Joseph Karanja Wainaina

FEASIBILITY STUDY IN TO THE CONSTRUCTION OF LAMU LOGISTIC PARK AND A MIXED USE DEVELOPMENT PROJECT AT HINDI SETTLEMENT SCHEME, LAMU COUNTY. 2017 Prepared by: Prepared for: JOSEPH KARANJA NEW GENERATIONS INVESTMENT CO-OPERATIVE SOCIETY LTD P.O BOX- NAIROBI, KENYA. P.O BOX- Nairobi, Kenya. CONTENTS 1. Nature of the study Subject of the analysis Purpose of the survey Terms of reference Basis of the survey Limitations Disclosure 2. Executive summary Overview of Kenya Summary of site analysis Summary of supply factors Summary of demand factors Estimated pricing 3. Kenya’s macro economic analysis Introduction Economic activity: Sectors The construction sector Property market Transport system: Rail, Road and Sea Summary 1 4. Site analysis Introduction Site location and description Accessibility Visibility Utilities Proximity to demand generators SWOT analysis Summary 5. Supply analysis Introduction Summary 6. Demand analysis Introduction Demand analysis for industrial, residential, and hospitality facilities Summary 7. Recommended facility Introduction Recommendation Analysis of market factors Summary 8. Risk factors External risk factors 2 Contents NATURE OF THE STUDY Subject of the analysis The subject of this analysis is a proposed logistic park and a mixed use development to be developed in Lamu Metropolis within Hindi settlement scheme under the LAPSSET flagship project. The developer New Generation Investment Co-operative Society Ltd wants to develop a more contemporary Logistic Park consisting of warehouses and offices including other ancillary facilities such as health care facilities, and a convenient store. Simultaneously the project sponsor wishes to develop a mixed use development consisting of a hospitality and residential facility. The logistic park shall be set on 14 acres on plot No. 722 while the mixed use development will be set on 10 acres on plot No. 257 all within the settlement scheme. Purpose of the survey This study attempts to determine if there is a demand for the type of developments proposed in the brief by evaluating the demand and supply factors that will impact the marketability of the proposed development and its market position. The study will also investigate the likely pricing for the developments. Terms of reference The terms of reference for this report is to carry out a comprehensive market feasibility study to determine the demand , supply and pricing of the proposed development situated at Hindi settlement scheme along the port and to specifically investigate the following; 1. A commentary of Kenya’s property market with reference to industrial, office, residential and hospitality; 2. An analysis of the location characteristics of the proposed site (lay out, orientation and future neighborhood) rules and regulations planning regulations and the LAPSSET project under the Vision 2030; 3. Analysis of the proposed location in relation to the proposed user including its proximity to demand and other generators and expected competition; 4. Analysis of proposed developments with specific emphasis on the supply and demand of office and industrial space, hospitality and residential developments; 3 5. Analysis of data on expected rental and sales of the proposed developments 6. A SWOT analysis 7. Recommendations and conclusions of the proposed developments. Basis of the survey The survey was based on the information obtained from the client, national and county government policies and plans, local authority planning and regulatory agencies of the subject area. We have developed a set of tools to obtain primary data to analyze the real estate sectors targeted. The data collection methodology used includes; Industrial, office, hospitality and residential space operator’s survey We identified and qualitatively surveyed various properties that fall within the property classes proposed. This represents 40% of data collected for analysis. Property index Secondary data from various sources was used to ascertain performance index for properties within the sectors. Our approach. A site visit was conducted to the area on 13th January 2017 and we surveyed the entire Lamu area and specifically the proposed development site. The project being a Greenfield development, the potential for having industrial, office and residential space was analyzed. We toured Hindi Settlement Scheme which is widely undeveloped examined existing real estate developments as well as ongoing infrastructural developments. During the visit we analyzed Lamu Island existing facilities and its drawbacks. Later we ventured into the mainland to understand the demographics of the area, obtained practical insight of the master plan for the Lapsset Project and suitability of proposed development on the subject property in light of the master plan. Review of the country’s economic, trade, manufacturing business environment and the industrial and office sector to identify industrial related trends that have an impact on the future of the proposed project. Review of the sites features and characteristics that that would have a bearing on the proposed project and its market positioning. Analysis of the proposed industrial and hospitality facilities supply in the area to determine market positioning of the proposed project. Generate potential real estate investors who might be able to invest in the 4 proposed facility as well as understand the characteristics of potential tenants/buyers for the facility. Lastly, the recommendation of the proposed facility and its price point through competitive bench marking in relation to the type and size of the property. Limitations We understand, and New Generation Invest Ltd agrees that this report shall provide and evaluation of the market and shall not include financial projections and investment analysis of the proposed project as this will be provided when preliminary designs have been provided. Disclosure The report as presented is confidential and provides the clients a basis for decision making for the subject property described herein. No responsibility accepted for the whole or any of the contents to a third party and although reasonable care was undertaken to ensure reliability of the information in this report no representation or warranty is made by the undersigned on its accuracy or completeness. If opinions are disclosed to persons other than the addresses the full basis of the report should be stated. We do not accept responsibility to any party to whom it may be shown or to whose hands it may come to. Neither the whole or any part of this report, nor any reference to it may be included in any published document, circular or statement without prior written approval in which the context it will appear. I confirm I have no conflict of interest in conducting this survey. Yours faithfully, Joseph Karanja. 5 1. EXECUTIVE SUMMARY The purpose subject of this analysis is a proposed logistic park, hospitality and residential development at Hindi settlement scheme, Lamu County. The developer New Generation Investment Ltd plans to put up industrial, office, short stay hospitality and residential facilities all on 14 and 10 acres of land respectively along Mokowe Road, Lamu. The objective of this market study is to determine the demand for the particular establishments to be developed through looking in to the factors of demand and supply that would impact the success of the proposed development and its market position. LAPSSET PROJECT The Lamu Port Southern Sudan-Ethiopia Transport (LAPSSET) Corridor project is an infrastructure project jointly conceived by three states and will be Kenya’s second transport corridor. The USD $ 23 billion project is a Kenya: Vision 2030 flagship project involving the development of key value components including an international green port in Lamu complete with 32 berths and 18 meters deep, a standard gauge railway, two lane highway, oil pipeline, all from Lamu to Ethiopia and also South Sudan. The corridor will cut through Isiolo onto Juba as well as from Isiolo to Addis Ababa. The project will also involve the creation of new international airports in Lamu, Isiolo and Loikichogio. In addition the project will involve the construction of an oil refinery at the Lamu port targeting the oil basins in the north of Kenya as well as in Juba, South Sudan. The project has been designed to include the creation of three resort cities at the gateway terminal in Lamu as well as Isiolo and Loikichogio. The Lapsset project managed by the LAPSSET Development Authority on behalf of the Kenyan government will be part of the greater Equatorial Land Bridge linking the Indian and Atlantic oceans. 6 Status report. Port Offices New Lamu Port 7 The tenders for the construction of three berths at Lamu Port have already been granted and the government allocated finance for the construction. The Chinese Communications Construction Company Ltd who won the tender has yet to begin construction. The construction involves dredging, reclamation and creation of port facilities. This will be done within a 3 year period and is expected to cost Kshs 44 billion. The construction of port offices a few meters from the proposed port terminal are 90% complete. The construction of police lines adjacent to the port offices is almost complete and staff housing development initiates are ongoing. The rail, road, air and oil pipeline infrastructure is yet to commence construction. Funding for the project has been obtained from multi lateral donors, the Kenyan Government and Private investors. Port Police station 8 Lappsset Project Corridor 9 2. Kenya: over view Economy Kenya has maintained economic stability and fiscal discipline even in the face of fiscal pressure from the March 2013 elections, a new devolved system of governance, public sector pay pressure and rising security costs associated with security operations in Somalia. The economy is expected to grow at 5.8-6% in 2014. Lower interest rates and higher investment are expected to support Kenya’s economic growth in the next two years. Momentum for growth is being seen in agriculture and manufacturing, supported by more stable energy supplies, while other sectors, including services, and Information and Communications Technology (ICT) that have driven growth in the past three years have weakened. Macroeconomic environment is also stable, though competition for power and resources between the new counties and the national government has increased pressure on public resources. The government focus is on improving the environment for private sector-led growth by investing more in infrastructure, increasing domestic energy production, removing bottlenecks to doing business and sustaining sound monetary and fiscal policies. Summary of site analysis The project involves the development of two separate plots. The first plot number 722 measures 14 acres and is located 3.1 kms from Mokowe road which leads to Mpeketoni and onto Garsen then Mombasa city. The plot is also located 7.6 kms from the Lamu Port offices and 10 kms from Lamu Port terminal. The second plot i.e. No. 257 lies along Mokowe road a few meters from Hindi township. The plot is located within the urban area and measures 10 acres in size. Summary of supply factors The subject properties ear marked for development lies within the Lamu metropolis area formed as part of the Lapsset project. Plot 722 is located within Hindi settlement scheme next to Lamu Port an industrial estate segregated to boost trade activity. Plot 257 is located along Mokowe road in the urban area in accordance to the master plan of the development. Both plots are strategically located and it is expected that various developments similar to the ones proposed in this study will be developed close to the subject site. 10 Summary of demand factors The launch of the LAPSSET project shall have far reaching economic benefits to the Kenyan, South Sudan and Ethiopia economies. The transport corridor shall open up trade opportunities expanding the productivity level of the region. Estimated cargo traffic across the port terminal is expected to hit 13.5 and 23.8 million tons per annum by the year 2020 and 2030 respectively. The port poised to be three times larger than Mombasa port, will attract various investors in the industrial zone within the manufacturing and processing sectors as well as other third party logistical solutions providers with a good client base. The area presently undeveloped lacks adequate accommodation for the short term and the long run period. Estimated Pricing Industrial The rental rate for the Logistic Park ware houses could be pegged at between kshs 60 and 65 per sqft per month. The introductory sale prices for the ware houses would range between Kshs 9,000 and 10,000 per sqft. Residential Currently, it is not possible to provide estimates for the housing units due to bench mark factors however it would be plausible after cost of the units have been established and the sale prices can be postulated from that basis targeting a specific return on investment ranging between 25% to 30%. Hospitality Hospitality rate on a full board basis should be pegged between Kshs 6,000 and kshs 8000 per day. 11 3. KENYA’S MACROECONOMIC POLICIES. Economy performance The economy grew by 4.6% in 2012 which shows a remarkable growth despite challenges within the domestic economy. This included a turbulent global economy, inconsistent rainfall patterns, and a weak shilling. Albeit the challenges, the economy was strengthened by a stable macroeconomic environment , increased domestic demand, modest growth in profits, notable growth in agriculture wholesale and retail trade and transport and communication. The growth projection for 2013 stands at between 4.4%-4.5 percent as per the World Bank’s assessment report on the growth expectations. Further, the bank projects 5.8% to 6% growth rate for 2014 if macroeconomic policies initiated are implemented. Sectoral Analysis: Third Quarter 2013 Agriculture and forestry In the third quarter 2013, the agriculture and forestry sector expanded by 3.4 per cent compared to 5.8 per cent in a similar quarter of 2012. This growth was mainly supported by increased production in tea, vegetables and sugar cane. The performance of key industrial crops was mixed during the quarter under review with coffee production declining by 15.9 per cent while tea delivered to marketing boards and sugar cane production increased by 13.8 per cent and 42.5 per cent, respectively. There was mixed performance of various crops in the horticultural subsector with an increase in export of vegetables by 20.1 per cent boosted by favourable weather conditions. However, there were declines in the export of fruits and cut flowers by 32.0 per cent and 4.4 per cent, respectively. Manufacturing During the quarter under review, the sector posted an improved growth of 4.6 per cent compared to 2.6 per cent recorded in a similar period of 2012. This expansion was mainly supported by increased manufacture of cement, sugar, soft drinks, wheat flour, cigarettes and assembly of motor vehicles. On the other hand, processing of milk, beer and maize meal recorded declines thereby constraining the sector from realizing its potential. 12 Transport and communication Transport and Communication grew by 5.3 per cent during the third quarter of 2013 compared to a 3.1 per cent growth during the same quarter of 2012. The sector's growth was mainly attributed to a robust expansion in the communication subsector at 7.9 per cent during the review period, up from 5.0 per cent growth in the third quarter in 2012. Transport and storage subsector also recorded an improved growth of 3.0 per cent from 1.3 per cent over the same period. The improved performance in the Transport and Storage subsector was as a result of expansion in the air transport which was positively impacted on by an increase of 1.5 per cent in the international visitors to 483 thousand arrivals during the third quarter of 2013 from 476 thousand arrivals in the same period of 2012. The construction sector The Kenyan construction industry is expected to see exponential growth as the government and private developers increase investments in infrastructure and housing. First, the huge deficit in infrastructure – including rail, roads and ports – presents a significant case for continuing growth in the building and construction sector, which accounts 5 per cent of Kenya’s GDP and employs at least one million people. Second, the rapid growth in population, which has led to a soaring demand for housing in most parts of the country, presents a major opportunity for growth as private developers rush to keep up with this demand. Despite the recent slowdown in the world economy, the Kenyan construction sector has remained buoyant as reflected in the increased investment in both commercial and residential buildings over the past few years. According to data from the Kenya National Bureau of Statistics, the construction sector grew by 13.3 per cent in Q3 2013 compared to a similar period in 2012. This was boosted by massive road construction projects and increased activity in the real estate sector. Financial intermediation The sector has maintained a strong growth since the second quarter of 2012 except a slowdown experienced in the first quarter of 2013. During the review quarter, the sector is estimated to have expanded by 7.2 per cent compared to an expansion of 6.5 per cent during the same quarter of 2012. The Kenya Shilling recorded mixed performances against its major trading currencies. Within the East African community, the Kenya shilling stagnated at an average of 29.6 and 18.6 against Uganda and Tanzanian shilling, respectively compared to the same quarter in 2012. The Shilling strengthened against the Japanese Yen and South African Rand but weakened against the Euro, US dollar and Sterling pound. The capital market was robust during the quarter under review with the NSE 20 share index rising to an average of 4,759.7 compared to an average of 3,890.0 recorded during the same quarter of 2012. 13 The property sector. Industrial The industrial real estate sub sector relies heavily on trade activity between Kenya and the rest of the global economy. Earmarked as part of the MDG’s industrialization is a key critical area in the country’s developmental agenda. Kenya’s current account stood at USD $ -474 million in 2013 compared to USD $ -214 million in 2012. The export market accounted for USD $ 515 million while the import market stood at USD $ 1.35 Bn by October 2013. The agricultural and manufacturing sector remains the impetus for expansion of the export market. The agricultural sector growth in 2012 stood at 3.8% feeding the export market by…….most of the export market exports included raw and intermediate goods to developing and emerging economies. Agro processing has taken shape with the setting up of various processing factories in the country. The emergence of Kenya as a major economic hub within the eastern Africa bloc has increased trade activity as Kenya is the major transit point to these neighboring economies. At the bed rock of economic growth lays the expansion of the manufacturing sector. The sector contributes 9.4% to the country’s GDP annually. The sector rose by 3.1%in 2012 down from 3.4% in 2011. Industry activity and growth is reflective on the manufacturing bit specifically in Metal, metallurgy and construction, agro processing, electrical, electronics and ICT , chemicals, mining and quarrying. The advent of the special economic clusters, a programme by the government of Kenya seeks to establish special economic zones within the country from as far as Kisumu to Eldoret and nearby Mombasa areas. Further, under the lappsset project master plan an economic zone has been set up in Hindi in line with the projected demand. These economic zones mostly target agro processing a major boost towards the industrial space in the country. The sector returns as per the Knight Frank industrial space survey indicates that in 2013, the industrial market outstripped all other sub sectors by registering 12% prime yield in Nairobi. The market has been conservative for quite some time however it is slowly transforming taking advantage of better infrastructure at the periphery of major towns. Office Kenya’s office sector has grown tremendously over the past two years. Notable areas of development have been in major towns with investor sentiment driven by better economic growth prospects. Key drivers include emergence of Kenya as a commercial hub within the sub Saharan region, recent expansion of infrastructure within the country and a devolved system of government. Significant demand for office space is also seen from small and medium enterprises (SME’s) and individuals in the professional services sector. This steady uptake of new office space can also be attributed to the rise in confidence and improved optimism within the country. 14 Hospitality Kenya has been described as the business hub of East Africa and a cheap holiday destination compared to other traditional sites of the Mediterranean and the Caribbean. Also operations for most international humanitarian, development and media organizations are coordinated in Kenya making it Africa's most popular destinations. Already Nairobi has substantial base for the United Nations agencies and is viewed as a key commercial and transit hub in East Africa. Kenya has continued to improve its facilities and currently the Jomo Kenyatta International airport is being expanded to double its capacity to over 4 million passengers. Also there has been an incredible growth in the tourism industry and according to World Travel & Tourism Council (WTTC) it contributes to 14 percent of GDP and 12 percent of total employment. WTTC predicts that tourism will continue to grow at 3.7 percent per annum for the next decade. Moreover, the peaceful march 2013 elections have made Kenya a favorable place to invest. Kenya’s rising profile has led to an increased demand for quality beds capacity and local and foreign investors are partnering with high quality hospitality brands in order to cash in. According to a report by HVS London, a global hospitality services consultancy terms Conferencing as one of the most rapidly growing sub-sectors in Nairobi. The number of events held in Kenya has been on recovery after a decline in 2008 due to the post election violence. Economic Survey 2012 indicated that the number of events stood at 2,783, with an estimated 413,995 delegates. More global hotel chains are expected to enter the market in the coming years as the number of tourists visiting Kenya continues to grow, and the demand for accommodation and conferences therefore strengthens. In addition, the occupancy rates are expected to remain at about 68 per cent on average up to 2016. Most of the international hotels which have already set up or are in the process of setting up are targeting the need for increased bed capacity to cater for conferencing market which is one of the rapidly growing sub-sectors in the country and the increased demand for holiday and business travel. Some of the global hotels expected to open doors this year include Thai based Dusit International Hotels which is due to take over the management of a new 5 star boutique styled property before the end of the year under its dusitD2 brand of luxury city hotels located on 14 Riverside; Radisson Blu Hotel which is associated with Belgium-based Rezidor Hotel Group, a 244-room luxury hotel in UpperHill; and Kempinski’s Villa Rosa Hotel, a 200-room upscale hotel located at Chiromo, Nairobi which features a swimming pool, two presidential suites, and six business suites. Other hotels include Hemingways Nairobi which has opened its Ksh1.5 billion 45-bed boutique hotel in Karen and US-based hotel chain, Best Western Premier with a 96-bed capacity branch in Nairobi’s Kilimani estate. The growth in hospitality sector has not been in Nairobi only but also other cities. For instance Kisumu has had over ten facilities put up over the last five years. The growth has been due to 15 high demand for accommodation and conference facilities. Though a number of hotels were destroyed during the post-election violence, investors have not given up. The North- Rift region has witnessed a steady growth with hotels having increased to 200 by the beginning of 2013.Even with the many hotels, the region lacks modern facilities and there is only one threestar hotel in the entire of North- Rift region. The presence of athletes and government offices are some of the factors attracting investors in the industry because of increased demand for bed spaces and conferencing halls. The athletes have also invested in the sector and provided market for the facilities by using them while on training. Kempinski’s have also opened a camp, Olare Mara Kempinski’s, an eco-friendly hotel located in the Olare Orok Conservancy Masai Mara. Residential The residential real estate sub sector has grown with leaps and bounds over the past 12 years. The market has emerged as the strongest having had wide investment across the country in multifamily developments particularly apartment buildings, mixed use developments, town houses and detached and semi detached housing units. Housing schemes have received large investment from the private sector accounting for over 90% of investment in residential space. Currently the existing and proposed housing stock in the country is centered within peripherals of major towns especially in Nairobi, Mombasa, Nakuru, Kisumu and Eldoret. The introduction of a devolved system of government has provided an avenue for the decentralization of service offering by the public sector leading to less concentration in traditional administrative centre’s as the only areas for real estate development. This has been heightened with the planned setting up of key projects within the devolved units that will act as key economic drivers necessitating infrastructure investment by the county government. The nascent short supply in housing stock in conventional neighborhoods has grown tremendously due to high demand causing prices to soar up really fast over the period. The sector has received a strong boost from the middle income sector a trend that has led developers to concentrate deeply on the segment due to the availability of financing solutions enabling absorption. 16 Transport system Road Transport Road transport accounts for 80% of the total movement of passengers and freight in Kenya. Generally, roads are the only means of access to rural communities. The public road network in Kenya is about 160,886 km in length, comprising 16,544 km of National Roads managed by the Kenya National Highways Authority; 12,549 km of urban roads under the Kenya Urban Roads Authority; and an estimated 131,794 km of rural roads under Kenya Rural Roads Authority. Railway The railway network administered by the Kenya Railways Corporation, with a 1,083 km main line from Mombasa to Kisumu and Malaba. The track shall be revamped with the construction of a new standard gauge track from Mombasa to Nairobi and further to Malaba on the Kenyan front. In addition the planned rail from Lamu to South Sudan via Turkana is in the offing and expected to commence soon under the LAPSSET project. The 1720 km rail way will be linked to the existing railway network and to Mombasa port by a line running from Lamu port to Mombasa port. Freight services constitute about 95% of railway operations and income. Currently, the railway system carries about 2.4 million tons of cargo per annum which is about half capacity. The Kenya and Uganda Railways mainline systems are under jointly concession to a private operator, Rift Valley Railways Consortium (RVR) in an attempt to increase efficiency. Air Transport Air transport is managed by the Kenya Airports Authority (KAA), established in 1991. KAA operates nine major airports nationwide, including 3 international airports, and 250 airstrips around the country. Ongoing infrastructure expansion works to the major airports are aimed at increasing capacity. Maritime Transport Kenya has one sea port at Mombasa, which is operated by Kenya Ports Authority (KPA). The port has 16 deep water berths. Cargo traffic through Mombasa port is about 20 million tons in year 2011 including 770,000 TEUs of container traffic. KPA also operates two inland container depots in Nairobi and Kisumu. KPA's strategy is to introduce private sector management and financing so as to improve the port's performance, starting with the new container terminal under construction, conventional berths, oil terminals and marine craft. 17 Currently, the commissioning of a new international port in Lamu is expected to commence. The port shall have 32 water berths. The project being carried out under the LAPPSSET project seeks to provide a modern gateway to the international community and shall open up areas as far as Uganda, South Sudan and Ethiopia through rail road and air linkages. The project was commissioned in early 2014 and is expected to handle cargo traffic of about 23 million tons once complete in year 2017. Pipeline transport The oil pipeline, managed by the Kenya Pipeline Company, from the port of Mombasa to Nairobi (450 km) with extensions to Eldoret (325km) and Kisumu (121 km).The pipeline carries about 4 million m3 of petroleum products per year. An addition to the pipeline will be carried out that shall extend from South Sudan through Turkana and Isiolo areas down to lamu at the new proposed refinery station. The pipeline shall run from Lamu to South Sudan and Addis Ababa. Summary Kenya’s economy has been projected to grow at 5.6% in 2014 however could be hampered by a myriad of challenges. Temporary shocks in the monetary system in the medium term due to government spending will raise interest rates straining key economic sectors. Stability in monetary and fiscal policy over the short and medium terms would be a precautionary measure to contain major effects but the implementation of policies geared to the growth agenda as shown above should be the key focus going forward. 18 4. SITE ANALYSIS Introduction The site and location of an industrial and accommodation facility has a direct relation on the performance relative to the competitive market. In addition to this the concept and design will have a direct impact on the pricing thus impacting on the rental values and profitability of the project. Site location and description The subject property is located in Lamu county, Hindi settlement scheme on phase 1 within the mainland. The project involves the development of two separate plots. The first plot number 722 measures 14 acres and is located 3.1 kms from mukowe road which leads to mpeketoni and onto garsen then Mombasa city. The plot is 7.6 kms from the berths at Lamu port and 6 kms from the port offices. The plot lies adjacent to the proposed railway terminus leading to the port berths. The second plot, plot no 257 measures 10 acres in size and lies along Mokowe road 0.5kms from Hindi town. The plot has major road frontage. Both plots lie within Hindi settlement scheme. Plot no 722 has a flat slope with road frontage leading to the port berths. The plot is rectangular in shape. The boundaries are marked with barbed wire fences though through theft other sections have been removed. The plot is undeveloped and is covered by wild vegetation consisting of shrubs and thickets. Access to the site is through the east and the south side of the plot. Plot no 257 has a gradual slope dulating to the south west of the plot. The plot has one road frontage to the east. The plot is marked by a barbed wire boundary fence and has heavy vegetation cover comprising of small thickets with signs of clearance done previously as trees appear to have been felt. 19 SITE PHOTOS Plot 722 20 Plot 257 21 Accessibility Currently, the plot no 722 and 257 is accessible from Mokowe road. On completion of the infrastructural development the plot shall be accessible through rail and road via the proposed Lamu Isiolo - Moyale and Lamu-Isiolo-Lodwar road D 568 and the railway line leading to Isiolo onto Moyale and Lodwar onto juba in South Sudan. The plot shall also be located close to the new air port to be developed at Mkunumbi a few kilometers away. Utilities Electricity The area is connected to the national electricity grid through the Ketraco substation at Mpeketoni. New thermal power plants at Lamu, possibly coal fired and LNG fired plants will be positioned. For the urgent development plan of new Lamu port, two generators of 3,500 KVA will be installed in the port management area. Water For the New Lamu Port and Lamu Metropolis will be quite high and by far outstretching any locally available sources of supply in the vicinity of Lamu. The greatest challenge will in the long term (2030 and beyond) when the port will be fully industrialized and with population figures of between 450,000 and 1.25 million people in 2030 and 2050, respectively. In the long term, a supply of 181,550 – 296,750 m3 /day is anticipated. The current water demand for Lamu town (Island) is estimated at about 3,000 m3/day. This is met by supply from the Shella well field located within the Island and has reached its limit. For the Urgent Development Plan of the New Lamu Port, considering the water requirements for the port (350 m3/day), it is planned that water be obtained from the HIMWA Water Supply (about 5 km from the port) that can sustain a supply of about 500 m3/day; this if joined together with the LAWASCO’s Magogoni supply mains which can supply an additional 30 m3 /day can meet the urgent demand. The two transmission pipeline mains, if linked, will have an estimated combined pipeline length of about 6-7 km. For 2030 and beyond water shall be obtained from the High Grand Falls Dam (HGFD) project with an uptake at the Nanighi Barrage (weir) and pumping to Lamu, approximately 185 km away. 22 Communications Systems, Fiber Optics Cable (FOC) Network Fiber Optics Cable (FOC) is considered as the basis for the development of the communications infrastructure. FOC is becoming less expensive, is easy to install and not prone to interference as compared to other technologies. FOC is suitable for LAPSSET Corridor to be arranged in the 200m Corridor width simultaneously with construction works of the other components. For the New Lamu Port at Manda Bay, introduction of the Electronic Data Interchange (EDI) as the communication systems for port management and operations, and the Vehicle Mounted Terminal (VMT) communication system in the cargo terminals are taken into account as the method for controlling the cargo terminal operations. Other than these two basic systems, individual terminal operation systems are supposed to be introduced by operators. Proximity to demand generators The LAPSSET project in its inception is geared to act as a linkage between the northern part of Kenya and states lying towards the north of Kenya consequently acting as a gateway serving to connect these areas to the outside overseas markets. Several activities shall emerge that will enhance the attractiveness of the site and proposed conceptual improvement of the land. Within the master plan of the development, settlement schemes have been conceptualized categorized with specific reference to usability of the land. Broadly classified, the project shall have economic processing zones, free zones, special economic zones as well as chemical industries and food processing zones. The manufacturing sector will have a greater presence within this area necessitating the need for good storage facilities for products earmarked for the export market. Conversely, the inputs required for the processing and manufacturing will find adequate storage facilities within the subject property. Since the logistic park will be situated right at the heart of the industrial zone and the port terminal, it shall benefit from the surrounding business environment and logistical advantages that ensue as a result of the infrastructure in the area. 23 SWOT analysis Strengths The proposed project has the distinct advantage of being in close proximity to infrastructure i.e. from rail, sea, air and road as well as being located within the proposed industrial scheme. Economic benefits attributable to the location of the site such as tax implications to the developers of the logistic park will enhance returns through tax policy’s by the government such as tax holidays to investors. The overall project is a government sponsored initiative hence it provides adequate security for investment by private developers. In addition the subject property for development shall lie close to a vibrant manufacturing and processing zone creating demand for warehousing facilities especially for manufacturers who have destined their goods for the export market. Weaknesses The actualization of the logistic park project heavily relies upon the implementation of the Lapsset project. Delayed financial commitment through the Lapsset Development Authority towards kick starting the project, mainly constructing of the port berths, has a direct bearing on the commencement of the proposed project. Opportunities The subject property shall be located within the hub of various economic activities. The green port of Lamu in its strategic positioning acts as a gateway to overseas markets and will serve the regions markets. Through this, goods from various markets in Ethiopia, South Sudan and Uganda as well as other landlocked countries will find access to global markets creating a wider scope of activity for the logistic park. The port will be linked to Mombasa via a rail network to augment the traffic of goods in the busy Mombasa port. Oil exploration activities in the northern region of Kenya have garnered momentum with the discovery of various commercial wells. This development has elevated the country’s status in the oil and related products exportation as well as in energy production which will feed in to the growth of various industries within Lamu County itself as well as the northern part of the country. The quest for rational and sustainable development leads to the demand for residential facilities. The anticipated development of the coastal region will demand the creation of adequate housing facilities to accommodate the influx of short to medium stay expatriates/visitors and long stay residents directly or indirectly involved in the greenfield project. The opportunity in the creation of good accommodation to suit the needs of the port 24 development is existent, especially in low to medium scale housing as well as in the hospitality sector. Resort city Lamu is proposed to be “Collaboration City” located at Mokowe with the core facilities such as water sports, country club, convention center, and amusement. The satellite facilities are Ecotour points include marine and land sports fishing, market, surfing; nature safaris; archaeological sites. The Collaborated Cities consist of Conventional Center, Fishermen’s Wharf, Cultural Center, and Amusement Center. The eco-villages are proposed at Kipini, Bawaya, Manda Island, Pate Island, and Kiwaiyu Island. Threats Political instability in the Republic of South Sudan has a direct impact on the success of the development to a direct relationship with the actualization of the lappsset project. South Sudan is a key partner towards the development of the port and from a trade perspective it supports to a large extent the volume of activities to be carried through the port, this will have an indirect impact on the revenues to the proposed logistic park. The northern part of Kenya has had its share of turmoil resulting from various political and economic factors. Insurgence in the Somali border as well as inter ethnic conflict has driven the region to be a hot bed of violent skirmishes. The resultant effects have been economic setbacks that if let to prevail could hamper the huge prospects for the project due to negative investor sentiment. Summary The proposed sites for development lie in a very strategic location with relation to the geographic positioning within the proposed LAPPSSET project. The sites have good accessibility and terrain to suit the kind of development envisaged. Several factors enhance the projects opportunity. Due to its nearness to its demand generators the site merits from key drivers including industrial development close to the logistic park particularly agro processing plants and chemical processing facilities , presence of a wider resource base and market in neighboring target countries. Though the project is seen as the next frontier location for trade activity, a myriad of challenges hamper the progressiveness of the proposed development. Instability in the region’s economies, inter ethnic conflict, financial deployment to project construction amongst other factors place a huge risk in exploitation of the investments full potential. 25 5. SUPPLY ANALYSIS Lamu port is a greenfield project initiated by the government of Kenya, Ethiopian government and the South Sudan governments. The immediate location of the plot i.e. 722 lies within the expansive 103.5km2 industrial estate which mainly consists of an unimproved area with planned development activities especially within the industrial and office sub sectors. Plot number 257 lies further afield within the urban residential area. The two plots will be contained within the port terminal and the Lamu metropolis area. Currently the area is undeveloped to the extent of the proposed developments. The settlement scheme as per the master plan for the development of the area provides for the creation of several industrial establishments and has been zoned into three categories to attract private investors to the area. These include; special economic zones, export processing zones and free zones. The special economic zones will be targeted towards promoting exports market in a bid to enhance employment opportunities for the inhabitants of the area. They will be exempt from taxation, enjoy quotas. Free zones within the scheme shall be areas within which goods may be landed, handled, manufactured or reconfigured, and re-exported without the intervention of the customs authorities. The essence is in the promotion of exports and free movement of goods within the port. By and large several manufacturing and processing plants will be established within the area creating a demand for ample storage facilities. It is the expectation that the storage facilities will be privately established to handle the high volume of cargo expected to move within and without the port. The old lamu town possesses a vibrant hospitality sector with plenty of hospitality facilities ranging from guest houses, vacation homes for rental, boutique hotels and hotels. The residential sector is comprised of owner built units based on traditional Swahili culture. To draw a comparison we have analyzed Mombasa international port and surveyed pricing for ware house facilities both for sale and rental. Further an illustration of the existing pricing for hospitality and residential house establishments along Lamu Old Town shore line and Mombasa area have been surveyed. 26 Industrial RENTALS No. Size (sqft) Price/Sqft (Kshs) Not prescribed 28.40 Name/Area Type 1 KRA Customs Bonded Ware Houses 2 SIGINON GLOBAL LOGISTICSMOMBASA GO DOWN 136,000 40.00 3 SHIMANZI GODOWN +OFFICE 34,000 27.94 4 TUDOR GO DOWN 6,000 50.00 5 SHIMANZI GO DOWN 8,000 43.75 No image 6 GO DOWN 5,000 40.00 No image 7 MAKUPA MOMBASA ISLANDRAILWAYS GO DOWN 10,000 37.00 No image 8 FORT JESUS GO DOWN 3,500 14.29 No image 9 MOMBASA- ZIWANI GO DOWN 2,500 48.00 No image 27 Details SALE No. Name Type Price/Sqft (Kshs) Size Details 1 MOMBASA CITY GODOWN +OFFICE 13,500 Kshs 4,440.00 2 MOMBASA CITY GO DOWN 5,200 19,230.00 3 MOMBASA CITY GO DOWN 60,000 1,416.70 4 UKUNDA GODOWN +OFFICE 6,500 3,077.00 5 MOMBASA CITY GO DOWN 122,000 5,737.70 No image MOMBASA ISLAND6 RAILWAYS GO DOWN 5,000 8,000.00 No image 28 Residential PROPERTY DESCRIPTION 3 Bedroom apartments in Tudor with sea view for sale. • The apartments have split level lounge and dining. TYPE PRICING IMAGE • 1 . • 2 • 4 5 6 7 • • • KSHS 13.5 M APARTMENTS 2 Bedroom bungalow for sale in Mtwapa. It has floortiled, spacious bathrooms, and wardrobes.Its in a gated community ensuring maximum security. BUNGALOW 3 Bedroom massionatte for sale in Bamburi in a well gated estate of 22 units,each on 40 by 70 ft or 1/8 of an acre. Maissonettes Kshs 12M Villas Kshs 7.8M Apartments Kshs 3 and 4 Million Respectively 3 Bed Room Kshs 7.5 M KSHS 4.5 M 2 bed villas in Mtwapa 1 and 2 bed room residential apartments in Mtwapa Nyali apartments 29 No image • 8 • 9 • 10 11 12 13 • • • A newly constructed gated community which is accessed from the Mombasa Malindi highway. The estate is approximately 0.5 kilometer from the highway Bungalow Kshs 8.3M This is a maisonette in a shared compound with eight apartments; it has four bedrooms, all ensuite. This modern new 3 bedroom is located in Nyali, Mombasa at a secure area in secure compound This modern spacious brand new 3 bedroom rental apartment is located at serene, secure area of Nyali. Recently built development. Each unit has approximately 1/8 acre area with a parking, self contained servant’s quarter, a beautiful garden Newly Built 3 bedroom fully furnished apartments available for Let in Nyali. The apartments consist of 2 blocks both for Sale and Rent. The master bedroom is ensuite. Maissonettes Kshs 25M Town House Kshs 35,000/Month Kshs 40,000/Month Apartments Kshs 70,000/Month Maissonettes Kshs 85,000/Month 3 Bed Apartments 30 14 15 • • 3 Bedroom townhouse in Shanzu, Mombasa in a gated estate with each house on its own compound of 80 by 80 ft with self contained staff quarter for rent. Lovely 4 bedroom and fully furnished villas located 400 metres from links road in Nyali. Each house has own compound a parking, Kshs 60,000/Month Town Houses Kshs 65,000/Month Villas 16 • Kizingo apartments Kshs 60,000/Month 3 Bed Apartments 17 • Nyali apartments 2 Bed Apartments Kshs 45,000/Month Duplex Kshs 90,000/Month 18 • Nyali 2 bed duplex apartments 31 Hospitality (Old Lamu Town) 32 33 34 35 6. DEMAND ANALYSIS The creation of the green port of Lamu shall lead to an increased level of trade activity at the port between the country as the transit hub and the Great Lakes Region. The expected level of trade activity as forecast by volume of cargo at the port in comparison to Mombasa port is as shown below. Thousand tonnes/year Further cargo traffic at the port of Lamu to other neighboring states in the great lakes region is as shown below depicting transportation corridor from inland areas to the port of Lamu. Trade expansion in the region will propel the demand for industrial warehouse facilities for both the export and import markets. The transport catchment area within the region stretches as far as South Sudan and Ethiopia on to Kenya. The expected trade activity as can be seen below is expected at 23 million tonnes in the year 2030. 36 The Lappsset project impact on the country’s and the neighboring states of South Sudan and Ethiopia GDP growth by the year 2020, is expected to hit 6% and 2% and 3 % respectively. Increased economic growth is an indicator of higher productivity thereby creating more wealth thus elevating consumption standards. This shall have a direct impact at the port city creating higher demand for logistic park by the manufacturing sector. The incentives created within the port city as regards to taxation, employment, trade rules, will have a significant impact on the attractiveness of the area. Going by the expected concentration of industries in the area, demand for good quality space will be higher providing stabilized income streams to investors in industrial space. According to the master plan, the establishment of electrical power plants to feed the high demand for power will also attract investors in the manufacturing and processing industries who will appreciate this supply. Further, the presence of an oil merchant refinery in Lamu purchasing crude oil from the hinterland i.e. Kenya’s Turkana oil basin and from South Sudan will boost the demand for specifically designed space to handle petroleum related products destined for the local and export markets. 37 From an analytical and economic point of view the manufacturing sector investment in developing single occupied storage facilities is usually higher as compared to leasing space. Studies in more developed countries have demonstrated that additional costs associated with purchasing more land and construction of owner occupied space for storage use does not create additional value to the sector players. The expected increase in economic activity in the area shall resoundingly increase the population of the area. At over 1 million persons the demand and a projection for 10% growth, decent accommodation will be necessary targeting for different income segments as well as time periods within the 18 year development plan. The spatial plan for the metropolis provides for an urban area for commercial as well as residential sector. Plot 257 which lies within this demarcation provides an ideal entry point to develop a mixed use development comprising of short stay accommodation as well as permanent housing units. In the immediate horizon the target market would be for the public sector employees and expatriates involved in the design and construction of the infrastructure within Lamu metropolis. Lamu historically has been regarded as a great tourist destination with plenty of flora and fauna. Its distinct rich cultural background prompts its attractiveness to tourists not to mention the people’s humility. Based on this, Lamu metropolis shall also incorporate a resort city dubbed the Collaboration City. To be located in Mokowe, the resort core facilities will include water sports, country club, convention center, and amusement parks in addition to satellite facilities such as eco tour points. This concept blends with the projects vision of incorporating the hospitality sector on plot no 257 and will act as a driver for the facility targeted at the short stay visitor on business as well as leisure travel. Summary The subject property i.e. plot 722 and plot 257 lie in very strategic locations. Trade activity expected as measured by dry throughput cargo from the wide catchment along the transport corridor will boost the logistic parks attractiveness as a suitable storage facility. In view of the parks close proximity to the port and of the forecast cargo traffic, it portends to a wide income earning opportunity to its developers especially from the export and import markets. Accommodation in the area is generally nonexistent and bearing on the forecast economic activity, provision of decent housing for the medium term and long-term, needs to be planned as huge demand will arise at different periods before, during, and after the construction of infrastructure for the port city. The establishments within the demarcated industrial zones earmarked to boost economic growth and attract investments, will spur the demand of ware housing space northwards. Growth of industrial sectors such as chemical, food processing etc shall create a wider scope of potential tenants including key players in the logistical solutions fraternity and manufacturers opting to lease storage space as opposed to developing single occupied facilities. 38 7. RECOMMENDED FACILITY Introduction The plan is shall be to develop a logistic park on 14 acre parcel of land designated as plot 722 to provide; 1. Contemporary ware house facilities 2. Office facilities In addition the project shall extend to on plot no 257 to include; 1. Multifamily development 2. Eco lodge. Space use considerations and guidelines Plot 722 From analysis of the site, demand and supply factors above, I recommend the construction of a logistic park on plot no. 722 to accommodate contemporary warehousing and office facilities. Critical emphasis should be placed on the size of the facilities due to the anticipated high demand for the storage space owing to the expected cargo traffic throughput at the green port. The logistic park should incorporate adequate office establishments for administrative functions to the lessees in addition to other tenants who would like to be identified with the business address established. This shall support the banking sector, professional services field, regulatory agencies, small health care facility, security premises and convenient shopping stores. Within the master plan, adequate space should be incorporated for the above facilities. Additional allocations of space need to be provided to accommodate fuel and vehicle service station and parking facilities. The logistic park circulation needs to be well designed to provide for ease of movement in and out of the park for commercial vehicles. Traffic assessment studies needs to be conducted around the subject property with reference to the access points i.e. the road network and the proposed railway terminal opposite the plot to and from the port area. 39 Plot 257 Development of housing facilities more specifically multifamily residential complex comprising of apartments, maisonettes and standalone housing units. The housing complex should be targeted at the lower middle end of the market within the initial phases and extended towards the middle end of the market as activity within the port increases in the development stage. The units initially will be targeted towards the public sector work force in the national and county governments who will initially set up shop to provide administrative services. Further as the market evolves the project can extend to the private sector as construction activity in the city gears up. The units within the initial phase could be offered for rental but in later phases they could be sold off. The hospitality sector currently possesses high demand especially for short stay accommodation currently nonexistent in the mainland and it would be prudent to establish the presence of an eco lodge within the subject property to arrest the expected influx of visitors. Land utility on the plot should carefully be planned to accommodate the desired facilities on the plots earmarked for development. Analysis of market factors 1. Development of a green international port in Lamu As elaborated in above the planned construction of an international port in Lamu containing 32 berths linking regional markets and overseas markets, creates an opportunity for the logistic park to tap into various clientele who will need storage facilities in close proximity to the port. The project is expected to start with the construction of three berths to be undertaken by the Chinese Communications Construction Company. 2. Creation of an industrial metropolis region The economic effect of the development of related infrastructure i.e. rail, road, oil pipeline and government incentives such as trade zones creates a good environment for the establishment of port related industries such as in the manufacturing and processing sectors. this will be in the industrial and allied products and even in the agricultural sectors. This pushes forth the demand for quality and convenient warehouse facilities customized to expected client profiles. 40 3. In existent accommodation in the area Chapter 4 provides a description of the site and general neighboring area. Bearing on the expected developments taking shape in the metropolis, accommodation is a key challenge especially for prospective investors, development personnel and administrative personnel that shall oversee the construction of the port terminal. Short stay and permanent residences can only be found within the island. The demand for adequate accommodation is overwhelming. 4. Emergence of the city as the administrative capital of the county The current administrative centre is located within the island however the county offices as well as government offices are all moving away from Lamu Island to the mainland. The expected development of the area will witness influx of various government ministries from the transport sector, roads, security, health and wildlife. These ministries will be housed within the mainland and as a result demand for office, residential and retail space will grow immensely. 5. Tourism activity Historically, Lamu Old Town was a buoyant hub for trade activity that made the town an economic powerhouse for centuries. The advent of Mombasa port and construction of the rail way reduced the town’s stature to a minor local port. Interestingly, tourism in the town has spiked up over the years with record numbers registered drawn by its traditional culture. According to the LAPSSET corridor master plan, the creation of a resort city, dubbed the ‘Collaboration City,’ will enhance domestic as well as international tourism within the town with its lovely beaches, modern concepts in its key attractions including convention centers, water amusement parks, water sports facilities among others. Summary My recommendation is on the development of the proposed facilities as conceptualized. The logistic park should attempt to incorporate contemporary models in its design to differentiate it with existing facilities in the country. Office space should be incorporated within plot 722 to serve the varied uses that complement the ware house facilities and tenant profiles. The opportunity of residential and hospitality improvements on plot 257 is enormous however planned development should be in line with development agenda of the greater LAPSSET corridor project to harmonize investment return expectations. The phasing should be done targeting the lower-mid income segments first progressing to the higher middle income groups. The hospitality facility should follow a green concept and the space utilization between residential and hospitality has to be well planned to prevent possible externalities. 41 8. EXTERNAL RISK FACTORS Implementation of the LAPSSET project The actualization of the greater LAPSSET project within the time lines prescribed by the government poses a huge risk to the implementation of the proposed project on the subject sites. The project heavily relies upon the establishment of the necessary key components of the project mainly the port berths road airport, and rail infrastructure. Delays in construction of these amenities profoundly affect the realization of returns on investment to the project investors lengthening investment horizons and higher exposure to more risks associated with time. Political stability in regional economies Political instability in form of internal and external aggression from the main catchment areas severely impacts on the contemplated projects performance. Economic repercussions of instability will feed into the expected trade activity and hence growth at the gateway terminal and general metropolis area thereby affecting potential rental incomes from the industrial, residential as well as the hospitality sectors. Currently, the instability in South Sudan, terrorism in the Kenyan front with possibility of economic sabotage from the Somali terror cells and inter ethnic conflict in the north of the country shall affect the returns to the project in the long run. Global economic growth The impact of global trends has far reaching effects on the projects performance. Changes in global growth rates signifies productivity fluctuations and thereby demand patterns for goods either finished products, intermediate goods as well as raw materials, impacting trade activity especially in emerging and frontier economies leading to trade imbalances. This in turn affects industrial production levels creating variations in demand for industrial space. Over supply The favourable environment initiated with the creation of an enabling environment for trade expands the field for several players to venture into the residential and industrial sector. The risk for direct competition is high both in the industrial and hospitality sector however early bird entrants and proper differentiation and value addition strategies within the Kenyan market shelters the income streams. Further location attributes of the logistical park creates greater merits due to its proximity to access routes and the green port. 42