Demand for industrial property in Nairobi is expected to continue rising in 2017 with rental growth rate set to increase by between 8-10%, according to Broll Kenya Market Report H1 2017.

In 2016, the sector witnessed an increase in both demand and supply of industrial properties with approximately 641,031m² of total GLA across Nairobi.

Peter Small, Broll Kenya Managing Director says: “Rentals rose on average by 11% and as at Q4 2016, rentals (including service charge) averaged $3.98/m² along Mombasa Road and $3.04/m² along the Eastern bypass, Ruiru and Ruaraka while overall, industrial rentals were between $3.04/m² and $5.2/m².”

Sought-after industrial locations include Industrial Area, a preferred node as it is near the CBD and offers lower rental rates, Mombasa Road a newer industrial hub offering better amenities and easily accessible and Ruiru an upcoming industrial hub due to multiple access points. Ruiru is close to the Eastern and Northern Bypasses and it connects the area to Mombasa Road, JKIA, Limuru Road and Nakuru-Nairobi Highway.

According to the Broll Kenya, Retail, Office and Industrial Market Report H1 2017, rental rates have remained the same in Q1 2017 as they were in Q4 2016, pointing out that demand for industrial property is derived demand. Due to increased prevalence of e-commerce, retailers such as Jumia, Kilimall, Vituzote.com and other small to medium online retailers require storage for their products.

New retailers entering the market both local and international have also contributed to the demand for industrial property.

Furthermore, says Small, the government has come up with an initiative to support and promote the manufacturing sector through the Buy Kenya, Build Kenya initiative aimed at promoting the use of locally manufactured goods.

“The policy and monitoring framework once fully implemented will boost the stagnated manufacturing sector, increase its contribution to GDP and positively influence demand for industrial properties,” he says.

Karen Koigi, Broll Kenya Head of Research explains that in Ruiru and Ruaraka, new or renovated industrial developments occupancy levels were as high as 88% as at Q3 2016 with other industrial areas recording 68% occupancy levels.

“Lower occupancy rates within the main industrial areas are an indication that non-manufacturing tenants continue to move away from the inner city to less congested and easily accessible areas located on the periphery of Nairobi.”

Between 2015 and 2016, new and newly refurbished industrial properties recorded average occupancies of 86% in spite of increase in supply. Industrial Area that has experienced reduced tenant inquiries and occupancies due to traffic congestion, poor infrastructure and poor amenities recorded average occupancies of 68% in the fourth quarter of 2016.

“Well-located and easily accessible industrial properties will continue to be in demand as tenants seek those properties that enable quick and easy access to and from major roads,” says Koigi.

Although both demand and supply as well as rental rates are set to remain high in 2017, the sector has a shortage of A-grade quality warehouses, lack of multiple access points from warehouses to major highways as well as increased levels of traffic in and around Nairobi.

New developments expected to come onto the market in 2017 include Infinity Industrial Park, Africa Logistics Properties and a warehouse construction in Tatu City among others.

“We expect the industrial sector to change for the better in the next 5 to 10 years as new quality stock to meet tenants’ demands comes onto the market,” she adds.