COVID-19, poor economy trigger low investment in warehousing

Except the Federal Government reviews its economic policies, increase manufacturing activities and provide conducive environment for export, Nigeria’s industrial warehouse space may continue to nosedive, stakeholders have warned.

They said poor state of the economy, which worsened following insecurity in the country, rising exchange rates and outbreak of COVID-19 necessitated the growth of logistic firms and shift in demand for industrial to commercial and medium-size warehouses by investors.

A recent real estate report by Ubosi, Eleh and Company showed that the demand for warehouse around several cities in the country is not expected to increase despite the sustained growth in online retail and logistics.

Many of the online retailers are engaged in “just in time” deliveries, and in many cases, act only as middlemen and have their suppliers deliver straight to the customers, thereby saving themselves logistics and warehousing.

Research has shown that infrastructure is critical to any logistics and supply chain development, as the fitness of available infrastructure and level of integration between them directly impact logistics access, cycle-time, reliability and cost.

“More than 30 per cent of businesses situated around Apapa, Tincan and Snake Islands either reduced operations or shut down activities due to the Apapa gridlock resulting for the bad roads and lack of proper transport management of the trucks entering and exiting the Apapa seaport.

“The few functioning warehouses in Nigeria are leased out with tenants carrying the costs of bringing the warehouses to modern standards. Despite the fact that tenants handle the cost of repairs most of the time, the rents range from N15,500 psm /annum to N25,000psm/annum with contract terms stacked in favour of the landlord.

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“Grade A warehouses/facilities are usually purpose-built by the companies that use them and lease out excess space. These have features such as power and security, ambient and temperature-controlled capabilities, and racking (which tends to be inefficiently done). The few Grade A warehouses that exist are built and managed by multinationals, who then lease excess space for about N18,000 and N30,000psm/annum net of all taxes and statutory deductions. Currently, most warehouses are commodity warehouses used for perishable items.”

The Guardian’s investigations show that from 2018 and first half of 2021, over N200 billion worth of existing industrial warehouses were offered for sale and converted to other purposes especially, for religious centres across the country.

In Port Harcourt, Rivers State, warehousing has been attractive to investors due to 95 per cent occupancy rate. An investor would hardly find a vacant warehouse space in the Trans-Amadi, which is an industrial hub.

Findings also revealed that industrial warehouse demand is just about 20 per cent while commercial use takes up 80 per cent and is used by firms involved in buying and selling.

The Chairman, Rivers State branch of the Nigerian Institution of Estate Surveyors and Valuers (NIESV), Hamilton Odom told The Guardian that a lot of industrial concerns have folded up with demand for industrial use ranking very low.

He said: “It is mostly the industries that need large warehouses. The demand we see these days is from 500 to 1, 000 square meters and at most 2,000 square meters and mostly used for storage.”

The Ogun branch Chairman of the institution, Mr. Wale Ojo, said the decline in foreign direct investment in the country has impacted negatively on the demand for warehouse buildings leading to low demand.

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According to him, notwithstanding the fact that Ogun State has the largest number of industries in Nigeria, the demand has nosedived compared to what happened in the past.

Ojo said: “We are beginning to see a decline in this area. However, if the government is able to review its foreign exchange rate, that would boost capacity to allow investors come into the state. The multiplier effect of that could result in an increase in demand for warehousing. ”

“Government is granting tax holidays, rebates on land allocation and so we expect to see positive effects across the state in coming years. The government has opened up roads in Agbara, Lusada, that has increased occupancy rate.”

He observed that investors are looking for a safe haven for good returns on their investment, adding if the government was able to give incentives to industrialists particularly, indigenous entrepreneurs, it would create a big market for warehousing and occupancy ratio would rise.

A former member, Board of Trustees of NIESV, Prof. Austin Otegbulu, explained that poor state of the economy has a scissors effect on property transactions in general and affects the manufacturing industry as well as importation of goods.

Otegbulu, who doubles as a professor of estate management, University of Lagos said, “When the economy declines, demand for warehouses will also suffer proportionate decline. There’s therefore a relationship between the economy and demand for warehouses.

“Warehouses are an economic good. I may not be able to say with precision the vacancy or void rate in the warehouse market, but it should be in the range of between 40 to 60 per cent.”

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Otegbulu said the COVID-19 pandemic introduced a new normal in various aspects of human activity and in line with its protocol; online marketing is now on the increase with regard to specific goods.

The NIESV Chairman, Niger State, Ahmed Abdullahi, said due to the downturn in the economy, the production capacity of most of the industries has gone down, leading to reduction in demand for warehouses.

Abdullahi added that for private developers to get involved in the production of warehouses have become unprofitable because nobody would buy them or rent.

Source: Daily Trust