Economic uncertainty triggers demand for warehouse space

By Bertram Nwannekanma
As some retail and e-commerce firms are increasing operations to meet customers’ necessities and
home deliveries, there is now a surge in demand for warehouse space.

The industry is benefitting from the dislocation of commercial and social activities resulting in increasing demand for goods bought online. It also fuels the need for distribution facilities at a pace that’s higher than the market has seen previously and high demands in warehousing due to increasing demand for delivery service.
Although there is less construction of new warehouses, people are presently converting their properties to mid-sized warehouses. Before now, when there is no high demand for warehouses, some people converted their warehouses to churches as some churches today are occupying warehouses but now reverse is the case as people are converting from other uses to warehouses because of the high demands.

The new development has resulted to high rental prices of warehouse space. Some owners are taking advantages of the new prices, depending on the location. For instance, Airport road and environs, it goes for between N25, 000 and N50, 000 and per square metre depending on other issues and location, while in some cases it goes up to N100, 000 per square metres.

 
In other cases, those whose warehouses are in bad shape are taking advantage of the high demand to renovate them. In some cases, they allow the tenants to renovate the properties under a favourable tenancy agreement.

Real estate watchers explained that to ensure inventory levels are adequate to quickly meet demand, retailers in demand, such as grocery and discount stores, insist vendors keep higher amounts of merchandise in stock, thus increasing the demand for warehouse space. President, International Real Estate Federation (FIABCI), Nigerian Chapter, Adeniji Adele, said the high demand for warehouses triggered by the pandemic has made courier services to thrive.
He said courier services need mid-sized warehouses to stockpile their goods and deliver from there. According to him, most Nigerians are still scared of going to their offices because of social distancing and prefer to order their goods.

Adele, an estate surveyor and valuer, said warehouses within areas like Apapa, Isolo and Gbagada, Oshodi- Apapa, that were hitherto empty have been taken up. “So we have now more of online businesses that are now in vogue. Most people are still scared. People are no longer going to big stores such as shoprite and malls due to the coronavirus pandemic.

Affirming this, the Chairman, Abuja Chapter, Nigerian Institution of Estate Surveyors and Valuers (NIESV), Mr. Charles Ebai said a lot of trade is now based on e-commerce, while most families and individuals are now more comfortable with purchases that can be delivered straight in their apartments.


He stressed that organisations like Jumia, Amazon, pharmaceuticals and grocery retailers and others are not capitalizing on that to rent mid-sized warehouses to stock their products.

Also, the realities of COVID -19 has made a lot of supermarkets to source for warehouses for short let to stock goods that are regularly purchased to enable them to deliver quickly as they take orders.

“Even now you will notice that in Nigeria, many small businesses are beginning to package items like garri, rice, beans and the like into smaller portions of say 5- 10 kilograms for easy delivery to consumers. “They therefore are shooting up the demand for such warehouses to stockpile larger bags from where they cut into sizes. Again a lot of wines are coming into the country and the importers of such will require space”, he said.

Former NIESV Chairman, Lagos State chapter, Elias Ovesuor, said the pandemic is a period where people are trying to stockpile because of uncertainty of what will happen tomorrow.


For others, he said, there are certain things that they are not ready to move out, feeling that because of the lockdown, some areas that are producing things will not be able to do so. According to him, certain people want to keep them for sometime and when they are scarce they will sell them at higher prices.

“So people are not ready to empty their warehouses now because they are not too sure that they can stock again. You must agree with me that China appears to be one of our good business partners for now and most items are imported from China.

“For some times now, people are not too sure about that. People are more or less speculating now. They are hoarding items; there is why there is high demand of warehouse for purpose of stockpiling. “ For real estate, where there is high demand in one area, people will be forced to do some conversion here and there, real estate is an inelastic commodity. It is not something you can just increase within a short period; you cannot really increase when there is high demand.
“Definitely where there is high demand of any item, their price must increase but the rate of the increase might not be too pronounced but it must definitely increase.  There are two major forms of increase in real estate. The increase can be by the number of years you pay for the rent per square metre, because if you are looking for a year and somebody is ready to pay for three years, invariably that is an increase, because if you have the money now, you will know what to do with it.   “From the economic point of view that is an increase for the person receiving it”, he added

On his part, the Chairman, Faculty of Estate Agency and Marketing, NIESV, Mr. Sam Eboigbe said the present increase in demand for warehouse is expected to rise as demand for retail outlets suffer some setback, as home delivery service is becoming an emerging lifestyle and a norm.

Eboigbe said, it should be understood that investors have even before the emergence of COVID-19 pandemic in the bid to respond to the low demand for warehousing spaces became flexible in reviewing the terms and conditions for such spaces including reduction in rates and tenure to attract offers.

According to him, meeting client and customers’ expectation are characteristic of online express delivery services involving forwarding products from warehouses to end-users.“Smart investors in industrial properties are taking advantage of this scenario to remodel warehouse space to midsized sections to curtail the voids that have bedeviled that sector due to lull in economic activities.

“Most stakeholders have said that current border closure and global economic challenges could still negatively impact the commercial, industrial and retail sectors and the tendency now is to take steps in embracing this emerging trends in meeting clients expectations, expected to permeate all sectors. “This would continue to place demand for midsized warehousing and we shall continue to have conversions and remodelling of spaces of larger units of warehouses to incorporate and meet such trendy requests|”, he said.