality previously unavailable in these markets. The Ghanaian project is the first of a number of logistics parks that the Kuwaiti developer Agility plans to build across Africa, with Angola, Côte d’Ivoire, Mozambique, Nigeria and Tanzania among its target markets,” the report adds. These give hope for not only ecommerce operators, but also new jobs to be created.
Agility, which is one of the world’s largest logistics companies, was also quoted as saying that it would invest $100 million over three years to launch Shipa.com, a digital logistics platform that lets businesses, entrepreneurs and consumers manage their freight, e-commerce and urban deliveries online. This means that the logistics market is now boundless and so are the opportunities open to investors, even in the value chain.
The report reveals further that several major logistics and industrial parks are in the pipeline as part of wider urban developments such as Rendeavour’s Tatu City near Nairobi and Roma Park in Lusaka.
The areas around ports are also hotspots for logistics developers, as Africa’s reliance on sea transport for international trade means that its ports are crucial locations in firms’ logistics networks.
Apapa in Lagos, which is home to Nigeria’s two busiest seaports, is yet to see A Grade warehouse that can attract global benchmarked rent, hence opportunity exists for savvy investors in that part of town.
Though Broll says investment activity in warehousing has been fairly quiet with a number of investors adopting a wait-and-see approach towards the sector, which cannot be said of Blackstone and other private equity giants who are gobbling up warehouses, believing that industrial real estate gives them another way to cash in on the e-commerce boom.
These private equity firms have been on a buying binge, snatching up tens of millions of square feet of warehouse space. At the centre of the push is Blackstone, a private equity titan that has broadened its investment strategies well beyond the leveraged buyouts that have been the firm’s calling card.
In the firm’s latest warehousing conquest, it unveiled its purchase recently of 13 industrial warehouses from Iron Mountain, a Boston-based provider of storage services, for $358 million.
Spanning 2.1 million square feet, the portfolio includes properties in California, New Jersey and Pennsylvania’s Lehigh Valley, a once-booming steel region that has pushed hard into the logistics boom. Iron Mountain will continue to use the facilities and enter a 10-year lease that includes an option to extend another 20 years.
KKR is also making waves in industrial real estate. The firm is close to making a deal worth more than $800 million to acquire a portfolio of warehouses in Atlanta, Baltimore, Chicago and Dallas. KKR would finance the transaction with $700 million in debt, according to Bloomberg, which first reported the deal talks.
All these transactions simply underscore the direction and future of this segment of the real estate sector, which, according to Amaka Asiegbu, a research analyst, is cautiously optimistic, with further potential increases in demand for warehousing and logistics facilities.
She, however, sees a more difficult environment brought on by higher inflation, forex market illiquidity, higher operational costs, etc., posing a downside risk to optimistic projections for the sector as a whole.
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