Question $3($Marks: $40)$

Read the following case study based on South African warehouses and answer the questions that

follow, not all the answers can be found in the case study, you may be required to conduct additional

research.

SA REMAINS THE LARGEST, MOST SOPHISTICATED WAREHOUSING AND

LOGISTICS MARKET ACROSS AFRICA

Despite South Africa$$s weak economic climate outlook, demand remains stable for prime warehouse

and logistics assets according to Knight Frank$$s Africa Logistics & Industrial Review H$22021,$ with

logistics facilities remaining the best performing commercial asset class in South Africa.

Most occupier activity is confined to lease renewals and the consolidation of space, which is in turn,

linked to a flight to quality. As a result, prime rents have remained stable at approximately USD$$5\mathrm{.}50$

per square metre in Johannesburg, with this trend expected throughout $2021.$ Furthermore, anecdotal

evidence indicates that demand for the prime warehousing sector is set to increase, underpinned by

the vibrant e$$commerce sector leading to the emergence of a distinct two$$tier market.

Mixed rental performance

Nairobi has remained the best warehousing and logistics market over the past year, recording the

highest increase in rents between $2019$ and $2021.$ Furthermore, evidence of the city$$s rising profile is

reflected in the fact that it accountsfor $50\%$ of new space requirements. Acrossthe $29$ citiesthat Knight

Frank monitors, a huge disparity in rent exists. At USD$$10$ per square metre and USD$$9\mathrm{.}80,$ Kinshasa

and Dakar, for example, rank as some of the most expensive cities for prime warehousing in Africa,

while Blantyre $($USD$$2\mathrm{.}50$ per square metre$)$ is the cheapest.

Despite this varying performance, anecdotal evidence suggests occupier activity in the sector is

increasing across the continent. For example, new warehousing and logistics requirements were up by

$13\%$ quarter$$on$$quarter $($q$/$q$)$ in Q$2.$ These requirements have been underpinned by the agriculture,

$22$; $23$; $242024$

$$ The Independent Institute of Education $($Pty$)$ Ltd $2024$

Page $11$ of $14$

FMCG$,$ and manufacturing sectors with overall requirements ranging between $500010000$ square

feet size brackets.

Demand is eclipsing supply in some markets

The demand for the best warehouses continues to eclipse supply across most cities that Knight Frank

monitors. In Nigeria, for example, the long$$term scarcity of quality warehousing has led to most

multinational blue$$chip occupiers, operating out of purpose$$built$,$ owned facilities around Ikeja,

Sagamu, and Agbarawe. This trend means that demand for purpose$$built prime warehousing space

remains robust.

Knight Frank estimates that there is a total requirement of approximately $1$ million square metres

across the south$$west region of Nigeria and within proximity to Lagos, underpinned by the agriculture,

retail, and manufacturing sectors$.$

For context, the total size of the purpose$$built warehousing market in Nigeria currently stands at

approximately $300000$ square metres. Already, developers such as Agility, are leveraging on this

opportunity with plans underway to develop $270000$ square metres of warehousing space.

Furthermore, Agbara Logistics Parks are set to develop an additional $35000$ square metres to their

existing stock.

In sharp contract to the dearth ofstock in Nigeria, developersin Kenya have been responsive to growing

demand, delivering over $170000$ square metres ofspeculative prime warehousing over the last $5$ years,

prior to which the prime market was confined to a limited number of developments. A further boost

to supply is expected to materialise in the form of developers such as Improvon and Africa Logistics

Properties$$ plans to deliver over $400000$ square metres of speculative space to the market by the end

of $2024.$ Despite most stock being built speculatively, absorption rates remain high, driven by the

agriculture and FMCG sectors$.$ Unsurprisingly, average occupancy rates stand at $80\%.$