Africa Logistics Properties – 21st Century Warehousing

Africa Logistics Properties is a company with a mission to transform Nairobi’s industrial property market. We look at the cutting-edge solutions they bring to the sector.

Africa Logistics Properties (ALP) was incorporated in 2017 following a successful round of fundraising with its largest shareholders, including the World Bank, CDC, IFC, Mbuyu Capital, Maris, and DOB Equity.

“These shareholders were united by the vision of revolutionising the poor quality, dilapidated, 19th-century industrial property sector of Nairobi,” explains Dean Shillaw, CCO of the company. “We have been buying land along linear growth corridors to construct A-grade, sustainably developed logistics parks, the first of their kind in Africa.”

ALP currently has $80 million on the balance sheet, is growing into the Nairobi and Mombasa markets and expanding regionally with its existing tenancies. In a short space of time ALP has made a name for itself by cheapening the cost of warehousing per volume, per item or per delivery while bringing down the cost of utilities.

“We’re using technologies for buildings that exist all over the world but which we bought to Nairobi and Kenya ourselves,” Shillaw says. “We are now going one step further and converting all our debt into the first green loans in East Africa, giving us tangible and intangible benefits we can pass on to our tenants. We are the first company of our kind in Africa to commit to a zero-carbon footprint by 2050.”

Warehousing for a Greener Future

ALP is the only developer in East Africa making volumetric designed warehouses, with a cost per volume that is cheaper than any industrial facility in Kenya. The facilities are also designed with the latest sustainability technologies in place.

“We are the only company that invests into Edge Design, which stands for ‘Excellence of Design’, a sustainability measure used by the World Bank which means we recycle our water through a treatment plant and cycle it back into the building,” Shillaw tells us. “We have solar panels on the roofs, we have systems in place to let us spend energy efficiently. ALP passes on the benefits (lower monthly utility) onto the tenants.”

Edge Design is a holistic approach the sustainability in construction that covers three major criteria, embodied material, water and power.

“It goes into how much light you allow into the building, how the building is orientated, where you get steel and concrete from,” Shillaw says. “It’s a full cradle-to-grave measurement and it is 100% part of our business case.”

It forms the bedrock of ALP’ design approach.

“It’s paramount, no investment moves forward if it doesn’t check the boxes of a sustainable measure, full stop,” Shillaw assures us.

These values are not limited to ALP’ practices either but are reflected throughout the supply chain.

“We have defined a framework to ensure the integrity of sustainability measures remains throughout the supply chain,” Shillaw says. “The contractor only looks at certain suppliers that prequalify for our criteria. If the concrete does not meet our criteria, we will not use it.”

Shillaw places a lot of the credit for this with Maruza Chikwanha, the firm’s Development Director with 20 years of experience.

“He looks at each of our suppliers and contractors on a weekly or bi-monthly basis to ensure the buildings are precisely what is promised to our shareholders,” Shillaw tells us. “We’re a long-term capital partner and even one mistake is unacceptable.”

As well as benefiting from numerous technological and design advantages, ALP’ tenants also benefit from the regulatory and zoning environments its facilities inhabit.

“Our tenants have buildings that on a like-for-like basis are 40% more efficient than any other building in Nairobi, from a utility spend perspective. This is compounded by its location in the special economic zone where there are benefits like no VAT on rent, and no import duty on materials, among others,” Shillaw points out.

Ringing in the Changes

On paper, it is not hard to see the advantages that ALP brings to the table. However, the business is operating in a relatively conservative business sector, so making their cases to potential tenants is the real challenge.

“The biggest challenge is convincing the regional  market to change something. Like operating out of a new building after they have successfully been operating from their current premises for the past 20/30 years,” Shillaw points out. “It is like convincing someone to move up to the next generation of phones. A lot of people like to keep the device they have because they know how it works, but once you have tried the new phone you are never going back. The challenge is changing the mindset of the generations-old industrial sector.”

Changing minds is hard work, and Shillaw does not mind admitting it is something that took “A lot of blood sweat and tears!” to achieve.

“I build specific business cases for specific businesses based on specific variables and show them that operating out of our buildings is 20-30% cheaper than operating out of their existing facility,” he says. “It’s about getting the information from them to input into our calculations.”

Of course, one danger of showing customers how it has done is that they can come away thinking they can do it themselves.

“Some local industrials then think they can do what we do in a better way, which simply doesn’t exist,” Shillaw says. “A lot of businesses here didn’t even know about high bay volumetric racking, such as the kind they use in Amazon warehouses. Our business plan is rock solid from a planning perspective, but implementation is hard.”

The market is inevitably being upgraded, however, with an influx of customers with specialised requirements for cold storage, agriculture, and e-commerce.

“They’re bringing that modernisation into the sector that businesses need if people want to scale them up,” Shillaw says.

A Future of Growth

Shillaw is clear about his ambitions for the future of ALP.

“The future looks something like achieving four or five times our current portfolio size in the region, growing organically with our tenants, and looking to change the face of how industrial precincts operate in East Africa,” he tells us.

But growth does not just mean more of the same.

“One thing we are doing is listening to the market, diversifying. Traditionally we would find land, build on it and look for tenants. We’re now becoming more localised, offering packages,” Shillaw explains. “Less than 100,000 square metres of storage in Nairobi is A-grade, and more than 9% is owner-occupied. So, there is a disparity between our offering and what the market is. We are responding by designing solutions to acquire land that tenants can use without winding up capital in it. We will build a building to your requirements, lease it to you for a 10-to-30-year period, and afterwards, you can buy it for a dollar. We also look at opportunities where we are nimble enough to not only build high-value warehouses but serve the textile-based industries or cold storage-based industries. If you come to us with a long-term commitment, we can build something suited to your requirements.”

ALP will 100% finance the land, top structure and all associated development costs and take on all development risks (timing and cost overrun). This allows an industrialist to spend their hard earned capital on machinery, operations, processes which traditionally returns a higher yield when compared with the real estate sector.

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