Warehousing entrepreneur shifts focus from Russia to Kenya
Africa Logistics Properties (ALP) is a property investment company specialising in the development, acquisition and management of grade-A warehousing. The business was founded in 2016 and currently has two projects in Nairobi: a 49-acre site in western Nairobi and a 22-acre modern logistics and distribution park 25km north of the CBD (expected to be completed towards the end of 2018).
ALP has also received funding by the Dutch family office, DOB Equity, to help grow the company’s portfolio in other African markets. How we made it in Africa chats to the firm’s founder, Toby Selman, about the modern warehousing opportunity he sees on the continent.
Tell us about your business model. Do you secure tenants for warehouses before construction?
We build speculatively here – what we think the market wants – and then we lease out on long-term rents to tenants. We are not a classic developer in the sense of building it and selling it as soon as we are finished. We are an integrated property company. We do everything in-house – design, construction management, facility management, leasing, legal and finance. We don’t use third parties so we are quite unique in that sense.
We are creating the first portfolio of grade-A logistics and light industrial parks around Africa. We will build that up and potentially take it public, eventually.
How do you know there is demand from companies for these grade-A facilities?
We have a lot of existing occupier relationships. My background is 16 years in commercial warehouses in emerging markets. My previous company, Raven Russia – which I was involved in with my partner – brought modern warehousing into Russia. We grew that into a US$1.2bn portfolio of warehouses and we listed that on the London Stock Exchange. Then two years ago I thought there would be an opportunity here, so I got my rucksack and started travelling around Africa – Cairo, Casablanca, West Africa and then here in Kenya and southern Africa – just to work it all out. Then I started Africa Logistics Properties and got global institutional investors’ support. Our major shareholders are Maris, CDC, IFC, UK pension fund manager Mbuyu Capital and DOB Equity.
Describe the warehousing market in Kenya today.
The market is still relatively thin but there is no modern warehousing for the occupier rental market. We are the first and only mover here. We are a qualified and experienced specialist in doing it… All my team is based here. Together we have built over 2,000,000m² of modern warehousing across emerging markets. There is no one in Africa which has built as much as we have.
You have two projects in Nairobi. How much more demand do you see for further developments?
It is still quite an early-stage market but we think the potential is there and our vision is right to address it as it grows. So we are a long-term investor.
What is driving the warehousing market?
There are three sides to it. There are companies with existing sites that want to consolidate into more modern warehousing – where their existing warehousing is not fit for purpose and they can consolidate four or five sites into one of our larger units. There are also foreign companies who want to come into East Africa but haven’t done so yet because the warehousing infrastructure has not existed to facilitate them coming in. And thirdly there are local and regional mid-size companies which are growing and need to make the next jump from small inefficient warehousing – and improve their supply chain and operating processes to enable them to scale-up. So it is from those three areas.
Is e-commerce a big driver?
We are starting to agree to terms on the pre-leasing of our projects in northern Nairobi and one of those [parties] is an e-commerce company actually… E-commerce is still very early stage here. It is not as advanced as in South Africa but smartphone penetration rates are increasing… which is starting to accelerate it.
Are there any other African cities that you identified a similar opportunity in?
Yes, we have a pipelines across East Africa, and also selected North African cities as well. We are focused on Addis Ababa in Ethiopia, Kampala in Uganda, as well as [cities in] Morocco, Egypt and West Africa (like Côte d’Ivoire, Ghana and Nigeria).
What do you look for when deciding which cities to build warehouses in?
We look for a large growing consumer base – where FMCG companies and retailers want to operate and where they see that consumer-led growth. That is why we are focused on the major cities because it is where the growth is. Our modern warehousing then underpins the ability for those companies to operate their logistics efficiently and profitably.
What is the biggest difference between developing these projects in Africa as opposed to other markets outside of the continent?
You have to adapt the product to it the market. For example, with other projects we have done in Russia, India and other places, you have to tailor it to fit the market… There are some nuances here. There are also the Africa-specific challenges of just doing business generally which all companies face.
How does demand for these projects differ to other emerging markets?
The best comparison is in India. India has done that evolution from basic warehousing and godowns to more modern warehousing, with Amazon coming in recently. East Africa is at the start of that journey… and we are helping to pioneer the development of modern industrial and supply chain infrastructure through our modern warehouses to achieve that and improve the overall supply chain in the region.