India Warehousing Market Report 2020
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Welspun One - India Warehousing Market Report 2020 is a comprehensive suite of reports providing information on the current and future market trends, drivers, restraints, and opportunities for key storage markets in the country.
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India Warehousing Market Report 2020
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- 21. 7 India Warehousing Market Report 2020 • Even while the lockdown and movement restrictions served as a temporary propeller for e-commerce sales with the threat perception on the spread of corona virus infection, 'home delivery' service has come to the forefront. During the lockdown, many brick and mortar enterprises adapted to provide the same; however, it is the e-commerce segment which has perfected the art of home delivery. Large organized retailers too have ventured into e- commerce in the wake of these developments. • With restricted mobility, many first-time customers experimented with purchase on e-commerce channels during the lockdown. Many of these customers are likely to turn loyal due to the convenience offered and become permanent customers even after the pandemic ends. Going forward, the fear of coronavirus infection will accelerate adoption of e-commerce purchases as consumers restrict mobility over a short to medium term until there is a cure for the virus. • Restricted movement on social gatherings and stricter lockdown norms for shopping malls will further serve as tailwind for e-commerce demand in the near term and help new customers adopt the practice. Institutionalization of warehousing segment to accelerate • In the Covid-19 crisis, uninterrupted warehouse park operations came up as a key differentiator of warehouse quality, and institutional space was better prepared to ensure business continuity for occupiers. • Warehouse lease tenures are getting longer, ranging from 6-9 years and longer still in some cases. With increasing interest from global investors, the size of investment per deal has witnessed an increase of 25%, growing to USD 282 million per deal in the three-year period ending 2019, compared to USD 225 million in a similar period ending 2016. Demanding occupiers and key policy interventions have ensured a push towards institutionalization of the warehousing segment in the country. We expect that in the current uncertain environment, institutional abilities will be valued even more and lead to participation of bigger developers and investors in the country's warehousing segment. Warehouse footprint to expand in smaller cities • Rising consumerism and the emergence of e-commerce has created a need for faster deliveries even in markets beyond the top 8 cities. These smaller cities which include markets like Ludhiana, Coimbatore, Vapi, Guwahati, Bhubaneshwar, Surat, Lucknow, Patna and Siliguri are witnessing warehousing demand from e-commerce players. We expect this trend to further strengthen, as e- commerce and 3PL players capitalize on this consumption driven demand in smaller cities.
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- 24. 10 India Warehousing Market Report 2020 Now, we evaluate the Jammu Kashmir logistics and warehousing policy across the benchmark set of parameters given below, separately for developers and for occupiers, and calculate its rank on the score table along with the seven other states. Benefits Haryana Uttar Pradesh Jammu Kashmir Chhattisgarh Madhya Pradesh Gujarat West Bengal 7 6 5 5 5 2 1 Maharashtra 5 0 2 3 4 6 7 8 9 10 11 12 13 14 5 1 Benefits for Occupier Interest subsidy Labour law relaxations Power at concession rate Single window time bound clearances Industry status Capital subsidy Capacity building incentives Source: Knight Frank Research Note: Benefits listed above are indicative and not exhaustive. For detailed policy benefits, refer to Annexure 2 Source: Policy Documents, Knight Frank Research. For detailed analysis, refer to Annexure 1 Based on the above set of benefits for occupiers, we rank the eight state logistics policies as follows: 10
- 25. 11 India Warehousing Market Report 2020 Source: Knight Frank Research Note: Benefits listed above are indicative and not exhaustive. For detailed policy benefits, refer to Annexure 2 Benefits for Developer Concessions in development charges Industry status Interest subsidy Capital subsidy State to earmark land for warehouses/ logistics parks Minimal zone restrictions Labour law relaxations Real estate relaxations Stamp duty registration fee concessions State to provide access to critical utilities at no cost Capacity building incentives Power at concession rate Single window time bound clearances Allotment of government land Based on the above set of benefits for developers, we rank the eight state logistics policies as follows: Haryana Uttar Pradesh Jammu Kashmir Chhattisgarh Madhya Pradesh Gujarat West Bengal Maharashtra 0 2 3 4 6 7 8 9 10 11 12 13 14 5 1 11.75 10.5 8 7.75 5.5 3 1 6.5 Source: Policy Documents, Knight Frank Research. For detailed analysis, refer to Annexure 1 11
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- 33. 15 India Warehousing Market Report 2020 India Warehousing Market Report 2020 PE investments in warehousing in the last decade Dearth of mature assets and shorter construction timelines make a strong case for greenfield investments 11% Ready 12% Mix 77% New development Source: Knight Frank Research, Venture intelligence Note: The break-up is as a percentage of investments since 2011 Source: Knight Frank Research, Venture Intelligence 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 70 70 2 0 0 0 0 300 1 250 1 125 1 2,345 8 2,252 8 1,895 7 54 1 Amount invested (USD mn) Number of deals 15
- 34. 16 India Warehousing Market Report 2020 Warehousing assets require relatively less time (around 12-18 months) to construct compared to office and retail assets. As the warehousing industry in India has largely been fragmented, there are not many large pan-India organised players in the industry whose acquisition price can have a meaningful impact on the investors' fund size. Due to a dearth in projects of a certain size, which can have a meaningful impact on the funds' size, investors preferred to go for creating such assets that can eventually become worthy for REITs or secondary sale. Thus, 77% of investments in the sector has gone in greenfield / new development projects and 12% into a mix of ready and new development. Only 11% of the inflows went into acquisition of ready projects. The cost of constructing a good quality Grade A warehouse structure varies between INR 12,917–19,375 per sq m (INR 1,200–1,800 per sq ft) depending on the contour of land. The cost of land in India varies by a huge margin depending on the location and quality of infrastructure near the land parcel. If we consider the cost of construction (including the cost of land) for a warehouse in India, it is unlikely to exceed INR 26,910 per sq m (INR 2,500 per sq ft). We have considered the higher side of the cost of construction at INR 26,910 per sq m (INR 2,500 per sq ft), for calculating the scale of new warehouse supply. Accounting for the leverage on construction finance, the PE investments of USD 5.8 billion for new development is estimated to create warehousing space of over 300 million square feet. Cap rates have declined significantly in the previous decade Source: Knight Frank Research, Venture intelligence Select good quality rent-yielding warehousing assets 13 – 15% 8.5 – 9.5% 2011 2019
- 35. 17 India Warehousing Market Report 2020 PE and long-term capital providers alike actively participating in creating warehousing assets 19% Developer 29% Sovereign/Pension fund 52% PE Source: Knight Frank Research, Venture intelligence There are not many good quality mature warehousing assets available in India as compared to office and retail assets. The high cap rates in 2011 was on account of low investor interest, dearth of mature good quality assets, unorganized structure of the industry, poor demand to use the services offered by the organized segments and lack of impetus from policymakers to support the growth of the industry. However, as the years progressed things started to fall in place for the warehousing sector and the cap rates compressed significantly in the last decade. Good quality assets in major metros are transacted at the lower end of the range and similar assets in smaller cities are transacted at the higher end of the range.
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- 51. 22 Stock and supply – Development potential assessment Knight Frank has conducted a ground-up survey of warehousing stock in the top eight markets of India to arrive at an accurate assessment of the supply scenario that exists in the market today. The top eight markets of India held an estimated 28 mn sq m (307 mn sq ft) of warehousing stock at the end of FY 2020. The Mumbai market accounts for a massive 40% of this stock which along with NCR houses nearly 58% of the same. Strong warehousing demand in the Mumbai and NCR markets have kept vacancy levels low at 10.7% and 13.9% compared to other markets such as Bengaluru and Pune that have vacancy of 29.7% and 21.8% respectively. The high weightage of Mumbai and NCR in the total stock keeps the combined vacancy level of all eight cities at a relatively healthy 15.5%. Market Total warehousing Total warehousing Existing Stock in Vacancy Development Development land (Acres) FSI Potential in mn sq m (mn sq ft) potential in potential multiple mn sq m (mn sq ft) mn sq m (mn sq ft) Mumbai 6,625 15.5 (167) 11.2 (121) 10.7% 4.2 (45) 1.37 NCR 4,178 9.3 (100) 5.3 (57) 13.9% 4 (43) 1.75 Chennai 2,361 4.6 (49) 2.2 (24) 14.7% 2.3 (25) 2.02 Bengaluru 2,210 4.5 (48) 2.3 (25) 29.7% 2.1 (23) 1.89 Pune 1,814 3.9 (42) 2.4 (26) 21.8% 1.5 (16) 1.61 Ahmedabad 1,587 3.4 (37) 1.7 (18) 13.2% 1.8 (19) 2.09 Hyderabad 1,291 2.7 (29) 1.2 (13) 22.4% 1.5 (16) 2.19 Kolkata 1,098 2.6 (28) 2 (21) 20.6% 0.6 (6) 1.29 Total 21,163 46.5 (500) 28.3 (307) 15.5% 18 (193) 1.63 Source: Knight Frank Research Note: The 'Development Potential Multiple' depicts the total development potential of the warehousing stock in a market, as a multiple of its existing stock. For example, Total Development Potential Multiple of 1.63 implies that there is potential of 63% more supply from the existing land committed to warehousing Warehousing stock and supply
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