Developers Tapping Warehousing Demand
Warehousing is one of the biggest growth areas in real estate today as demand from manufacturing and e-commerce firms is increasing. Not surprisingly, due to the slump in the residential segment, warehousing is attracting many large developers. Text: Leandra Monterio Rajesh Jaggi, Managing Partner-Real Estate, Everstone Group elaborated, “One of the key challenges faced by the sector was multiple taxes, but with the introduction of GST in 2017, the government created a single national market with uniform taxes and removal of interstate checkpoints. This was a sea change for the warehousing industry. Another landmark move was granting infrastructure status to the logistics and warehousing sector. With this, the cost of funding will fall and players will have multiple options to raise money.” Balbirsingh Khalsa, National Director - Industrial, Knight Frank India added, “A plethora of factors are driving this wave of change in the warehousing sector. Companies around the world are turning towards technology to improve operational efficiencies in their warehouses and distribution centers. Investors are now preferring to invest in rent-yielding commercial assets rather than receiving poor returns by investing in the Indian residential market.” IndoSpace Industrial Park Oragadam II
Growth Inducing Factors
Investments & Challenges
The warehousing industry in India is forecasted to grow at CAGR 13 per cent to Rs 9.2 trillion (Rs 9.2 lakh crore) by 2019-20, from Rs 6.4 trillion in 2016-17. Therefore, it is estimated that Grade A and B warehousing stock will grow at a CAGR of 21 per cent year-on-year taking the total tally of warehouse space in India to 297 million sqft by the end of 2021, which is double the warehousing stock of 139.8 million square feet in 2017.
Also, the government’s initiatives to streamline India’s logistics ecosystem, particularly custom clearances and overall infrastructure has resulted in India ranking 35 out of 160 countries on the 2016 World Bank’s Logistics Performance Index. This has brought India’s warehouse sector at par with global standards. With the continuous demand for high-quality warehousing and logistics facilities there is ample of ground still to be covered.
Anshul Singhal, CEO Embassy Industrial Parks Stated, “All the policy change and other government initiatives are resulting in betterment of the sector and making it investment friendly. The progress is visible but we now need to work towards proper execution of the proposed policies and implementation for a bright future.”
In light of the prolonged slump in the residential sector, big real estate developers now prefer to invest in the high yielding commercial market. The cap rates of the commercial sector are declining and inching below 8% from the 9–10% range. The risk-reward ratio would start becoming unfavorable as the cap rates start to decline further below 7–7.5%. As a result, this has triggered a shift in investors’ focus towards the warehousing sector where assets are offering a higher cap rate of around 150–200 bps greater as compared to commercial assets. This has led to a paradigm shift in the industry structure making the warehousing market one of the most favorable destinations for real estate players.
However, modern warehouses come with their own set of challenges. This business involves large scale acquiring of land which in turn requires huge amounts of capital. Developers entering into the warehousing sector are also faced with competition from the unorganized sector, who maintain smaller cluttered storage spaces near consumption centers.
Though the need for efficient warehousing designs and the advent of e-commerce and other multinational businesses that prefer to occupy only complaint facilities has substantially lowered the challenges faced by developers investing huge sums of money in the warehousing market. The main challenges the companies still face are inventory accuracy, inventory locations, infrastructure issues, redundant process and picking optimization.
Technology Driven Warehousing
Gone are the days of warehouses with leaky roofs and rising temperatures. Now companies at looking at acquiring warehouses equipped with the latest technology and constructed using materials of a high quality. In addition warehouse developers are also providing completely customized projects. Be it refrigerator rooms or automated warehouses, companies are ready to customize according to the clients specifications.
Tags : Press Room Brigade Group Hiranandani Group Lodha Developers Infrastructure Everstone Group Warehousing Anshul Singhal Rajesh Jaggi Balbirsingh Khalsa Knight Frank India Embassy Industrial Parks Technology and Warehousing IndoSpace Industrial Park Prestige Enterprises