Rental charges for prime warehouses in Nairobi grew by five percent in the first half of 2024, on rising demand for space by e-commerce firms and data centre operators.
Analysis of the industrial property segment in 10 African cities by real estate firm Knight Frank shows that the average rent of a prime warehouse in Nairobi stood at $6 (Sh775) per square metre, second only to Kampala’s $7 (Sh904) among the cities analysed by the company.
Cities trailing Nairobi in warehouse rent charges include Lagos, Johannesburg, Lusaka and Dar es Salaam at $5 (Sh646) per square metre.
Others are Gaborone ($4.5/Sh581), Harare ($4/Sh517), Cairo ($3/Sh388) and Lilongwe ($3).
Kenya has seen an increase in demand for grade A warehousing space, driven by manufacturing and logistics firms that have entered the country under Special Economic Zone (SEZ) and Export Processing Zone (EPZ) licences.
The growth of e-commerce, agribusiness and fast-moving consumer goods (FMCG) firms has also spurred demand for prime warehousing space.
“In key markets such as Johannesburg, Nairobi and Lagos, the occupancy rates for modern warehouses have reached approximately 85 percent, up from 78 percent in the first half of 2023,” said Knight Frank.
“Nairobi and Lagos reported five and six percent rent increases, respectively, with current rates being recorded at $6 and $5 per square metre per month.”
In terms of rental yields (rent as a percentage of property value), Nairobi’s industrial property gave developers a return of 9.5 percent, trailing six other cities among those surveyed.
The top markets were Kampala and Harare at 13 percent, followed by Lusaka at 12.5 percent, Lilongwe at 12 percent, Dar es Salaam and Cairo at 10 percent. Gaborone (8.5 percent), Johannesburg (8.25 percent), and Lagos (8.0 percent) trailed Nairobi in rental yield.
Kenya’s lower yields despite the high rental prices compared to the other cities indicate that the market value of Nairobi’s warehouses has risen faster, compared to those in peer cities.
Despite the lower yields compared to the majority of the other African cities, the industrial segment is still the best performing in the country in terms of returns to investors, when compared to residential and office space.
In the first half of the year, prime office developers saw an average yield of 8.5 percent, while prime residential property gave a rental yield of 5.5 percent.
In the office market, Nairobi beat only Harare and Lilongwe’s eight percent in rental yield, with Cairo and Lusaka offering the best returns at 10 percent each.
The other cities have yields of between 8.75 and 9.5 percent.
This was despite the average occupancy at the top end of the office market in Nairobi rising to 77.2 percent, up from 71.5 percent in June 2023.
In the residential market, yields have been kept low over the years by relatively slow rental price growth amid surging home prices.
Kenya’s average yield in this segment is less than half of the 12 percent on the Malawi market, and well below the 9.5 percent on offer in South Africa, Egypt, and Zambia.
