Ncr Warehousing Market Report

RESEARCH

NCR WAREHOUSING MARKET REPORT

NH-8 CLUSTER GHAZIABAD CLUSTER Table of content

Introduction page 3

Major warehousing clusters in NCR page 4

Total requirement for warehousing space page 6

Demand drivers of warehousing space in NCR page 8

NH-8 warehousing cluster page14

Ghaziabad warehousing cluster page 21

2 NCR WAREHOUSING MARKET REPORT RESEARCH

with numerous reports and findings processing, among others. In terms of 1. Introduction affiliated to them. However, it is the storage consumption-led demand, all product and warehousing sectors that have mainly categories, ranging from apparel and While logistics undertakes the critical remained under-researched. Although the footwear to home and lifestyle, have been role of connecting production centres warehousing segment constitutes only considered. to consumption markets, inefficiencies 15–35% of the total logistics costs, its in managing it could lead to a severe On account of the export-import (EXIM) importance is significant with respect to disruption in the entire supply chain activity, warehousing demand is serviced the role it plays in the smooth functioning network. In India, the experience via Container Freight Stations (CFSs) of supply chain networks. With this pertaining to this sector has not been very and Inland Container Depots (ICDs). thought process, we embarked upon the encouraging, leading to colossal losses Further, agriculture warehouse demand is much-needed but uncharted territory of during the transportation, distribution and predominantly catered to by government warehouse sector research in India. Our storage of goods. Thus, any effort towards enterprises and the unorganised market, first report in the series—India Logistics & addressing this problem will meet with with godown-type structures. Thus, EXIM Warehousing Report 2014—was a detailed much appreciation. and agriculture-led warehousing has not handbook introducing warehousing sector been covered in this version of the report. The current environment is likely to dynamics, such as demand drivers, accelerate progress in the logistics sector policies and regulations, business models, The renewed focus on infrastructure in India, considering the interest from and enabling infrastructure and emerging development and the manufacturing government as well as private enterprises. trends, among others. It set the ball rolling sector offers opportunities across the The Government of India brought out with regards to the exploration of the Indian logistics value chain. With regards to the the National Manufacturing Policy with warehousing market through a research on warehousing sector,which is the subject the objective of increasing the share of the key warehousing markets of Mumbai matter of this report, we are witnessing the manufacturing in the GDP to 25%. ‘Make in and Pune. heightened interest of international financial India’, the government’s national initiative, and development institutions, global places great importance on building best- In this latest edition, we present our institutional investors and developers to in-class manufacturing infrastructure. The warehouse market study of the National participate in this accelerating opportunity. upcoming Goods and Services Tax Bill Capital Region (NCR) – the gateway to The Indian developer community, which (GST Bill) will amalgamate several central North India and the country’s largest urban has long been fixated on the traditional and state taxes into a single tax, thereby agglomeration. The report provides an real estate asset classes, viz. residential, mitigating double taxation and facilitating a exhaustive analysis on parameters such office, hotel and retail, have now opened its unified national market. Further, inter-state as the spread of warehousing clusters, mind and wallet to enter into the segment. industrial corridors, such as the ambitious demand drivers, warehouse space The improving regulatory environment for Delhi-Mumbai Industrial Corridor (DMIC), requirements (estimated warehouse the Indian Real Estate Investment Trust and freight corridors,such as the Western stock) and development feasibility. (REIT), which also covers the warehousing and Eastern Dedicated Freight Corridors, The demand drivers considered for segment, has added to this inclination. are gaining renewed focus. the NCR warehousing market are the E-tail is already proving to be a juggernaut, manufacturing and consumption sectors. expanding the market in terms of space The logistics sector can be broadly The manufacturing sector-led demand and service standards. In light of such a classified into three areas – transportation, comprises the requirements arising from promising environment, we believe that distribution and storage. In India, the the need for the storage of raw materials this report will serve as an actionable transportation and distribution sectors have and finished products from industries knowledge piece for your pursuit in the traditionally been a part of many studies, such as automobiles, cement and food warehousing sector.

3 NH-1 in the northern region developed as terms of warehousing space over the last 2. Major warehousing alternative markets. Similarly, NH-91, NH- decade. Similarly, Dharuhera on NH-8 and clusters in NCR 24 and NH-58 near Ghaziabad became Palwal on NH-2 have observed massive attractive for warehousing activities as land warehousing development in recent years. Historically, warehousing activities in NCR prices on GT Road became unviable. For the purpose of this report, we have have been concentrated in the peripheral Over the last ten years, with residential and classified the various warehousing markets areas of New Delhi, such as Alipur, GT commercial development mushrooming into two major clusters: NH-8 cluster and Road, Kapashera, Bamnoli, Dhulsiras on the NH-8 stretch, warehousing Ghaziabad cluster, based on factors such and Okhla, with godown-type structures activities have gradually shifted towards as geographical location, proximity to dominating the landscape. As land prices locations on the internal roads of Haryana. the national highway, access to the Delhi became unfeasible for such activities, they These locations are just off the main city centre and distance from the major slowly started shifting outside the Delhi national highway but well connected manufacturing hubs. Since these two border. In the southern region, markets to it. Locations such as the Gurgaon- clusters collectively account for the majority such as Kherki Daula and Manesar on Pautaudiroad, Jamalpur-Panchgaon of the warehousing space demand in the NH-8 started attracting warehousing road, Bilaspur-Taururoad and Barota NCR market, the rest of the locations have activities, while Kundli and Sonipat on have witnessed a phenomenal growth in been classified into the ‘Others’ category.

Major warehousing locations in NCR

Western Dedicated Freight Corridor

Eastern Dedicated Freight Corridor Proposed National Expressway

Railway Line KMP Expressway- Under Construction

KMP Expressway- Operational

4 NCR WAREHOUSING MARKET REPORT RESEARCH

Classification of warehousing locations into major clusters

Warehousing cluster Major warehousing locations

Dharuhera, Gurgaon-Pautaudi road, Jamalpur-Panchgaon road, Bilaspur-Tauru road, NH-8 cluster Barota, KherkiDaula, Palwal and other such areas accessible from NH-8 and NH-2

Ghaziabad cluster Ghaziabad, Dadri and other such areas accessible from NH-24, NH-91 and NH-58

Others Alipur, Kundli, Sonipat, Murthal and Mundka

Source: Knight Frank Research Snapshot of major warehousing clusters in NCR

NH-8 cluster Ghaziabad cluster

Major roads NH-8 and NH-2 NH-91, NH-24 and NH-58

Dharuhera, Gurgaon-Pautaudi road, Jamal- Connects to various ports in eastern India pur-Panchgaon road, Bilaspur-Tauru road, Connectivity and the industrial belt of the Eastern Dedicat- Barota, KherkiDaula, Palwal and other such ed Freight Corridor (Eastern DFC) areas accessible from NH-8 and NH-2

NH-8 is a six-lane national highway with NH-91 is a 2x2 ill-maintained road with flyovers and service lanes at all the major vehicular and pedestrian congestion, leading junctions. to traffic snarls.

The NH-24 Hapur–Ghaziabad stretch is a NH-2 is a four-lane highway and witnesses 2x2 good quality road with a host of educa- frequent traffic congestion. Infrastructure tional institutes.

The expressway between Manesar and Pal- The NH-58 Ghaziabad–Meerut Road is a wal, which is part of the Kundli-Manesar-Pal- 2x2 good quality road with a host of old resi- wal (KMP) Expressway, connects NH-8 and dential developments along the highway. NH-2.

Demand drivers: major manufacturing Auto and auto ancillary, metals, textile and Food processing, metals, chemicals and sectors engineering pharmaceuticals

Demand drivers: consumption/retail Delhi, Ghaziabad, Noida, Greater Noida and Delhi, Gurgaon and Faridabad sector Faridabad

Warehousing space requirement from 94 mn sq ft 57 mn sq ft manufacturing sector

Warehousing space requirement from 30 mnsqft 34 mnsqft consumption/retail sector

5 Ashiana Logistics, IndoSpace, Acorn Ware- Satvik Logistics, Good Luck Warehouse, Fu- Select warehouse operators houses & Logistics Parks, Adani Group, ture Warehouse Solutions, Lord Balaji Ware- Value Logistics housing, Om Kiran Warehouse Complex

Rental value range (`/sq ft/month) 12 - 21 14 - 20

Land cost range 25 -40 20 - 40 (` mn/acre)

Proximity to the most industrialised region in Proximity to the manufacturing hubs of NCR. More than 43% of NCR’s manufactur- Ghaziabad, Faridabad and Sonipat. 42% ing activity is located within a two-hour drive of NCR’s manufacturing activity is located from this cluster. within a two-hour drive from this cluster.

Competitive advantages Easily accessible to the two most important Proximity to the densely populated con- retail markets in NCR- Gurgaon and Delhi. sumption hubs of Ghaziabad, Delhi, Noida Gurgaon and Delhi together account for and Greater Noida. These hubs together more than 86% of the total retail spending in account for 95% of the total retail spending NCR. in NCR.

Frequent traffic congestion due to poor infrastructure and densely populated urban areas

Takes significant time to convert land use from agriculture to industrial/warehousing Rapid urbanisation, leading to unviable land Challenges rates for warehousing activity. Rapid urbanisation leading to unviable land rates for warehousing activity.

Quality of internal roads starkly inferior compared to the national highways. This restricts the opening up of new land parcels for warehousing activities.

3. Total requirement and Future Supply Chain, among others, In contrast to the manufacturing-led provide end-to-end logistics services, requirement for warehousing space, for warehousing including a common warehousing facility, consumption-led requirement is mostly for to multiple manufacturers, thereby reducing leasable space, with very few operators space the need to have a separate warehouse. fulfilling their needs through a captive such a leasable market in NCR is currently Currently, NCR’s total requirement for warehouse. This is primarily due to the warehousing space is estimated to be 223 estimated to be in the range of 100-120 need to have a fulfilment centre as close mn sq ft, of which more than 80%, or 187 mn sq ft. However, the share of annual to the urban area as possible in order mn sq ft, is from the manufacturing sector. transacted volume is approximately 7 mn to ensure quick delivery. Over the last However, the majority of the warehousing sq ft. ten years, this segment has witnessed a requirement of the manufacturing sector With the Goods and Service Tax (GST) renewed traction, especially in the E-tail is fulfilled by captive space, either in terms set to become operational, the need for sector. As the time between placing an of space at the manufacturer’s plant or order and delivery has shrunk drastically company-owned warehouses. Although captive warehouses will reduce further. with the advent of the E-tail sector, the the trend of leasing a warehouse rather We believe that a large number of need for warehousing space has also than owning it is steadily picking up with manufacturers will outsource their logistics the emergence of third-party logistics and warehousing requirements and increased significantly. With the share players (3PL), it is still at a nascent focus on their core operations. This will of E-tail expected to rise steadily in the stage compared to developed markets create an additional demand for leasable coming years, we estimate the demand for such as Europe and the US. These 3PL warehousing space in NCR in the coming warehouses from this segment to increase players,such as Safexpress, Blue Dart, TCI years. proportionately as well.

6 NCR WAREHOUSING MARKET REPORT RESEARCH

Total requirement for warehousing space in NCR

Note l: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of April 2016. The majority of the warehousing requirement of the manufacturing sector is fulfilled by captive space, either in terms of space at the manufacturer’s plant or company-owned warehouses.

Note ll: The food and beverages category includes all the dining, quick service restaurants (QSR) and takeaways. The daily needs category includes all the FMCG products, grocery and other such daily retail products that are consumed on a regular basis.

Source: Knight Frank Research

7 manufactured. Hence, each manufacturer In the following sections, we have identified 4. Demand drivers of will have a different requirement for space, the key manufacturing industries in NCR, warehousing space depending on these factors. their current warehousing requirement, the major manufacturing hubs and the in NCR Consumption-led demand, which is various regions within NCR from where an equally important demand driver for the requirements originate. Similarly, in The primary demand drivers of warehousing space, is largely dependent terms of consumption, we have identified warehousing space in NCR can be on population, income level and the the major product categories, their current broadly classified into two categories: propensity to spend. The changing warehousing requirements and important manufacturing-led demand and dynamics of the retail industry has consumption clusters in the region. consumption-led demand. The demand resulted in the business model of a retailer from the manufacturing sector arises becoming heavily dependent on a smooth predominantly due to the distance between and efficient supply chain network. In the manufacturer’s factories, raw material addition to this, the advent of E-tail in suppliers and the consumption markets recent years has necessitated the need for of the final goods. The need to store huge warehouses close to urban centres the raw materials or final goods due to in order to deliver in the shortest possible this distance, determines the amount of time. Such factors have brought the space required by each manufacturer. warehousing industry to the forefront of the The quantum of space required is also retail business and compelled retailers to dependent on the type of product that is focus on this segment.

4.1 Manufacturing-led is followed by the auto and auto ancillary its warehousing space requirement is the demand and metals industries. However, in terms of highest. The cement sector accounts for the requirements for warehousing space, 23% of the total warehousing requirement NCR is one of the largest manufacturing the cement sector leads with more than from the manufacturing-led demand. 42 mn sq ft. As discussed earlier, the hubs in the country and accounts for quantum and type of warehousing space The other big demand drivers for the majority of the production activity required for each manufactured product is warehousing space in NCR are the food in north India. Food processing, which different. Additionally, each industry follows processing, auto and auto ancillary, includes dairies, rice mills, sugar mills, a different inventory cycle, which influences chemicals and pharmaceutical sectors. confectionaries, and alcoholic and non- the amount of space required to a great Just the top four sectors account for more alcoholic beverages, among others, has extent. Hence, despite the cement sector than 70% of the total warehousing space the largest share in the output in NCR. This contributing just 4% of NCR’s total output, requirement of the region.

Share in output of the various manufacturing industries in NCR

Food processing Chemicals & pharma

Auto & auto ancillary Cement

Metals Consumer electronics

Textile Others

Engineering

Source: Annual Survey of Industries (ASI) and Knight Frank Research

8 NCR WAREHOUSING MARKET REPORT RESEARCH

Warehousing space requirements of major manufacturing industries in NCR Currently, NCR’s total requirement for

34 33 21 15 9 25 42 8 warehousing space 50 is estimated to be

40 223 mn sq ft, of which more than 30

mn sq ft 80%, or 187 mn 20 sq ft,is from the

10 manufacturing sector. However, the majority of

Textile the warehousing Metals Cement requirement of Engineering the manufacturing Food processing Auto & auto ancillary

Chemicals & pharma sector is fulfilled Consumer electronics by captive space, Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of April 2016. This is calculated on the basis of the latest output data from ASI. either in terms The majority of the warehousing requirement of the manufacturing sector is fulfilled by captive space, either in terms of space at the manufacturer’s plant or company-owned warehouses. of space at the Source: Knight Frank Research manufacturer’s Manufacturing activities are concentrated also have various manufacturing units, their plant or company- largely in the southern and north-eastern share in NCR’s total production output is owned warehouses. parts of NCR. Currently, the NH-8 and considerably lower than the other regions. NH-2 clusters in the southern region and Such leasable The factors clearly indicate that the NH-24, NH-91 and NH-58 clusters in the demand for manufacturing-led market in NCR is the north-eastern region together account warehousing space in NCR will be currently estimated for 85% of the total manufacturing activity concentrated primarily in the NH-8 and within NCR. This is one of the primary Ghaziabad clusters, with sectors such as to be in the range reasons for which most of the existing auto and auto ancillary, cement, chemicals of 100-120 mn sq warehouses operate from one of these and pharmaceuticals and food processing clusters. While Delhi, NH-1 and NH-10 leading in terms of this demand. ft. However, the share of annual Manufacturing Industrial areas transacted volume Cluster is approximately Industrial areas within Delhi, such as Narela, Okhla, Bawana Delhi and RohtakEoad, among others 7mn sq ft.

Industrial areas accessible from NH-8 and NH-2, such as NH-8 & NH-2 Manesar, Bhiwadi, Neemrana, Faridabad and Palwal, among others

Industrial areas accessible from NH-1 and NH-10, such as NH-1 & NH-10 Sonipat, Panipat, Bahadurgarh and Rohtak, among others

Industrial areas accessible from NH-24, NH-24, NH-91& NH-58 NH-91 and NH-58, such as Ghaziabad, Dadri and Meerut, among others

9 Manufacturing clusters within NCR

Western Dedicated Freight Corridor

Eastern Dedicated Freight Corridor Proposed National Expressway

Railway Line KMP Expressway- Under Construction

KMP Expressway- Operational

MAJOR MANUFACTURING CLUSTERS IN NCR

Manufacturing activities are concentrated largely in the southern and north-eastern parts of NCR. Currently, the NH-8 and NH-2 cluster in the southern region and the NH-24, NH-91 and NH-58 cluster in the north-eastern region together account for 85% of the total manufacturing activity within NCR. This is one of the primary reasons for which most of the existing warehouses operate from one of these clusters. While Delhi, NH-1 and NH-10 also have various manufacturing units, their share in NCR’s total production output is considerably lower than the other regions.

These factors clearly indicate that the demand for manufacturing-led warehousing space in NCR will be concentrated primarily in the NH-8 and Ghaziabad clusters, with sectors such as auto and auto ancillary, cement, chemicals and pharmaceuticals and food processing leading in terms of this demand.

10 NCR WAREHOUSING MARKET REPORT RESEARCH

Share in output of each manufacturing cluster within NCR The E-tail sector has emerged as a major driver for the incremental warehousing space requirement in recent years and currently accounts for 14% of the total space requirement of the consumption- led demand. While brick-and-mortar stores still lead in Delhi NH-8 & NH-2 NH-1 & NH-10 NH-24, NH-91& NH-58 terms of space Source: Annual Survey of Industries (ASI) and Knight Frank Research requirement, at 4.2 Consumption-led demand currently accounts for 14% of the total 31 mn sq ft, the space requirement of the consumption-led In terms of retail spending, NCR is the demand. While brick-and-mortar stores E-tail segment largest market in India with Delhi, Gurgaon still lead in terms of space requirement, at contributes upto and Noida contributing the most. This 31 mn sq ft, the E-tail segment contributes retail spending not only includes traditional upto 5 mn sq ft. This is significant, 5 mn sq ft. brick-and-mortar stores, malls, shopping considering that until just a few years However, we streets and mom-and-pop stores but also ago,this entire segment was non-existent. accounts for the spending by consumers estimate space through the e-commerce medium. Hence, While the boom in the E-tail sector may requirement from any type of consumer goods consumed have eaten into the market share of within NCR, whether offline or online, is the brick-and-mortar stores to a great the E-tail segment categorised in the retail spending. extent, our analysis indicates that the to increase by 60%, advent of this segment has expanded Among the various product categories, the overall consumption pie and led to more than apparel, sportswear and footwear together to a substantial increase in the urban 8 mn sq ft by 2020. have the highest share, at 43%, in the consumers’ propensity to spend. Hence, total retail spending in NCR. Thus, even in the warehousing space requirement by the the warehousing space requirement, this E-tail segment is largely the incremental category contributes the most, at 14 mn demand for space and not just a sq ft or 38%. Other prominent product replacement of the demand for space by categories include food and beverages, brick-and-mortar stores. department stores and daily needs. The daily needs category includes all the FMCG Going forward, we believe that the share products, grocery and other such daily of the E-tail sector will increase further in retail products that are consumed on a the total retail spending of consumers. This regular basis. Just the top four categories will invariably lead to a higher demand for account for more than 80% of the total warehousing space from this segment in warehousing space requirement in NCR. the coming years. As per our estimates, the warehousing space requirement from The E-tail sector has emerged as a major the E-tail segment will increase by 60%, driver for the incremental warehousing from the current 5 mn sq ft to more than 8 space requirement in recent years and mn sq ft by 2020.

11 Category-wise split of retail spending in NCR

Apparels, sportswear & footwear

Food & beverages

Departmental store

Daily needs

Home & lifestyle

Electronics

Watches, jewellery & accessories

Others

Source: Knight Frank Research

Warehousing space requirements for the major retail categories in NCR

15 5 4 3 2 2 4 16

8 mn sq ft

Others & footwea r Electronics Daily needs & accessories Home & lifestyle Food & beverages Watches, jewellery Watches, Apparels, sporstwear Apparels,

Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of April 2016. The food and beverages category includes all the dining, quick service restaurants (QSR) and takeaways. The daily needs category includes all the FMCG products, grocery and other such daily retail products that are consumed on a regular basis.

Source: Knight Frank Research

12 NCR WAREHOUSING MARKET REPORT RESEARCH

Warehousing space requirements by E-tail and brick-and-mortar stores

The NCR market can be further classified have to be located in areas that have easy into five sub-markets — Delhi, Gurgaon, access to Delhi, with minimal time to deliver Faridabad, Noida and Greater Noida, and products. This opens up the potential Ghaziabad — for the purpose of gauging for all the major entry points into Delhi to the consumption-led demand. Delhi, the be developed as warehousing hubs, be largest sub-market among these, accounts for 75% of NCR’s population. However, it NH-8 and NH-2 in the south, NH-1 in it contributes to more than 80% of the the north, NH-10 in the west and NH-24, total retail spending in the region. This NH-91 and NH-58 in the east. Currently, all is primarily due to the higher level of per these clusters have warehousing activities capita income and the greater propensity in some or the other form. However, to spend among Delhi’s residents. NH-8 has the highest concentration of Brick-and-mortar stores E-tail The above analysis indicates that the such warehouses, which are driven by Source: Knight Frank Research majority of the warehouses in NCR will consumption-led demand.

Cluster-wise population split in NCR Share of each consumption cluster in retail spending in NCR

Delhi Others including Gurgaon, Noida, Greater Noida, Ghaziabad and Faridabad

Source: Knight Frank Research

Source: Census 2011

13 5. NH-8 warehousing concentrated along these highways. These witnessed an unprecedented construction factors have resulted in NH-8 becoming of warehouses in recent years. Since the cluster one of the busiest national highways in the demand drivers for all the warehouse country over the last few decades. locations along NH-8 and NH-2 are similar, National Highway 8 (NH-8) and National we have clubbed these locations into a Factors such as easy connectivity to NCR, Highway2 (NH-2) are the two most single warehousing cluster for the purpose access to the major industrial areas of important roads that connect NCR to the of this report and called it as the ‘NH-8 Haryana and Rajasthan and direct port western and central regions of India. Apart connectivity have led to a huge demand warehousing cluster’. In the following from providing direct access from NCR to for warehousing space along these roads. sections, we have explained the primary Jawaharlal Nehru Port Trust (JNPT), one Apart from the massive development of demand drivers of the warehousing space of the busiest ports in the country, NH-8 is warehouses on either side of the national in this cluster, market characteristics, also connected to other important ports in highway, locations such as Gurgaon- infrastructure development, prevailing Gujarat. Additionally, most of the industrial Pautaudiroad, Jamalpur-Panchgaonroad, rentals and land rates, challenges and the areas in Haryana and Rajasthan are Bilaspur-Taururoadand Barotahave future outlook.

NH-8 warehousing cluster

Western Dedicated Freight Corridor

Proposed National Expressway

Railway Line KMP Expressway- Under Construction

KMP Expressway- Operational

14 NCR WAREHOUSING MARKET REPORT RESEARCH

5.1 Demand drivers of Of the two categories, the manufacturing- Scooter and Hero MotoCorp having their warehousing space in the led demand accounts for the lion’s plants located within this cluster. Among share due the massive concentration NH-8 cluster the other manufacturing industries, the of industrial activity along these routes. metals, textile and engineering sectors The demand drivers of warehousing space Within the manufacturing segment, the constitute a major portion of the output, in this cluster can be broadly classified auto and auto ancillary sector leads in into two sub-segments: manufacturing-led terms of output, with auto majors such followed by food processing, chemicals demand and consumption-led demand. as Maruti Suzuki, Honda Motorcycle & and pharmaceuticals, and cement.

Share in output of various manufacturing industries in the NH-8 cluster

Auto & auto ancillary

Metals

Textile

Engineering

Food processing

Chemicals & pharma

Cement

Others

Source: Knight Frank Research

Warehousing space requirement of major manufacturing industries in the NH-8 cluster

25 11 7 5 6 10 30 40

30 mn sq ft 20

10 Food Textile Metals Cement ancillary & pharma Chemicals processing Engineering Auto & auto

Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of April 2016. This is calculated on the basis of the latest output data from ASI. The majority of the warehousing requirement of the manufacturing sector is fulfilled by captive space, either in terms of space at the manufacturer’s plant or company-owned warehouses.

Source: Knight Frank Research

15 The demand for warehousing space is type structures with 24-foot clear height NH-8 seldom witnesses traffic congestions closely linked to the type of manufacturing and basic infrastructure such as power due to the provision of flyovers and service industries that are serviced through them. backup, ample parking space, fire-fighting lanes at all the major junctions. Although Hence, despite the auto and auto ancillary equipment and insulation, among others. the majority of the warehouses are located sector accounting for the largest share Some of the prominent occupiers are on the internal roads of NH-8, the travel in terms of output within this cluster, it Lifestyle Home Centre, Arvind Brands, time from these roads to the highway is the cement industry that requires the Amazon, TCI, Gati KWE and Fedex. is less than 15 minutes due to their maximum warehousing space. Currently, However, most of the warehouses in excellent quality. This ensures seamless the estimated requirement of warehousing Kherki Daula and certain parts of NH-8 are road connectivity between the various space in this cluster by the cement sector old godown-type structures with minimal warehousing markets located in this cluster is 30 mn sq ft, followed by the auto and amenities and poor infrastructure. and the industrial areas situated along this auto ancillary sector, at 25 mn sq ft. The route. Additionally, the Delhi city centre can Currently, most of the incremental demand total warehousing space requirement from be reached within a travel time of about comes from E-tail sector companies that the manufacturing sector is in excess of 94 60-100 minutes from most of the not only require adequate clear height mn sq ft. warehouses located in this cluster. within the warehouse for multi-level Apart from the manufacturing sector, stacking of products, but also look for NH-2, which connects Delhi and Faridabad there is also a very strong demand for added amenities such as power backup, to central and eastern India, is a relatively warehousing space from the retail sector. fire-fighting equipment and enhanced narrower four-lane highway and witnesses The retail sector primarily includes all security. This has resulted in the majority of frequent traffic congestion. The presence the consumption-led products, such the new warehouses being constructed to of various manufacturing units along the as grocery, FMCG products, apparel, adhere to such standards and move away highway makes it difficult for a smooth flow consumer durables and furniture, among from the traditional godown-type structure. of traffic. However, the recently inaugurated others, which are consumed by end users. expressway between Manesar and Palwal, This also includes the demand serviced by which is part of the Kundli-Manesar-Palwal Select warehouse operators online players, such as Flipkart, Snapdeal, (KMP) Expressway, has reduced the travel Pepperfry and Big Basket. Since the Ashiana Logistics time between NH-2 and NH-8 significantly. NH-8 and NH-2 warehousing clusters are The effective travel time has reduced to located in close proximity to the major Indospace less than 60 minutes from the earlier 100- consumption centres of NCR such as Delhi 120 minutes. This has brought the various and Gurgaon, there is an inherent demand Acorn Warehouses & Logistics Parks manufacturing units and warehouses for warehouses from such companies and located on NH-2 considerably closer their dealers. Adani Group to NH-8,thus narrowing the difference Currently, Delhi and Gurgaon account for between the two warehousing clusters. Value Logistics more than 86% of the total retail spending Warehouses located on the NH-8 cluster in NCR. This means that upto 86% of can service the two major consumption NCR’s retail market can be serviced 5.3 Location and infrastructure markets in NCR (Delhi and Gurgaon) within through the warehousing cluster on NH-8. 100 minutes. Additionally, all the major As per our estimates, the total requirement The NH-8 warehousing cluster can be industrial hubs located close to NH-8 and of warehousing space originating from divided further into two sub-markets based NH-2 can be accessed within two hours. consumption-led demand in this cluster is on their access from the two major roads: However, servicing the industrial hubs 30.6 mn sq ft,including 4.4 mn sq ft from NH-8 and NH-2.NH-8 is a six-lane national of Ghaziabad, Bahadurgarh, Bawana, the E-tail segment. highway starting from Delhi and passing Sonipat and Rohtak from this cluster may through the most industrialised regions of exceed two hours and could extend upto 5.2 Types of warehouses and country – Gurgaon, Jaipur, Ahmedabad, three hours in certain cases. In addition to major players Vadodara, Surat and Vapi. The road finally this, the transport of goods through Delhi in connects to Mumbai and JNPT through Warehouses in locations such as Gurgaon- large commercial vehicles is taxed heavily NH-4. Apart from being the busiest national Pataudi road, Jamalpur-Panchgaon and there is a strict restriction on their entry highway, it is also a part of the upcoming road, Bilaspur-Tauru road and Barota time. Such factors make these industrial Delhi-Mumbai Industrial Corridor (DMIC). are relatively recent constructions. Most hubs located on the northern and eastern of the development on these roads Despite passing through Gurgaon, one of part of NCR even more inaccessible from comprises pre-engineered building (PEB) the most urbanised areas in the country, NH-8 and NH-2.

16 NCR WAREHOUSING MARKET REPORT RESEARCH

Road distance and transit time to important locations from warehousing clusters on NH-8 and NH-2

Distance from km Travel time in mins

Delhi City Centre (Connaught Place) 40 - 80 60 - 100

Gurgaon city centre (DLF CyberCity) 22 - 60 28 - 90

IMT Manesar 5 - 65 10 - 80

Dharuhera & Bhiwadi industrial belt 5 - 55 10 - 70

Bawal industrial area 28 - 100 30 - 100

Neemrana industrial area 52 - 120 50 - 130

Faridabad industrial belt 24 - 95 36 - 100

Palwal industrial area 5 - 80 10 - 90

Ghaziabad industrial belt 80 - 100 130 - 150

Bahadurgarh industrial cluster 40 - 110 60 - 140

Bawana industrial area 60 - 100 100 - 170

Sonipat industrial area 82 - 120 120 - 180

Rohtak Industrial cluster 70 - 90 140 - 160

Source: Knight Frank Research

17 5.4 Rent and land cost of from the urban centres (Gurgaon and Currently, the warehouses Faridabad) have lower rents, primarily due to the relatively lower cost of land in such estimated Currently, warehouses that are closer areas. However, there are certain other factors that could influence the rental requirement of to Gurgaon or located on the national values, apart from the location and cost highways are quoting the highest rental warehousing space of land. Technical aspects, such as floor values. As we move away from the national in this cluster by the strength, fire safety equipment, power highways towards the internal roads, the back-up, security, common amenities and cement sector is rental values reduce,based on the distance quality of approach road, among others, 30 mn sq ft, and travel time taken from the national have a direct bearing on the rent of the highways. Also, warehouses located away property. followed by the auto and auto ancillary Indicative rental values and land rates sector, at 25 mn Quoted rent Quoted land rate Location sq ft. The total (`/sq ft/month) (` mn/acre) warehousing space requirement from NH-8 16 – 19 30 – 40 the manufacturing sector is in excess Gurgaon-Pataudi Road 12 – 17 28 – 40

of 94 mn sq ft. Jamalpur-Panchgaon Road 15 – 21 35 – 40

Bilaspur-Tauru Road 14 – 18 30 – 40

Barota 11 – 14 25 – 35

Dharuhera 12 – 17 25 – 40

NH-2, Palwal 15 – 18 30 – 40

Source: Knight Frank Research

5.5 Competitive advantages and Delhi together account for more than 86% of the total retail spending in NCR The biggest competitive advantage of this and hence, it becomes imperative for warehousing cluster is its proximity to the retailers to have their warehouses located most industrialised region in NCR. More as close to their target market as possible. than 40% of NCR’s manufacturing activity Moreover, with the emergence of E-tail, is located within a two-hour drive from this cluster. Additionally, the concentration of the delivery time from the warehouse to auto companies in this region accentuates the customer has shrunk to under three the need for warehouses to be located in hours. In order to cater to such demand,it the vicinity to their plants. This is primarily becomes necessary for E-tailers to have to service these auto plants in a minimum a warehouse within a driving distance of time period, as most of them follow the 60-90 minutes. Since the city centre of ‘just-in-time’ inventory system. Delhi and Gurgaon can be reached within Another advantage is the ease of access a time frame of 30-90 minutes from most to the two most important retail markets of the warehousing markets situated in this in NCR- Gurgaon and Delhi. Gurgaon cluster, it gives the cluster an edge.

18 NCR WAREHOUSING MARKET REPORT RESEARCH

5.6 Challenges 5.7 Outlook Manesar and pockets of Gurgaon - Pataudi Road. Such developments could lead to The biggest challenge of this warehousing NH-8 is expected to further consolidate a sharp appreciation of land prices in the cluster is the rapid urbanisation that its position as a manufacturing hub with adjoining localities and this could push up this region has witnessed over the last the development of the Delhi-Mumbai the rental expectations of land owners even ten years. This has inherently led to an Industrial Corridor (DMIC) along this route. further. exponential rise in land rates,thereby Additionally, the presence of various making most of the locations unviable for automobile majors will continue to attract Since land cost is the most critical warehousing business. This is primarily auto ancillary and engineering sector component of warehousing development, because the appreciation in rental values companies. With rising land rates and it influences the realisable returns to a great has significantly lagged the increase in unaffordable rentals, warehouses are extent. In order to understand the feasibility land prices. While developers that had expected to gradually move towards the of land cost for warehousing activities, we previously purchased land at low rates are various internal roads in Haryana and the have developed a land cost matrix. This able to survive, any new development at periphery of the highway. matrix explains the feasible land cost that the current costs seems unviable. an investor should ideally pay in this cluster Warehouse rents on locations such as in order to achieve the expected return in Going forward, If the current pace of NH-8, NH-2 near Palwal, and Jamalpur- the range of 10%-18% per annum, subject residential and commercial development Panchgaon Road within the NH-8 to the achievable rents. For example, with continues, we believe that even the existing warehousing cluster have already moved a returns expectation of 14% per annum warehousing players may convert their land beyond `15/sq ft/month and are quoting and an achievable rental value of into more lucrative uses, such as residential as high as `21/sq ft/month in certain `18/sq ft/month, the feasible land cost or commercial. This could push the future cases. Such high rentals have already amounts to `26 mn/acre. In other words, development of warehouses further south rendered warehousing activity for certain investors can fetch a 14% per annum on the national highways or deeper into the manufacturing industries unviable, and return only if they are able to purchase interiors of Haryana. The downside of such any further rise in rents could push the land at or below `26 mn/acre at present a scenario is the likely increase in driving remaining occupiers towards alternative time and delays in servicing the target cheaper locations. Going forward, the rapid and lease it at `18/sq ft/month. As the segment due to the poor quality of roads development of residential and commercial purchase price of land goes higher, the and infrastructure in these regions. projects in the vicinity could threaten the realisable return reduces. Similarly, as feasibility of warehouse operations in the achievable rental value increases, the certain locations of this cluster, such as feasibility of higher-cost land also goes up.

Feasible land cost matrix in the NH-8 warehousing cluster (` mn/acre)

Investor Return per annum

10% 12% 14% 16% 18%

12 18 14 11 8 5

14 25 20 16 12 10 /sq ft/month) `

16 31 25 21 17 13

18 37 31 26 21 18

Prevailing rental value ( value rental Prevailing 20 43 36 31 26 21

Note: The table presents 25 options of land cost in ` mn/acre at different investor returns and rental value combinations. The 10 options which are possible to source in the NH-8 warehousing cluster and are upward of the minimum prevailing land rate, which is ` 25 mn/acre in this cluster, have been highlighted.

Source: Knight Frank Research

19 Currently, most of the locations within the In order to achieve returns upwards of 14% In order to achieve NH-8 cluster are feasible for warehousing per annum, investors will have to consider activities at the prevailing land rates, new locations within the NH-8 warehousing returns upwards of subject to a minimum achievable rental cluster where the land acquisition cost 14% per annum, value of `14/sq ft/month. However, rental is minimal, and is well connected to the values below this level may not even fetch national highway through a good quality investors will have returns of 10% per annum to the investors 40-60 foot road. Locations that fit these to consider new at the current land prices. criteria will be able to attract occupiers. We believe that the NH-71 stretch locations within the For investors to achieve returns upwards between Rewari and Jhajjar offers such of 14% per annum, it is imperative that the NH-8 warehousing an opportunity for future development. land acquisition cost does not exceed Although this stretch is located further cluster where the `26 mn/acre and that it can be leased out land acquisition at a minimum rental value of `18/sq ft/ away from NH-8, the driving time to most month. Considering the current market of the manufacturing hubs located near cost is minimal, and scenario, only certain locations, such the highway is less than 90 minutes due to is well connected as NH-8, Jamalpur-Panchgaon Road, the good quality 2x2 roads on this stretch. Bilaspur-Tauru Road and NH-2 near Additionally, the Delhi city centre can be to the national Palwal are able to command a rental value reached within 120 minutes from here. highway through a upwards of `18/sq ft/month. However, Hence, based on these factors, we believe good quality 40-60 the prevailing market price of land in these that the NH-71 stretch between Rewari locations is higher than `30 mn/acre, and Jhajjar will witness considerable foot road. Locations thereby rendering them unfeasible for the warehousing development in the coming that fit these criteria 14% per annum investor return. years. will be able to

attract occupiers. Assumptions We believe that the

NH-71 stretch Construction cost (`/ sq ft) 1,200 between Rewari and Jhajjar offers Ground coverage 57% such an opportunity for future Rental escalation per annum 5% development. 50%: First year

Occupancy 75%: Second year

100%: Third year onwards

Debt funding 80% of construction cost

Interest rate 12%

Tax rate 30%

Cap rate 10%

20 NCR WAREHOUSING MARKET REPORT RESEARCH

6 Ghaziabad along the Ghaziabad–Dadri stretch on this report and named it the ‘Ghaziabad NH-91, the Ghaziabad–Hapur belt on NH- warehousing cluster’. In the sections warehousing cluster 24 and the Ghaziabad–Meerut stretch on below, we have explained the primary NH-58. Besides, warehouses can also be demand drivers of warehousing space To the east of the National Capital Region identified in parts of GT Road and Greater in this cluster, market characteristics, infrastructure development, prevailing (NCR) are the warehousing markets of Noida. National Highway24 (NH-24) and National rentals and land rates, challenges and the Highway91 (NH-91). Spread around Since the demand drivers for all these future outlook. Ghaziabad, the gateway to the densely warehouse locations are similar, we populated state of Uttar Pradesh, this have clubbed the locations into a single cluster predominantly comprises markets warehousing cluster for the purpose of Ghaziabad warehousing cluster

Western Dedicated Freight Corridor

Eastern Dedicated Freight Corridor Proposed National Expressway

Railway Line

21 6.1 Demand drivers of along these routes. In the manufacturing Knight Frank warehousing space in the segment, the food processing sector leads Ghaziabad cluster in terms of output, with food processing Research estimates and dairy product firms,such as Mother the warehousing The demand drivers of warehousing Dairy and Amul Dairy, having their plants space in the Ghaziabad cluster can in this cluster. The food processing requirement from be broadly classified into two sub- industry accounts for a quarter of the segments: manufacturing-led demand the manufacturing industrial output. This is followed by and consumption-led demand. Of the two sector to be categories, the manufacturing-led demand other manufacturing industries, such as 57 mn sq ft in accounts for the lion’s share due the petroleum, metals, chemicals and the massive concentration of industrial activity pharmaceutical sector. the Ghaziabad cluster. The food Share in output of various manufacturing industries processing sector in the Ghaziabad cluster accounts for 31% or 18 mn sq ft of Food processing the manufacturing- led market due Petroleum products to the agrarian Metals landscape and Chemicals & pharma the presence of Textile

numerous dairies Auto & auto ancillary

and ancillary Consumer electronics activities in the Engineering cluster. Others

Source: Knight Frank Research

The Ghaziabad cluster accounts for 42% manufacturing products such as milking of the manufacturing sector output across machines, milk testing equipment, butter NCR – only marginally lower than the 43% churners, cream separators and milk share of the NH-8 and NH-2 clusters. analysers. The prominence of such manufacturing sector activity creates the demand for The chemical and pharmaceutical sector is warehousing space depending on the the second largest occupier of warehouses nature of the cargo and the target delivery in the cluster, with a warehouse market timelines of the supply chain. size of 12 mn sq ft or 21% of the manufacturing-led market. Companies Knight Frank Research estimates the such as Dabur, Century Laminating, Modi warehousing requirement from the Paints and Simbhaoli Sugars are present manufacturing sector to be 57 mn sq ft in in the cluster and are involved in the the Ghaziabad cluster. The food processing sector accounts for 31% or 18 mn sq ft of production of medicines, plywood, paints, the manufacturing-led market due to the alcohol, industrial chemicals and gases, agrarian landscape and the presence of among others. The warehousing demand numerous dairies and ancillary activities in composition favours the metals, auto the cluster. The dairy products ecosystem and auto ancillary, consumer electronics, has been created with companies textiles and engineering sectors.

22 NCR WAREHOUSING MARKET REPORT RESEARCH

Warehousing space requirement of major manufacturing industries in the Ghaziabad cluster

18 8 12 5 6 6 3 20

mn sq ft 10

5 Metals Textiles Engineering Food processing Auto & auto ancillary Chemicals & pharma Consumer electronics

Source: Knight Frank Research

Besides the manufacturing and lifestyle. Such warehousing demand are Ghaziabad, Noida, Greater Noida and sector,consumption-led warehousing across NCR is estimated to be around Delhi. Together, these markets account for requirement is also prevalent in this market. 36 mn sq ft, which also includes 5 mn a warehouse requirement of 32 mn sq ft, The consumption-led demand emanates sq ft by e-tail players such as Flipkart, which includes the e-tail demand of 4.3 from the storage requirement of product Snapdeal and Amazon. However, the most mnsq ft. categories ranging from apparel, food and accessible consumption centres that can beverages (F&B), electronics, and home be serviced from the Ghaziabad cluster

6.2 Types of warehouses and predominantly pre-engineered buildings major players (PEB). A few of the warehouse facilities Select warehouse only have sheds, and still fewer have operators The warehouses in this cluster are a mixed only the RCC structure. The nature of the bag of old warehouses by unorganised cargo handled by the occupier determines players and those with modern facilities. Satvik Logistics the choice of the structure. Since PEB The warehouses at the beginning of structures offer relatively more vertical the Ghaziabad–Dadri stretch on NH- 91 are primarily old structures from the storage space on account of their greater Good Luck Warehouse unorganised sector. The amenities and floor–ceiling height, such structures are construction quality of these old warehouse preferred by occupiers that use pallets and facilities are of a lower specification. electric-powered forklifts for the purpose of Future Warehouse Solutions However, there are options of new facilities stacking cargo. PEB structures generally coming up in localities such as Dhoom provide a side/clear height of 24–28 ft. Lord Balaji Warehousing Manikpur, Pilkhuwa-Hapur Road and In contrast, RCC structures provide just Meerut Road (NH-58). 12–14 ft of vertical space for storage. The The project size in the cluster ranges load bearing capacity of the floor is trimix 5 Om Kiran Warehouse Complex from 50,000–500,000 sq ft and are metric tonne per sq m.

23 6.3 Location and infrastructure upcoming Eastern Dedicated Freight availability of land and its proximity to the Corridor (DFC) alignment at Dadri. industrial hubs of Faridabad, Ghaziabad The Ghaziabad cluster enjoys proximity to and Sonipat. Notable names, such as Dr. The NH-24 Hapur–Ghaziabad stretch the manufacturing and consumption hubs Reddy’s and Safexpress, have warehouse also enjoys good connectivity, with the of Uttar Pradesh, Haryana and Delhi. This facilities in this belt. presence of the manufacturing and strategic location has established it as an consumption hubs of NCR, as listed in the important warehousing cluster in NCR. The warehouses present in this cluster adjoining table. The stretch is a 2x2 good have the strategic advantage of being quality road with a host of educational The NH-91 Ghaziabad–Dadri belt located within a two-hour distance from institutes. On account of its accessibility is a national highway, but has poor the manufacturing hubs of Ghaziabad, to the agricultural markets and dairy infrastructure. It is a 2x2 ill-maintained road Faridabad and Sonipat. However, the farms that dot the cluster, this warehouse with vehicular and pedestrian congestion, automobile cluster of IMT Manesar is space has been taken up by many food leading to traffic snarls. It is an old industrial located more than two hours away, processing and milk product companies, town, dotted with old warehouses and such as Mother Dairy. making the industry’s ‘just in time’ delivery residential development. Such a situation requirement challenging. Servicing Bhiwadi makes multi-axle truck movement slower. The NH-58 Ghaziabad–Meerut Road, and Neemrana would entail even more The situation is better around Dadri, where which is part of the same cluster, is time. The most vibrant consumption the bypass of the town area is managed a 2x2 good quality road with a host hubs of Delhi and Gurgaon are located with a 3x3 well-maintained stretch of of old residential developments along approximately two hours away. NH-91. Going forward, the warehousing the highway. The warehousing market activities will benefit immensely with the here benefits on account of the ample

Road distance and transit time to important locations from the Ghaziabad warehousing cluster

Distance from km Travel time in mins

Ghaziabad industrial belt 5–35 15–50

Delhi City Centre (Connaught Place) 25–65 60–120

Faridabad industrial belt 40–70 90–130

Sonipat industrial area 55–90 100–140

Gurgaon city centre (DLF CyberCity) 45–85 90–150

Palwal industrial area 75–100 120–160

Bawana industrial area 45–80 100–160

IMT Manesar 70–110 120–180

Bahadurgarh industrial cluster 55–90 120–180

Dharuhera & Bhiwadi industrial belt 90–130 150–200

Bawal industrial area 120–155 160–220

Rohtak industrial cluster 100–140 170–220

Neemrana industrial area 140–180 180–240

Source: Knight Frank Research

24 NCR WAREHOUSING MARKET REPORT RESEARCH

6.4 Rent and land cost of Other terms of tenancy may also have a warehouses bearing on warehouse rents, specifically The industrial clauses related to the security deposit, The rental values in the cluster are almost rent escalation and lease tenure. The setups in the similar on the highways, with the Dadri market practice for the security deposit is Ghaziabad cluster region commanding marginally higher 4–6 months of rent. The rent escalation rentals in the cluster. The rentals are lower are within the urban clause, which determines the quantum on the internal roads, as one moves away and frequency of rental increments, is area, unlike the from the national highway. The rents usually 5% p.a. The market practice for NH-8 cluster, where displayed in the adjoining table reflect the facilities with standard construction and lease tenure, i.e. the minimum period for industrial activity amenities. It would be higher if there are which the landlord and tenant are bound is well beyond the specific requirements for flooring, structure to honour the occupancy, varies largely on height, insulation and other capex within a case-to-case basis, usually in excess of Gurgaon city area. the facility. five years. The presence of dense residential Indicative rental values and land rate and industrial activity together Quoted rent Quoted land rate Location (`/sq ft/month) (` mn/acre) has impacted the vehicular Ghaziabad–Dadri, NH-91 16–20 30–40 traffic movement. Additionally, quality Ghaziabad–Hapur, NH-24 15–19 20–35 of internal roads is starkly inferior

Ghaziabad–Meerut, NH-58 14–19 20–35 compared to the national highways. Source: Knight Frank Research This restricts the opening up of new land parcels 6.5 Competitive advantages land availability implies that the rentals will continue to remain affordable for a for warehousing The biggest competitive advantage of the considerable amount of time. activities. Ghaziabad warehouse hub is its proximity to the densely populated consumption The Dadri node of the cluster is on the hubs of Ghaziabad, Delhi, Noida and Eastern Dedicated Freight Corridor Greater Noida. This makes it a credible alignment and will thus lead to heightened location for consumer-oriented (B2C) cargo movement along the eastern part companies that can serve the NCR of the country. This will increase the consumption market from their warehouses warehousing requirement in the Ghaziabad in this cluster. The next advantage is its cluster. proximity to the manufacturing hubs of Ghaziabad, Faridabad and Sonipat. The availability of manpower is another factor that lends competitive strength to Warehouse occupiers are sensitive to this cluster. NCR is a densely populated rentals and thus, warehousing clusters that are in a position to offer affordable space urban agglomeration, and the presence would enjoy a competitive advantage of residential catchments for all income over the others. With warehouse rentals groups in and around Ghaziabad ensures in the range of `14–20 per sq ft per an abundant supply of skilled, semi-skilled month, Ghaziabad fares well. The ample and unskilled workers.

25 With warehouse rentals in the range of development of alternative residential real The Ghaziabad `14–20 per sq ft per month, Ghaziabad estate, which influences the land price fares well. The ample land availability in warehouse localities near Ghaziabad cluster will be implies that the rentals will continue to city. While the rents continue to remain dominated by the remain affordable for a considerable at an affordable level, land has become amount of time. expensive, mainly for land parcels abutting food processing the highways. The Dadri node of the cluster is on the industry, and Eastern Dedicated Freight Corridor The other critical challenge arises on manufacturing alignment and will thus lead to heightened account of the NH-8 warehouse cluster, cargo movement along the eastern part which offers a relatively superior occupier companies from of the country. This will increase the profile at a similar occupancy cost. This the lower end of warehousing requirement in the Ghaziabad is the case for both, the manufacturing- cluster. led and consumption-led demand, which the spectrum. The includes e-commerce. The manufacturing ample availability The availability of manpower is another base of NH-8 is much stronger on account factor that lends competitive strength to of the strong presence of the automobile of land at feasible this cluster. NCR is a densely populated industry, which pays relatively higher rentals costs that is in sync urban agglomeration, and the presence because of its ‘just in time’ inventory of residential catchments for all income model. The auto and auto ancillary sector with the quoted groups in and around Ghaziabad ensures contributes 29% of the manufacturing rents implies a an abundant supply of skilled, semi-skilled output in the competing NH-8 cluster and unskilled workers. steady supply of in contrast to just 7% in the case of the 6.6 Challenges Ghaziabad warehouse cluster. Such warehouse space in industrial activity implies that the demand the cluster. Hence, The Ghaziabad warehouse cluster has for automobile space in the competing its share of challenges. Being an old NH-8 cluster is 25 mn sq ft or four times we believe that industrial town, the industrial setups in this that of the Ghaziabad cluster, resulting in a no new markets cluster are within the urban area, unlike better occupier profile. the NH-8 cluster, where industrial activity Similar is the case with the consumption- will emerge in this is well beyond the Gurgaon city area. The led demand on account of the vibrant presence of dense residential and industrial cluster in the near Gurgaon residential and office development activity together has impacted the vehicular over the last decade. The consumption future. traffic movement. The cargo movement markets of Delhi and Gurgaon can be is also impacted by the quality of roads, serviced through a warehouse on the which are generally 2x2-lane roads without NH-8 cluster, in line with the tight delivery service lanes. These are inferior compared requirements of even the e-commerce to those in the competing NH-8 cluster and players. Likewise, companies such as thus, cargo movement at similar distances Amazon, Arvind Brands and Lifestyle, take a longer delivery time. Additionally, and several logistics firms such as Future 6.5 Competitive advantages quality of internal roads is starkly inferior Supply Chain, Fedex, TCI and Safexpress, compared to the national highways. This have favoured the cluster. Further, the The biggest competitive advantage of the restricts the opening up of new land overall infrastructure and business Ghaziabad warehouse hub is its proximity parcels for warehousing activities. to the densely populated consumption environment are superior in the NH-8 hubs of Ghaziabad, Delhi, Noida and Our interactions with landowners and cluster compared to the Ghaziabad cluster. Greater Noida. This makes it a credible warehouse developers highlight another The completion of the Manesar–Palwal location for consumer-oriented (B2C) difficulty regarding the regulatory stretch of the upcoming Kundli–Manesar– companies that can serve the NCR environment. Due to the ambiguity of land Palwal (KMP) expressway has added consumption market from their warehouses laws, the conversion of land use from sheen to this warehouse cluster. in this cluster. The next advantage is agriculture to industrial takes much longer its proximity to the manufacturing hubs in the Ghaziabad cluster compared to the of Ghaziabad, Faridabad and Sonipat. NH-8 cluster in Haryana. Such a situation Warehouse occupiers are sensitive to results in taking a longer time for any rentals and thus, warehousing clusters that development project. are in a position to offer affordable space would enjoy a competitive advantage over Another set of challenges arises on the others. account of the competition from the

26 NCR WAREHOUSING MARKET REPORT RESEARCH

6.7 Outlook are able to purchase land at or below ` 26 mn/acre at present and lease it at In terms of geography, the warehouses `18/sq ft/month. As the purchase price are currently concentrated mainly on of land goes higher, the realisable return the Ghaziabad–Dadri stretch on NH-91, reduces. Similarly, as the achievable rental Ghaziabad–Hapur belt on NH-24 and the value increases, the feasibility of Ghaziabad–Meerut stretch on NH-58, higher-cost land also goes up. besides some presence on GT Road and Greater Noida. Feasible land cost matrix in the Ghaziabad warehousing cluster The future demand for warehousing will (` mn/acre) be shared mainly between the NH-8 and Ghaziabad clusters. The competing Investor return per annum NH-8 cluster has superior infrastructure, well developed internal roads, celebrated 10% 12% 14% 16% 18% manufacturing clusters and a growing residential and office catchment. Thus, 12 18 14 11 8 5 the bulk of the warehousing demand from high-value manufacturing sector occupiers 14 25 20 16 12 10 and e-commerce companies would be /sq ft/month) ` centred in this cluster. The progress on the Kundli–Manesar–Palwal Expressway and 16 31 25 21 17 13 the Western Dedicated Freight Corridor (Western DFC) will improve the future 18 37 31 26 21 18 prospects of this competing market even further. 20 43 36 31 26 21 On the other hand, the Ghaziabad cluster ( value rental Prevailing will be dominated by the food processing industry,and manufacturing companies Note: The table presents 25 options of land cost in ` mn/acre at different investor returns and rental value combinations. The 14 options which are possible to source in Ghaziabad and are upward of the minimum from the lower end of the spectrum. The prevailing land rate, which is ` 20 mn/acre in this cluster, have been highlighted. ample availability of land at feasible costs that is in sync with the quoted rents implies Source: Knight Frank Research a steady supply of warehouse space in the cluster. Hence, we believe that no new markets will emerge in this cluster in the Assumptions near future. Construction cost (`/sq ft) 1,200 From the pricing perspective, i.e. the achievable rent or on-going land rates, this Ground coverage 57% hub offers a range of options. With land rate as the most important determinant of warehouse financial feasibility, it is Rental escalation per annum 5% crucial to get it right to achieve success in a warehouse development project. In 50%: First year order to understand the feasibility of land cost for warehousing activities, we have Occupancy 75%: Second year developed a land cost matrix. This matrix explains the feasible land cost that an 100%: Third year onwards investor should ideally pay in this cluster in order to achieve the expected returns in Debt funding 80% of construction cost the range of 10–18% per annum, subject to the achievable rents. For example, with Interest rate 12% a return expectation of 14% per annum and an achievable rental value of `18/sq ft/ Tax rate 30% month, the feasible land cost amounts to `26 mn/acre. In other words, investors can fetch a 14% per annum return only if they Cap rate 10%

27 28