CHANGING NAIROBI’S WAREHOUSING & LOGISTICS LANDSCAPE
Africa Logistics Properties is leading the charge to a more efficient, cost-effective and quality warehousing industry in Kenya, seeking to change a sector that has had its fair share of challenges, despite rising opportunities. The Africa Inc. team had discussion with the CEO, Richard Hough, at their Tatu City facility to discuss the future of logistics and warehousing in Kenya and the region.
For a market that has for a long time suffered from small, poor quality warehousing units that are unfit to support the kind of modern logistics operations needed by regional and international firms in East Africa, a new dawn has emerged with Africa Logistics Properties (ALP) entry into the sophisticated logistics property space. The company has set its sight to revolutionize industrial and logistics properties in the region to world class standards in a region where the cost of moving goods is estimated to be up to two or three times – higher than in developed markets – and where transport costs can account for nearly 50-75% of the retail price of goods.
ALP, a specialist integrated property investment company, is developing class-A industrial logistics properties in major cities across Africa. Nairobi has not been left out as the firm has embarked on developing Nairobi’s first international grade-A logistics warehousing parks with some phases already complete and occupied. We get to understand that more companies are moving away from Nairobi’s old and congested industrial area into ALP’s modern and efficient warehousing units that save cost, time and enable growth. The cost of land coupled with poor infrastructure has seen Nairobi’s industrial hub lose its allure and appeal as a preferred manufacturing center in the country.
The game changing facility, ALP North Nairobi, offers a total floor space of 50,000 square metres in three units, making it the largest in Kenya that is built to international standards and available to the rental market. The company says that its distribution and logistics center at Tatu Industrial Park offers international standard modern facilities for the rental market, with plans to roll out similar world-class developments across key African capital cities. Its vision is to fundamentally improve supply chain infrastructure across Africa and disrupt the current status quo of poor quality ‘go-down’ warehousing. The multi-tenant facilities allow not just international large companies to enjoy grade-A logistics and light industry warehousing, but importantly give regional SMEs access to international standard warehousing for the first time.
“ALP company is about 2 years old and was founded to provide to Kenya and the rest of East Africa modern logistics buildings that support growth of the consumer market,” starts Richard, as we settle at the first floor office space in one section of the ultra-modern multi-tenant facility. “I worked in Russia in a company called Raven Russia that had the same business model for 10 years where we went into emerging markets, identified their needs for modern logistics building and provided the services. We entered into long term relationships with clients who took up the space and used the buildings. This is exactly the business model we bring here into Nairobi and the region”.
The firm, which is headquartered at Nairobi’s Karen suburb, came to fore in 2017 when CDC committed to invest up to US$25 million in the firm, as part of a US$60 million fundraising. Other investors include Maris Capital, the International Finance Corporation (IFC), Mbuyu Capital and DOB Equity. The investment was geared for ALP’s developments to address the lack of quality warehousing space that has constrained business growth in the East Africa’s trading hub, Nairobi.
“ALP has very long-term shareholders. People who have invested for the very long term. We’re not a property developer who puts up a building and sells it in 18 months. The biggest shareholder is CDC, the British government and similar long-term institutional shareholders. They are happy to invest in this kind of facilities and receive rent on long term basis. We’re happy to own the structures and that’s why we take very high care when we build them; we’re interested in having long-term relationships with tenants that go beyond renting the building”. With this support from a range of global institutional shareholders ALP envisages that the investment will create more, quality direct job opportunities in the city, and more within its supply chain partners and tenants.
Tatu City advantage
Why locate the warehouse at Tatu City? “Tatu City is a sort of trend that has emerged in Nairobi. There is an orbital network of roads available and being built. It’s inevitable that distribution and storage for the city will move to the outskirts of the city. I understand that the traditional industrial area in Nairobi is there but congested, very expensive and difficult to move around. Destinations such as Tatu City, which are close to good road links in and out of Nairobi into the West of the country are a natural choice for logistics centers and are also good places for living; many people are coming here,” justifies Richard appealingly.
As if to vindicate his basis, Tatu City has been dubbed one of the largest urban land developments in Africa with residential developments, commercial space, technology park, hospitals and health facilities, light industrial and warehousing facilities, school sites and elaborate parks, playgrounds and open spaces. It is mooted that this development will be a large new city that would massively reduce congestion in central Nairobi and reverse traffic flows between the center and Kiambu County.
This is the appeal that informed ALP’s choice among others like Chandaria Industries, Coopers Kenya Brands Ltd, Dormans, Kim-Fay, Gallagher, Hunkar Gas, Monwalk Investments, Maxam among other to settle at the scheme. Nova Pioneer Academy and South Africa’s Crawford International College are already operational with major roads and important infrastructure already done within the development.
As we are taken round by Richard and Emma Siobhan, the Marketing Manager who works closely with the Karen office on leasing and business development activities for ALP and has been with the team since the ALP was formed, we can clearly see the alluded attributes inside and around the expansive facility.
“Modern logistics buildings form an important part of the supply chain that is efficient and cost effective. Our buildings are about being efficient and cost effective. It is not because they are better, higher, shinier or newer, it’s the fact that they drive down costs and make logistics more efficient. By having such distribution facilities that are an important link in East African logistics pushes the overall cost of goods down and in the end the consumer pays less for goods”.
“Our objective to provide class-A building storage space is here. It meets international standards. When experts from international companies come to this country, they will easily recognize ALP as a facility that is good quality and meets their expectations just like those in Europe, North America, Japan or India. The height of the building is a very special feature; you get 12 meters clear height which means you can get a high density of storage which then translates into lower costs per item stored compared to traditional warehouses in Kenya now. For every 3000 sqm space there is one loading dock which enables one to use mechanical handling equipment to load and offload from the building. The buildings are fitted with modern LED lighting and solar energy to ensure costs are lower amidst the provision of adequate natural lighting from the roof. The floor is the most important part of a warehouse; it is a proper performance-based concrete floor, hardened and sealed without dead ends at the end of panels making it very easy to use without much difficulties. This well-designed floor increases productivity and reduces maintenance of the building while equally increasing the life of the equipment using the floor,” Richard highlights the features and benefits.
Inside the units, the floors are laser-levelled high-load bearing. The 12-meter operating heights allow pallets to be racked 7 high per square meter accruing to about 40% cheaper costs compared to traditional Kenyan go-downs. The other feature reducing operational costs at the facility are the docks and the hydraulic levelers. “Trucks from our tenants maximize truck turn around efficiencies by using the docks with hydraulic levelers,” explains Richard as we are demonstrated to how it works. The costs are further driven down by environmental features such as solar powered electricity from solar panels on the units’ roofs to power occupiers’ businesses.
ALP gives freedom to their clients to select the location that is ideal for their businesses in the multi-tenant units which comprise of warehouse and office space, divided into optimal modules for the tenant to freely combine and plan out. All buildings are equipped with modern technical solutions to boot. The lease offers are flexible with a possibility to adjust the leased space in size, design, lighting and much more to suit individual needs. Future expansions and optimizations are equally considered and accommodated.
Meeting unique customer needs
So, are the customers pleased? “Our customers are pleased with the quality of the building,” says Richard. “The single most important aspect that is pleasing the customers is the money savings. We know that if they use this building properly the cost per product will be much lower. The turnaround time is also an aspect that they are happy about. There are lower shrinkage ratios both from damages and lost goods than they would have had in other premises”.
One such happy customer is Copia Kenya, a firm that brings the power of e-commerce to the middle and base of the economic pyramid and who have been using the ALP facilities since its completion. According to their CEO Tim Steel, they have discovered other important advantages to the facility beyond the low cost per unit of storage that has equally drawn other companies to these high-bay warehouses. “When we moved to ALP our stock shrinkage fell to world-class standards, the saving from this alone covered the higher rent leaving all the other improvements from the building as a bonus for Copia business”.
ALP signed a long-term lease with the fast-growing e-commerce FMCG distributor that specializes in supplying rural Kenya. Copia believes that by operating from ALP’s 12-meter-high warehousing they will benefit from the highest pallet densities in the market and therefore the lowest pallet storage costs per square meter. They will be able to run thousands of deliveries a day from this new central distribution center to its agents across the region, a perfect mix for the fast-growing business model serving the rural regions in Kenya. This gives Copia considerable competitive advantage, a benefit ALP is more than pleased to see accruing to its customers. “We try to build to meet as many needs as possible. Our customers certainly include logistics operations, internet-based distributors, food providers and more. For food providers – frozen and chilled – who require specialized storage and handling we provide advice and support for such special needs,” reassures Richard.
As Richard elaborates further, they are very happy to provide space as there is need for it. However, beyond space provision, if customers want other things, they facilitate. This could be cold storage, racking, offices and more including the entire cold chain if that is what it will demand. He believes there is no point in having a fleet of refrigerated trucks if you don’t have proper operating cold storage to take the products to. “We are happy to do extra investment for our partners who may require. The benefits will then be included in their rent. This way the partner does not lock up money in buildings that they would rather otherwise use as working capital. Our model is good for the business and good for the development of infrastructure in the country,” he declares, clearly reinforcing the benefits of quality warehousing in improving operational efficiencies by reducing wastage from poor storage, increasing the speed of product delivery and improving product security. Indeed, access to quality logistics by global and local companies will make it easier to ramp up businesses in the areas they operate.
The future of logistics in Africa
Compelled by the same dictum, ALP is developing another modern grade-A Industrial park on a 49-acre land situated at Tilisi Logistics Park, 25 km west of Nairobi’s CBD with direct access to the main Nairobi-Nakuru highway, which is currently being upgraded to 6 lanes. “Tilisi is a location that we are all very excited about,” Richard reveals exuberantly about their next project. “It’s just outside Nairobi on the road to Naivasha. We see this road being very important; it’s being improved, and it links the western part of Kenya, which is important in the agri-space and growing rapidly economically with most cities and towns growing faster than Nairobi”. Benefitting from very good roads into the more retail intensive part of Nairobi, the western half of the city, makes the location rank as the best in Nairobi and probably the best link in East Africa for a logistics hub, according to Richard.
Meanwhile, as the company’s first two projects in Kenya are getting onstream, ALP is already building a pipeline of future projects across Sub-Saharan Africa and North African cities to create the continent’s future industrial hubs.