Logistics & Warehousing
The grant of infrastructure status to logistics sector, the recent developments and the introduction of GST has resulted into well organised logistics and warehousing industry thus increasing private investment into the sector. Ankit Gohel reports.
The infrastructure sector has been on the forefront of the development agenda of Government of India. This statement can be supported by observing the recent policy decisions, the result of which are visible. A major portion of the public expenditure is on roads, railways and ports. The government unveiled rail budget of Rs. 1.48 trillion and road budget of Rs. 1.21 trillion in 2018-19 under the new integrated infrastructure planning model. In addition to this, the development of ports and dedicated freight corridors is also gaining momentum. The direct beneficiary of this is the logistics and warehousing sector.
The government is also projecting India as a manufacturing hub by schemes like Make in India and thus with the growth in manufacturing activities there comes a need of proper, organised warehousing services. The growth in e-commerce, FMCG, retail, auto and auto ancillary industries along with better supply-chain management system has led to the increase in scope for this sector.
The overall policy initiatives taken by the government in this sector are the establishment of PPP model in Free Trade Warehousing Zone (FTWZ) and Logistics parks, roll out of Goods & Services Tax (GST), infrastructure status to logistic sector, Implementation of Warehousing and Development Act 2007 and 100% FDI is permitted under automatic route for port development projects.
The developers are seeing a huge business opportunity in the sector. Dr. Niranjan Hiranandani, CMD, Hiranandani Communities said, “From an RoI perspective, it makes business sense to go in for such projects. From an investment perspective in terms of new business opportunities, growth of industrial and logistic parks will enable creation of a Hub and Spoke model, which will bring in cost efficiencies and optimize delivery time. The reduction in logistics cost from current levels to single digits as a percent of GDP represents a huge potential, which will act as a catalyst for investments in this asset class. Industrial and warehousing assets will generate stable yields next only to grade “A” commercial office assets.”
In India, until recently, there was a lack of in investment in the logistics parks which resulted in very basic and conventional warehousing structures. There needs a creation of good standard warehousing infrastructure with technological know-how and increase in investment in this sector. Talking about the reasons for the need of organized warehousing in India, Santhosh Kumar, Vice Chairman – ANAROCK Property Consultants said, “Warehousing has traditionally been an unorganized market and dominated by local players/vendors. Lack of transparency in storage and movement of goods was one of the key reasons for many MNCs to avoid setting up their businesses in India. With India advancing rapidly to make a mark on the global businesses, there is a dire need for the development of the warehousing market in an organized manner. Awarding infrastructure status to the logistics sector was a right move in that direction and will surely lead to increased investments from the global majors.”
According to recent data, the warehousing sector in India has seen CAGR of 20% from 2014 to 2017. This has attracted a large number of real estate players and foreign investors to enter this sector. Around 26% private equity investments in Indian real estate sector between January 2014 and January 2018 went into warehousing industry.
About $3.4 billion (INR 22,100 crore) of institutional capital was poured in the warehousing sector during the same period. The supply of grade A warehousing space in this fiscal year has doubled to 30 million sq ft from 15 million sq ft in the last fiscal.
Developers and foreign players are eyeing the surplus land holdings for setting up warehousing and logistics facilities in emerging urban and semi-urban regions. Many global brands have already pegged their investments in Indian warehousing sector. Amazon has committed a total investment of $5 billion whereas Indospace, a storage facility developer, has budgeted $1 billion to develop warehousing facilities across the country. Dubai based DP World has also pledged $1 billion to improve the storage facilities in India.
An example of rising investments in industrial parks in India is of Embassy Parks. Embassy Group has entered into joint venture with New York based Warburg Pincus to develop industrial parks and warehouses by investing $250 million. Similarly, Ascendas-Singbridge, a Singapore based real estate firm, will float a fund to raise $150 million to finance warehouses in India.
Anshul Singhal, CEO of Embassy Industrial parks puts forward the investment made by his company across India in warehousing. He said, “Embassy Industrial Parks has already left a mark in the market by acquiring lands in some of the major cities of our country. Recently, Embassy Industrial Parks has invested Rs 350 crore to build a 1.1-million sq ft industrial park at Chakan, Pune. The company has acquired 52 acres of land in Chakan. Embassy Industrial Parks has signed a 1,910 crore MoU with the Haryana Government to build three warehousing & industrial parks in the State. In order to meet the MoU commitment, the company has already acquired 24 acres of land with an investment close to INR 140 crores in Gurgaon. The association of Embassy Industrial Parks and Haryana government will generate employment for 4000 people in the state. We are also in process to develop a 200- acre land in Sriperumbudur near Chennai. Recently, Embassy Industrial Parks announced setting up logistics and industrial parks in West Bengal with an estimated phasewise investment of INR 1000 crore in. This association will generate direct and indirect employment for 1000 people in West Bengal and will be another milestone for the company.”
Stating the growth potential of warehousing & logistics sector in India, Jasmine Singh, Head Industrial and Logistics Services India, CBRE South Asia Pvt. Ltd. said, “As the warehousing segment moves towards a more systematic mode of operation, it is likely to witness the inflow of more institutional funding and formal sources of capital. As national players with larger warehouses emerge; deployment of capital in these fewer, better quality assets are likely to become easier. Numerous prominent private equity firms and regional developers are already evaluating options to develop large modern warehousing across the country.”
The leasing transactions in the warehousing sector across important Indian markets has grown upto 25.7 mn sq. ft in 2017, recording a 85 per cent rise year-on-year. From a sectorial perspective manufacturing, 3PL (3rd Party Logistics), and retail accounted for two-third of the share in terms of leasing volumes in the warehousing space in 2017. While 3PL and manufacturing continued to be dominant sectors, retail concealed e-commerce as the third major occupier for warehousing in India in 2017.
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~Knight Frank report
Challenges & Growth Potential
At present India ranks 35th in the World Bank’s Logistics Performance Index (LPI) (year 2016) out of the 160 countries. The sector is expected to grow by 10-15% annually. In the long-term, warehousing and logistics sector will witness a rise in the investments not just in tier-I cities but also in tier-II and tier-III cities. The Primary hubs for logistics and warehousing projects are NCR, Mumbai, Chennai, Hyderabad, Pune, Kolkata and Bengaluru. While, the secondary hubs are Ahmedabad, Surat, Goa, Chandigarh, Kochi, Visakhapatnam, Nagpur, Coimbatore, Jaipur, Thiruvananthapuram, Vadodara, Nashik, Indore, Mangalore, Ludhiana and Guwahati.
The challenges ahead for this sector are massive. The major problem faced by the developers is of the land acquisition. With the high land cost, a significant share of the capital invested by the developer goes towards the land acquisition. Gaining approvals from the authorities is another problem. The rules and regulations imposed at different levels are many and vary from region to region. A lot of stress is needed to be given on technology and digital automation. For warehousing sector, automation is the foremost requirement.
Bhavin Thakker, Country Manager – Tenant Representation, Savills India talks about the challenges for the developers in this sectors. He said that the implementational challenges are the availability of land parcels that are on the main road and have good connectivity, clear land title of land parcels and obtaining approvals from the concerned government bodies for construction of warehousing and logistics areas; especially in cases where the original land use was agricultural. “The Operational challenges are,” he added, “Finding occupants that are able to utilize this space as per their needs, annual approvals and clearances from government bodies, maintenance and upkeep of roads leading up to the property and internal upkeep of all areas and roads within the property.”
A lot has been done and a lot needs to be done. The warehousing and logistics sector in India has a huge growth potential amidst the growth in e-commerce and rising consumption-driven demand. There industries are competing globally on the extents of cost, quality and service. This has given rise in demand of more efficient supply chain management systems.
A very well-crafted Warehousing space performs valuable functions that support the movement of materials, storing goods, processing products, de-aggregating vehicle loads, creating stock keeping unit assortments and assembling shipments. The dynamics of this sector are closely linked to country’s growth and it also fosters an eco-system of suppliers, vendors, clients etc. in the vicinity of large organized warehouses.