Rising manufacturing PMI signposts opportunities for investors in industrial space
The rise in the manufacturing sector’s purchasing managers index (PMI) to 56.7 percent in March, up from 53.3 percent in February 2018, sends strong signal to investors that opportunities exist in industrial space supply as manufacturers are expanding production and needing more factories and warehouses.
Nigeria’s PMI is an indicator of the economic health of the manufacturing sector based on new orders, inventory levels, production, supplier deliveries and employment. In the last 2 to 3 quarters, the PMI has shown a steady and rising trend. In the last 12 months, it has risen by almost 10 basis points from 47.7 percent in March 2017 to 56.7 percent in March 2018
This may not be surprising as, according to Tayo Odunsi, CEO, Northcourt Real Estate, as manufacturing has enjoyed significant private and government intervention and patronage since the decision by the federal government to diversify from being a mono-economy was reached at the turn of the recession.
Northcourt in a 2018 real estate outlook notes that with international firms preferring to build their own factories and warehousing to specification, the demand for commercially available industrial space remained mostly from local firms, adding that more demand is expected over the next 12 – 18 months as industrial space requests was high in Q4 2017 due to increased economic activity occasioned by relatively easier access to foreign exchange.
“Demand for consumer goods is also growing as purchasing power improves. The recovery of oil prices and the consequent growth in demand for allied services has also fuelled the need for warehouse space”, Odunsi posited, adding, “Ikeja with its access to major nodes in Lagos currently ranks the most active market for industrial space as areas originally used for manufacturing are being converted to warehousing use”.
For investors wishing to push money to this segment of the real estate market, the next most demanded area for space is the Isolo Industrial area where mostly smaller spaces are leased. Private firms with many employees are increasingly converting warehouses to office use to avoid the cost of conventional office space.
Some investors are already taking position as a consortium of industrialists has so far made investments in excess of $150 million towards the development of four factories in the Lekki free trade zone. These include TG Arla, Palm Oil Refinery, Kellogg’s and Insignia Technology Prints.
Odunsi recalls that Kellogg’s 10,000 metric tons per year cereal factory was commissioned on December 1, 2017. AB InBev outlined plans for a new brewery to cost an estimated $250 million, its largest portfolio investment outside South Africa and also plans to list on the Nigerian Stock Exchange.
Though this segment is struggling at the moment, close market watchers see hope in the immediate to the short term. But not without threats which the International Real Estate Partners (IREP) in its recent report listed as foreign exchange, import policies, poor electricity supply and inadequate transportation.
In spite these, the report anticipates that as more facilities seek alternatives to help improve production, this in turn should boost the demand and supply of warehouse rentals which, denominated in Naira per square foot, have remained stable.
Erjeuwa Gbadebo, the company’s CEO, added, “as the retail and industrial markets are closely linked, we expect that the anticipated growth in retail will cause a corresponding increase in industrial real estate”.
Infrastructure is a major growth driver and the improvement in the manufacturing sector was boosted significantly by the improvement in infrastructure development at both state and federal government levels.
2017 saw the revitalization, commencement and continuation of a few infrastructure projects. Odunsi pointed out that many of these projects are critical not only to opening up new real estate hot spots, but also driving key economic investments in the country as a whole.
The Federal Government partnered with the Nigeria Liquefied Natural Gas (NLNG) and Julius Berger to resume works on the 34km Bonny – Bodo road construction. The ₦120.6 billion project would be a landmark achievement seeing that it had been in the coolers for about 40 years. Both parties would be sharing the construction costs 50-50.
Lagos state completed the Ajah and the Abule-Egba bridges in less than two years. At 620 metres and 1.3 kilometres long respectively, both projects were partly funded by a ₦85.1billion series 2 bond issuance.
The 1,100 kilometre Standard Gauge Rail (SGR) will go a long way in increasing the current national capacity of 15,000 metric tonnes per year. The Federal Government again signed up the China Civil Engineering Construction Company (CCECC () to build the four-dam, $5.79 billion Mambilla hydroelectric power project expected to take 72 months to complete.
Other pipeline infrastructure projects expected to have far reaching impact on the economy and standard of living include the 35 kilometre Apapa-Oshodi Expressway reconstruction and the Lagos-Ibadan standard rail project.
CHUKA UROKO