Warehouse space in high demand as e-commerce booms
With the continued growth of e-commerce, retailers, general wholesalers, third-party logistics providers are seeking additional square feet of distribution space to store inventory, pack and ship online orders.
The pent-up demand among mass merchandisers for logistics facilities has skyrocketed recently, leading to scarcity of warehouses both small and big in major locations across the country.
Rents have also increased as a result of lesser construction of large storage facility and increased demand for large spaces to store imported goods.
As the Apapa ports area is experiencing traffic gridlock, building and leasing activity is spreading into more densely populated areas in Lagos, Ogun, Kano and Rivers State and Abuja, while businesses, especially logistics providers, are facing stiffer competition for space.
During the COVID-19 pandemic, over N200 billion worth of existing industrial warehouses were offered for sale and were converted to other purposes especially, for religious centres across the country.
A 200,000-sqft warehouse with three-storey building office space with a private transformer on 5.6 acres of land directly on Industrial Avenue Ilupeju, was sold for about N8 billion.
Additionally, 210,000 sqft warehouse with about 40 rooms offices on nine acres (2.5acres) of land directly on Apapa Oshodi Expressway Close to Oshodi, comes with price tag of N4billion; 200,000 sqft warehouse with office blocks on six acres of land directly on Oshodi Apapa Expressway, Lagos was also put to market for N4 billion.
But all that have changed now, as warehouses are now hot cake in the market. The global warehousing and storage services market size was valued at $648.35 billion in 2021 by Straits Research. It is projected to reach $1,264.01 billion by 2030, growing at a compound yearly growth rate (CAGR) of 7.70 per cent during the forecast period (2022-2030).
The international consultants McKinsey & Company estimate the e commerce business in Nigeria to be as big as $3bn with projections that it could top $10bn by 2025.
Findings revealed that from 2014 to 2019, Nigeria’s growth in warehousing was largely triggered by increase in international trade volumes, entry of international players, growing e-commerce and industries. The periods also saw Lagos becoming the warehousing hub of Nigeria, accelerated by major investment from foreign companies, presence of industrial parks, proximity to seaports and airports.
Warehouse pricing varies from location to location, size, as well as the type of warehouse and facilities provided. Regular warehousing in the industrial areas could go for as high as N15, 000 – N20, 000 per square meter. Nearer to the Ports could see a 25 per cent increase. Short lease terms could see as high as N25, 000 per sq meter.
Grade A warehouse assets are lease at an average of $80 per sqm per year in the Lagos Free Trade Zone (Tolaram section), grade B assets lease at $44-70 per sqm depending on the location. Grades C and D lease for $20-30 per sqm on average. Badagry, Iganmu, Ogba and Oregun have yearly average prices of $20, $40, $45 and $32 psm, respectively.
In areas such as Lagos (where the supply is anticipated to exceed 160,000sqm) and Ogun State, the number of grade A warehouses is increasing by the storage nodes in Lagos, including; Apapa, Isolo, Oregun, Lagos – Ibadan highway, Agbara, Amuwo Odofin, Badagry, Iganmu and Ogba, are dominated by grade D and grade C warehouses.
Newer industrial clusters, such as, the Lekki Free Trade Zone, Lagos Free Trade Zone and Alaro City are attracting significant investment in Class A and Class B warehouse properties. Cities with substantial manufacturing investment, such as Lagos, Otta, and Ibadan, are experiencing pent-up demand and limited supply.
Estate surveyors and valuers acknowledge that demand for industrial real estate in the Lagos and other cities have grown over the past year and inquiries for warehouse facilities are reaching unprecedented levels.
Speaking on the development, the Chairman, Association of Capital Market Valuers, Mr. Chudi Ubosi, said the main drivers of increased demand for warehousing is e-commerce.
“The ease of online payments and delivery logistics has given wings to e-commerce and warehousing is a major component for its success. Industrial capacity utilisation is about 50 per cent, this also aids in its own way to drive the demand for warehousing,” he said.
According to him, the concept of warehouses has changed over the years from what we have always known – a large open space with four walls, roller gates, head room and concrete floor. There is so much technology infused into modern warehouses. So, when we talk about a shortage of quality warehouses, there is indeed a serious shortage.
Most of what is available can’t meet the needs of the major manufacturers and distributors. Regarding the old type of warehouses, they are also in short supply as very few are being built and the available stock are not coming into the market except in most instances where the financial institutions are putting them up for sale in foreclosures.
He said the effect of the shortages is that the rents are high and many times, logistics companies, as well as delivery men have to engage in “just in time” delivery to save costs on warehousing.
Ubosi, who is the principal partner, Ubosi Eleh and Company, called for amendment to the Land Use Act so as to ease access to land and government should also provide the enabling environment for businesses to thrive by providing finance for real estate development and mortgage facilities that will enable the development of more warehouses.
Chief Operating Officer and Director, Research at Northcourt, Ayo Ibaru, said the demand for warehouses in Nigeria has expanded due to the expansion of active economic sectors, the increase in import quantities and the COVID-19 pandemic. Some states with enabling infrastructure have high adoption rates due to the convenience of logistics. This includes Adamawa, Bauchi, Enugu, Imo, Gombe, Jigawa, Lagos, Ogun, Yobe, Plateau, Kaduna, Rivers and Sokoto.
Increased international trade activity, NGO/IDF alliances, domestic manufacturing, and an overall improvement in the functioning of the logistics and supply chain market are the primary demand drivers.
Ibaru explained that “the supply – demand gap has encouraged interest by the investors. Occupancy rates on average in Lagos warehouses are up to 90 per cent. This is irrespective of the grade. While there are pipeline projects, approval delays from government agencies extend completion timelines.
“The low supply of warehousing assets has contributed to an increase in the cost of doing business, also brought about some level of innovativeness in the market, especially in cities like Lagos, warehousing operators report an increase in co-storage and other flexible leasing structures (shared rack space).
He stated that the challenge to building new warehouses has been getting warehouse development approval.
“New warehouses require supporting infrastructure such as a road networks, appropriate power and water supply. Engaging a suitable project team with experience in building storage assets, willingness to invest and adhere to international best practices.”
For the Vice President, International Real Estate Federation (FIABCI) Africa and Near East region, Adeniji Adele, the pandemic gave birth to high demand for warehouses, rising cost as only few storage facilities meet international standards.
“There appears to be a fall in construction of standard high quality warehouse as people prefer to convert most of their medium sized house to a mini warehouse. Unlike in the past that most non-functional warehouse were converted to churches, the reverse is now the case. This equally has made the demand of warehouse to be on the increase.”
Adele revealed that the shortage of these warehouse on industrial sector reduced investment in such in cities. “While land meant for agriculture and residential use in suburb are now converted to warehouses and by so reducing housing units in those area,” he said.