Knight Frank:Sustainability Reshaping Industrial Demands

Knight Frank: Sustainability Reshaping Industrial Demand, Causing a 10% Y/Y Rent Increase

• Sustainability reshaping industrial demand in South Africa.
• Increased occupancies, above 90%, in key zones such as the 6th of October and Abu Rawash, Egypt.
• High production costs stifling growth in Kenya and Nigeria.

Sustainability remains a key driver of industrial real estate development, particularly in South Africa, where demand for energy-efficient facilities is rising, with some properties seeing a 10% year-on-year increase in rental prices as tenants seek to reduce long-term operational costs, according to global property consultant Knight Frank’s Africa Industrial Market Dashboard H2 2024.

Boniface Abudho, Africa Research Analyst- Knight Frank, explained, “Developers are incorporating solar power, water conservation technologies, and waste reduction systems to enhance asset value and reduce operational costs.

This shift aligns with global ESG trends, with industrial occupiers prioritizing green-certified spaces.”

Meanwhile, Knight Frank says the African Continental Free Trade Area (AfCFTA) is poised to reshape industrial real estate dynamics by eliminating tariffs on 90% of goods and streamlining customs processes.

This initiative is expected to stimulate demand for logistics and warehousing infrastructure as businesses optimize supply chains to leverage expanded market access.

INDUSTRIAL RENTAL PERFORMANCE

According to Knight Frank, the African industrial sector exhibited uneven growth in the second half of 2024, with macroeconomic pressures tempering expansion in several key markets.

While markets such as Botswana and Egypt demonstrated resilience with growing demand for Grade A industrial facilities and logistics parks, others, including Kenya and Nigeria, grappled with rising operational costs, currency volatility, and power shortages hampered industrial activity.

Sustainability and environmental, social, and governance (ESG) considerations continue to gain prominence, with industrial occupiers increasingly prioritizing energy efficiency and green building certifications.

Data from Knight Frank’s market tracker reveals that industrial rental rates across some key African countries have largely remained stagnant year-on-year, reflecting the region’s slow industrial growth.

In Kenya, Tanzania, and Malawi, rental rates have held steady at US$ 6, US$ 5, and US$ 3 per square meter (psm), respectively, from H2 2023 to H2 2024.

Despite sluggish rental growth across some major industrial hubs, pockets of resilience remain evident.

Eranse Mooki, Managing Director – Knight Frank Botswana, explained, “Botswana’s industrial property market has maintained stable demand, particularly in the Grade A segment.

For instance, the completion of land servicing at Phakalane’s Morula Industrial in H2 2024 is set to add approximately 150,000 square metres of new industrial space over the next three years, marking a 20% increase in supply.

Investor confidence remains high, with year-on-year rental appreciation averaging between 3% and 5%.”

Egypt’s industrial sector also presents a bright spot, underpinned by high occupancy levels and a shift towards Special Economic Zones (SEZs) such as the Suez Canal Economic Zone (SCZONE).

SEZs offer a hybrid regulatory framework with tax incentives and streamlined customs procedures, attracting industrial investors and reinforcing Egypt’s position as a logistics hub.

The logistics and warehousing subsector continues to expand, with prime warehouse rents rising 33% year-on-year to US$ 4 per square metre in H2 2024, reflecting robust demand for modern logistics facilities.

MACROECONOMIC HEADWINDS

Knight Frank says several markets struggled to gain traction amid persistent economic challenges.  Kenya’s industrial sector remains constrained by high production costs, particularly electricity tariffs.

This cost burden has led to business closures, including the liquidation of Mobius Motors and the exit of CMC Motors Group from Kenya, Tanzania, and Uganda.

Manufacturing’s contribution to Kenya’s GDP stands at just 7.6%, far from the Vision 2030 target of 20%, highlighting structural barriers to industrial expansion.

Mark Dunford, CEO of Knight Frank Kenya, said, “Realizing the country’s manufacturing potential requires decisive and strategic interventions.

Implementing targeted tax incentives for local manufacturers, enhancing infrastructure development, ensuring access to affordable energy, and strengthening policy frameworks will be essential in fostering industrial growth and driving long-term economic resilience.”

Elsewhere, the logistics and warehousing segment is witnessing sustained growth in Kenya, driven by rising demand from multinational investors.

The increasing need for Grade A industrial space has prompted developers to expand their offerings.For instance, the Nairobi Gate Industrial Park Special Economic Zone (SEZ) has commenced the fifth phase of its expansion.

This US$ 7 million investment will add approximately 12,000 sqm of modular warehouse space. This expansion aligns with the broader push to enhance Kenya’s light manufacturing sector by providing world-class warehousing and logistics infrastructure.

In Nigeria, industrial investors are contending with surging costs, including a 250% increase in electricity tariffs and a 46.88% depreciation of the Naira in 2024. Interest rates on industrial loans have climbed to 35%, exacerbating financing constraints and eroding investor confidence.

The Manufacturers Association of Nigeria’s Chief Executive Officers’ Confidence Index declined to 51.9% in Q2 2024, reflecting reduced optimism in the sector’s growth prospects.

According to Knight Frank, Malawi’s industrial sector has faced infrastructural setbacks due to extreme weather events. Damage to the country’s primary hydroelectric dam has led to prolonged power shortages, disrupting industrial productivity.

However, Press Corporation, one of Malawi’s largest conglomerates, reported a 72% rise in profits in 2024, showcasing the resilience of diversified industrial investments. Industrial yields in Blantyre remain among the highest in Africa at 11.95%, with rental rates holding steady at US$ 3 per square meter, positioning Malawi as a cost-competitive market.