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RESEARCH Dr. Samantak Das Chief Economist and National Director, Research [email protected]
INDUSTRIAL & ASSET SERVICES Balbir Singh Khalsa National Director [email protected]
Pinkesh Teckwani Director [email protected] INDIA WAREHOUSING MARKET REPORT 2016
PRESS OFFICE Sukanya Chakraborty Director – Marketing & Communications [email protected]
INDIA WAREHOUSING MARKET REPORT 2016
Knight Frank India research provides development and strategic advisory to a wide range of clients worldwide. We regularly produce detailed and informative research reports which provide valuable insights on the real estate market. Our strength lies in analysing existing trends and predicting future trends in the real estate sector from the data collected through market surveys and interactions with real estate agents, developers, funds and other stakeholders. RECENT MARKET-LEADING RESEARCH PUBLICATIONS © Knight Frank India Pvt. Ltd. This report is published for general information only and not to be relied upon in anyway. Although high standards have been used in the preparation of the information analysis, views and projections presented in the report, no responsibility or liability whatsoever can be accepted by Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank to the form and content within which it appears. GLOBAL CITIES INDIA REAL ESTATE HYDERABAD RETAIL NCR WAREHOUSING 2017 REPORT JAN- JUN 2016 MARKET REPORT CIN No. – U74140MH1995PTC093179
Knight Frank Research Reports are available at KnightFrank.com/Research AHMEDABAD | BENGALURU | CHENNAI | HYDERABAD | MUMBAI | NCR | PUNE INDIA WAREHOUSING MARKET REPORT RESEARCH
THE TOTAL A MASSIVE 218 MN THE WAREHOUSING CURRENTLY, 17 MN WITH INVESTMENT THE AUTO & AUTO WAREHOUSING SPACE SQ FT NEEDS TO BE REQUIREMENTS OF SQ FT OF SPACE RETURNS OF ANCILLARY AND REQUIREMENT IN THE ADDED WITHIN THE THE E-TAIL SEGMENT IS TRANSACTED 22-24% PER ANNUM, CHEMICAL & COUNTRY’S TOP 7 NEXT 4 YEARS IN THE WILL MORE THAN ANNUALLY IN THE PUNE OFFERS THE PHARMACEUTICAL MARKETS IS EXPECTED TOP 7 WAREHOUSING DOUBLE FROM 14 MN TOP 7 WAREHOUSING BEST INVESTMENT SECTORS ARE THE TO GROW FROM 621 MN MARKETS OF INDIA SQ FT IN 2016 TO 29 MARKETS OF THE OPPORTUNITY LARGEST DEMAND SQ FT IN 2016 TO 839 MN SQ FT IN 2020 COUNTRY IN INDIA TODAY DRIVERS OF MN SQ FT BY 2020 WAREHOUSING SPACE
2 3 INDIA WAREHOUSING MARKET REPORT RESEARCH
TABLE OF CONTENTS
EXECUTIVE 06 SUMMARY
INTRODUCTION 08 CHENNAI 34
AHMEDABAD 12 HYDERABAD 48 NCR 74
BENGALURU 24 MUMBAI 60 PUNE 100
REPORT AUTHORS
Hetal Bachkaniwala Vivek Rathi Yashwin Bangera Vice President - Research Vice President - Research Assistant Vice President - Research [email protected] [email protected] [email protected]
4 5 INDIA WAREHOUSING MARKET REPORT RESEARCH
WAREHOUSING SPACE REQUIREMENT IN INDIA’S TOP SEVEN MARKETS (MN SQ FT)
Warehousing space Total additional space Annual additional space requirement CAGR* required from required from 2016 2020E 2016–2020 2016–2020
Manufacturing 487 656 8% 169 42
Brick-and-mortar retail 120 154 6% 34 8
E-tail 14 29 19% 14.4 3.6
Total 621 839 8% 218 54
* Compounded Annual Growth Rate Note: The top seven markets include Mumbai, NCR, Bengaluru, Chennai, Pune, Hyderabad and Ahmedabad Source: Knight Frank Research
The biggest challenge that India’s creates a mismatch between the return illustrates the feasible investor returns warehousing market currently faces expectation of a warehouse developer that can be achieved at the prevailing is the acquisition of a feasible land and the ongoing market value of land. land rates and rentals. Even though parcel. Land cost constitutes the largest Since rental value in a market is beyond an investor can avail returns up to a component of a warehousing project. the control of a warehouse developer, maximum of 24% per annum in markets Although rental values that a warehouse acquiring land at feasible cost takes the such as the Wagholi-Ranjangaon belt in owner can charge are primarily driven centre stage when it comes to warehouse Pune, there are certain markets like the by the demand and supply factors, it is investment. Jeedimetla-Medchal warehousing cluster the land price that is dependent up on in Hyderabad, where achieving returns multiple factors like development control The below table depicts the current land upwards of 12% per annum is also not regulations, infrastructure development rates and rentals in each of the major feasible. and the best alternate usage of land. This warehousing hubs of India. The table also
EXECUTIVE SUMMARY FEASIBLE INVESTOR RETURN IN INDIA’S MAJOR WAREHOUSING MARKETS
he report is primarily targeted and finished products from industries warehousing market in these key Quoted land Feasible Quoted rentals towards institutional investors, real such as automobiles, cement and food hubs has led us to estimate the total Warehousing market City rate (` mn/ investor return (`/sq ft/month) Testate developers, high net-worth processing, among others. In terms of requirement for warehousing space acre) per annum individuals (HNIs) and private equity consumption-led demand, all product from the period 2016 to 2020. The total NH-8 warehousing cluster NCR 11 – 21 25 – 40 10% – 16% funds that are planning to participate in categories, ranging from apparel and warehousing space requirement in the investment opportunities provided by footwear to home and lifestyle, have been these markets is expected to grow at a Ghaziabad warehousing cluster NCR 14 – 20 20 – 40 12% – 18% the warehousing sector but have limited considered. compounded annual growth rate (CAGR) Bhiwandi Mumbai 10 – 16 10 – 50 12% – 18% understanding of the various nuances of 8% from 621 mn sq ft in 2016 to 839 of this sector. Additionally, the report For the purpose of this report, agriculture- mn sq ft by 2020. Hence, over the next Panvel Mumbai 17 – 25 25 – 50 12% – 18% led demand has not been considered also serves as a detailed handbook four-year period, an incremental 218 Nelamangala-Dabaspete belt Bengaluru 10 – 16 10 – 35 12% – 16% for industry stakeholders such as for analysis as it is a largely unorganised mn sq ft or 54 mn sq ft per annum of warehouse developers, logistic players market with godown-type structures warehousing space will be required in the Sriperumbudur-Oragadam warehousing cluster Chennai 15 – 28 15 – 60 12% – 16% spread across a vast geography of the and government agencies. It delves top seven markets of India. Periyapalayam Chennai 14 – 22 12 – 100 14% – 16% into the key warehousing markets of country. Additionally, the government Chakan-Talegaon belt Pune 16 – 30 10 – 34 14% – 22% India, such as Mumbai, National Capital contracted agriculture warehouses have While factors such as Goods and Region (NCR), Bengaluru, Chennai, caps on rentals and construction cost, Services Tax (GST) and ‘Make in India’ Wagholi-Ranjangaon belt Pune 14 – 22 8 – 45 18% – 24% Pune, Hyderabad and Ahmedabad, with thereby distorting free market economics. initiatives will push the requirement Jeedimetla-Medchal warehousing cluster Hyderabad 10 – 14 15 – 40 Upto 12% an exhaustive analysis on the existing Similarly, export-import (EXIM) based from the manufacturing sector, it is the warehouse locations, land cost feasibility, warehousing requirement, which is E-tail sector that will lead in terms of Aslali-Kheda belt Ahmedabad 10 – 20 4.5 – 32 14% – 18% investor returns and emerging areas. serviced via container freight stations growth for warehousing space. While the (CFS) and inland container depots (ICD) requirement from traditional brick-and- Changodar-Bagodara belt Ahmedabad 11 – 20 4 – 40 14% – 16%
The demand drivers considered has been excluded from the study, as mortar retail will continue to grow at a Source: Knight Frank Research for the warehousing market are the the market dynamics for this segment steady pace, requirement from the E-tail Investment in warehousing can provide challenges facing an investor is the lack warehousing industry but also to provide manufacturing and consumption sectors. is entirely different from the remaining segment will more than double from 14 an opportunity of realising returns in of understanding of the various nuances an actionable advice on the investment The manufacturing sector-led demand segments of the warehousing industry. mn sq ft in 2016 to 29 mn sq ft by 2020, the range of 10%–24% per annum of this sector. Hence, the goal of this opportunities available in the current comprises the requirements arising from resulting in an annual growth rate of 19%. to investors willing to explore this report is not only to familiarise the reader scenario. the need for the storage of raw materials The need to quantify the size of the sector. Currently, one of the biggest with the various aspects of the Indian
6 7 INDIA WAREHOUSING MARKET REPORT RESEARCH
CHART: WAREHOUSING STRATEGY BEFORE GST IMPLEMENTATION
RAW MATERIAL SUPPLIER
Vendor Vendor Vendor A B C
A1 A2 A3 B1 B2 B3 C1 C2 C3
INTRODUCTION- Warehouse GST IMPACT ON SUPPLY CHAIN
While logistics undertakes the critical Mumbai Industrial Corridor (DMIC), and Inter-state sale of goods involves Central ac anuf ture role of connecting production centres freight corridors, such as the Western Sales Tax (CST) levied by the central M r to consumption markets, inefficiencies and Eastern Dedicated Freight Corridors, government and Value Added Tax (VAT) in managing it could lead to a severe are gaining renewed focus. of the respective state. Since, CST and disruption in the entire supply chain other state taxes cannot be set off; inter- network. In India, the experience Since GST is at a critical legislative state sale becomes a costlier affair on pertaining to this sector has not been juncture and expected to be implemented account of duplication of taxation. Clearly very encouraging, leading to colossal next year, it will be the first significant distributors will avoid buying directly from losses during the transportation, catalyst in recent times to impact the the manufacturer in another state and distribution and storage of goods. warehousing market. Therefore, it needs prefer buying from a warehouse in the Thus, any effort towards addressing special attention. same state to remain cost competitive this problem will meet with much by saving on taxes. Such a tax structure TABLE: appreciation. in India has forced companies to locate Warehouse TAXES SUBSUMED UNDER GST warehouses in all the states where they The current environment is likely to operate, resulting in an inefficient supply Subsumed accelerate progress in the logistics Subsumed chain. Hence, instead of creating an under Central sector in India, considering the interest under State GST effective supply chain by strategically from government as well as private GST locating warehouses, the focus remains STAT E STAT E STAT E enterprises. The Government of India Central Excise VAT / Sales Tax on tax saving. This has shaped the need X Y Z brought out the National Manufacturing Duty for bringing in an efficient tax structure Policy with the objective of increasing that eliminates the state boundaries Service Tax Entertainment Tax the share of manufacturing in the GDP to by creating a common market place 25%. ‘Make in India’, the government’s Additional Luxury Tax for India. The concept of Goods and national initiative, places great Customs Duty Services Tax (GST) is a move in this importance on building best-in-class Surcharges State Cesses and direction. By providing input tax credit manufacturing infrastructure. The Goods D1 D2 D3 D4 D5 D6 D7 D8 D9 Surcharges on all such inter-state sale of goods and and Services Tax (GST) will amalgamate services, GST will create a single, unified several central and state taxes into a Cesses Taxes on lottery, market for the country. single tax, thereby mitigating double betting and DISTRIBUTOR taxation and facilitating a unified national gambling. market. Further, inter-state industrial Source: Knight Frank Research corridors, such as the ambitious Delhi
8 9 INDIA WAREHOUSING MARKET REPORT RESEARCH
CHART: WAREHOUSING STRATEGY POST GST IMPLEMENTATION GST will ensure the abolition of CST, In this latest edition, we present our requirement, the warehousing thereby making the country a single warehouse market study of seven requirement is estimated at the city level market that will no longer be divided by top warehousing markets in the because warehousing clusters are in a state boundaries. This will eliminate the country, namely NCR, Mumbai, Pune, position to service almost all parts of the RAW MATERIAL SUPPLIER need to have warehouses in each state to Ahmedabad, Bengaluru, Hyderabad city within a transit time of two hours. In avoid CST, thereby ensuring the removal and Chennai. The report provides an case of NCR, which is a large geography, of a redundant level of warehousing in the exhaustive analysis on parameters such the consumption-led requirement has Vendor Vendor Vendor supply chain. This will enable a reduction as the spread of warehousing clusters, also been estimated at the warehouse A B C in the number of warehouses and allow demand drivers, warehouse space cluster level, namely NH-8 and companies to focus on building fewer, requirement (estimated warehouse stock) Ghaziabad. At the NCR level, we have larger and more strategically located and investment feasibility. Extensive field addressed any overlap of consumption warehouses. Larger warehouses can surveys across the hinterlands of the markets that could be serviced from any benefit from sophisticated information subject markets coupled with interviews of these warehouse clusters. technology (IT) systems like Warehousing with warehouse occupiers, logistics Management Systems (WMS) that players, developers and land aggregators On account of the export-import (EXIM) are not feasible in smaller, scattered have been conducted for the study. activity, warehousing demand is serviced warehouses. This will help in bringing Third party databases like Annual Survey via container freight stations (CFSs) A1 B1 C1 down the cost and improve service levels of Industries (ASI) and Indicus were and Inland Container Depots (ICDs). through economies of scale. Supply used for estimation of subject market’s Further, agriculture warehouse demand is chains will become leaner and efficient manufacturing output and consumption predominantly catered to by government in terms of warehousing, transport spending respectively. enterprises and the unorganised market, with godown-type structures. Thus, EXIM Warehouse routes, distribution and sourcing, wherein the decisions taken will be based on The demand drivers considered and agriculture-led warehousing has not operational efficiency rather than a tax for the warehousing market are the been covered in this version of the report. avoidance mechanism. manufacturing and consumption sectors. The manufacturing sector-led demand The renewed focus on infrastructure The logistics sector can be comprises the requirements arising from development and the manufacturing ac sector offers opportunities across the anuf ture broadly classified into three areas the need for the storage of raw materials M r – transportation, distribution and and finished products from industries logistics value chain. With regards to storage. In India, the transportation and such as automobiles, cement and food the warehousing sector, which is the distribution sectors have traditionally processing, among others. In terms of subject matter of this report, we are been a part of many studies, with consumption-led demand, all product witnessing the heightened interest of numerous reports and findings affiliated categories, ranging from apparel and international financial and development to them. However, it is the storage and footwear to home and lifestyle, have been institutions and global institutional warehousing sectors that have mainly considered. investors and developers to participate in remained under-researched. Although this accelerating opportunity. The Indian the warehousing segment constitutes The estimated warehousing space developer community, which has long only 15–35% of the total logistics requirement is the total space been fixated on the traditional real estate costs, its importance is significant with requirement (estimated warehouse asset classes, viz. residential, office, respect to the role it plays in the smooth stock). The majority of the warehousing hotel and retail, has now opened its mind Warehouse functioning of supply chain networks. requirement of the manufacturing sector and wallet to enter into this segment. is fulfilled by captive space, either in The improving regulatory environment Regional Warehouse for With this thought process, we embarked terms of space at the manufacturer’s for the Indian Real Estate Investment States X,Y &Z upon the much-needed but uncharted territory of warehouse sector research in plant or company-owned warehouses. Trust (REIT), which also covers the India. Our first report in the series—India Our estimate of this requirement warehousing segment, has added to this Logistics & Warehousing Report 2014— considers all the manufacturing clusters inclination. E-tail is already proving to be was a detailed handbook introducing within a transit time of four hours from the a juggernaut, expanding the market in warehousing sector dynamics, such as city’s warehouse hubs. In some cases like terms of space and service standards. demand drivers, policies and regulations, Mumbai and Pune this leads to overlap In light of such a promising environment, business models, and enabling of manufacturing clusters that could be we believe that this report will serve as infrastructure and emerging trends, serviced from both Mumbai as well as an actionable knowledge piece for your Pune. Accordingly, we have made the pursuit in the warehousing sector. D1 D2 D3 D4 D5 D6 D7 D8 D9 among others. It set the ball rolling with regards to the exploration of the India adjustment to address such overlap while warehousing market through a research calculating the consolidated potential for on the key warehousing markets of the country. DISTRIBUTOR Mumbai and Pune. In case of the consumption-led
10 11 INDIA WAREHOUSING MARKET REPORT RESEARCH
1. MAJOR WAREHOUSING CLUSTERS IN AHMEDABAD
Historically, warehousing activities in Currently, most of the warehousing as geographical location, proximity to Ahmedabad have been concentrated activity is concentrated on the the national highway, access to the in the peripheral areas of the city, such Ahmedabad-Kheda highway and city centre and distance from the major as Aslali, Changodar and Naroda, with Ahmedabad-Rajkot highway. Additionally, manufacturing hubs. Since these two godown-type structures dominating Sanand has also been attracting interest clusters collectively account for the the landscape. As land prices became from warehouse developers over the majority of the warehousing space infeasible for such activities, they slowly last few years, but is still a relatively demand in the Ahmedabad market, the started shifting further away from the smaller market compared to the other rest of the locations have been classified city. With manufacturing units gradually two locations. For the purpose of this into the ‘Others’ category. shifting from Naroda and Vatva towards report, we have classified the various Changodar and Sanand, the need for warehousing locations into two major warehousing also witnessed a steady belts: Aslali-Kheda belt and Changodar- shift towards these locations. Bagodara belt, based on factors such
MAJOR WAREHOUSING LOCATIONS IN AHMEDABAD AHMEDABAD
CLASSIFICATION OF WAREHOUSING LOCATIONS INTO MAJOR CLUSTERS
Warehousing cluster Major warehousing locations Aslali-Kheda belt Aslali, Jetalpur, Bareja, Kanera, Gobhalaj, Hariyala, Kheda Changodar-Bagodara belt Changodar, Bavla, Bhayala, Bagodara Others Sanand-Viramgam belt, Adalaj
12 13 INDIA WAREHOUSING MARKET REPORT RESEARCH
production facilities of Tata Motors and 2. TOTAL REQUIREMENT FOR WAREHOUSING SPACE FIGURE 1 Ford India near Sanand, still account SHARE IN OUTPUT OF THE VARIOUS MANUFACTURING INDUSTRIES IN for less than 5% of the total output of Currently, Ahmedabad’s total requirement to have a separate warehouse. the last ten years, this segment has AHMEDABAD for warehousing space is estimated witnessed a renewed traction, especially the region. However, with demand in to be 40 mn sq ft, of which more than With the Goods and Services Tax (GST) in the E-tail sector. As the time between the auto sector gaining momentum with 85%, or 34 mn sq ft, is attributable to set to become operational, the need placing an order and delivery has shrunk each passing year, we expect its share in the manufacturing sector. However, the for captive warehouses will reduce drastically with the advent of the E-tail Ahmedabad’s total output to rise steadily majority of the warehousing requirement further. We believe that a large number sector, the need for warehousing space in the coming years. This could lead to a of the manufacturing sector is fulfilled by of manufacturers will outsource their has also increased significantly. With dramatic rise in demand for warehousing logistics and warehousing requirements 21% Pharmaceuticals captive space, either in terms of space the share of E-tail expected to rise space from the auto ancillary companies 26% at the manufacturer’s plant or company- and focus on their core operations. steadily in the coming years, we estimate that will be supplying auto components Food Processing owned warehouses. Although the trend of This will create an additional demand the demand for warehouses from this to these two auto majors. leasing a warehouse rather than owning it for leasable warehousing space in segment to increase proportionately as Metals Manufacturing activities in Ahmedabad is steadily picking up with the emergence Ahmedabad in the coming years. well. are spread across multiple locations. 17% of third-party logistics (3PL) players, Textile In contrast to the manufacturing-led While Naroda and Vatva used to be 10% it is still at a nascent stage compared Currently, the leasable market in requirement for warehousing space, the largest industrial areas in the Engineering to developed markets such as Europe Ahmedabad is estimated to be in the consumption-led requirement is mostly range of 6-8 mn sq ft. However, the city, high land prices and various 10% and the US. These 3PL players, such as Others for leasable space, with very few restrictions from the pollution control 16% Safexpress, Blue Dart, TCI and Future share of annual transacted volume is operators fulfilling their needs through a board have compelled most of the large Supply Chain, among others, provide approximately 0.6-0.8 mn sq ft. This captive warehouse. This is primarily due manufacturers to shift their production end-to-end logistics services, including a includes transaction volume from Source: Annual Survey of Industries (ASI) and Knight Frank Research to the need to have a fulfilment centre activity outside the city area. The common warehousing facility, to multiple manufacturing-led and consumption-led as close to the urban area as possible Ahmedabad-Rajkot highway, from manufacturers, thereby reducing the need demand. in order to ensure quick delivery. Over Changodar to Bagodara, has emerged as the largest industrial belt in this region 3. DEMAND DRIVERS OF WAREHOUSING SPACE IN AHMEDABAD with numerous pharmaceutical, chemical, FIGURE 2 textile and engineering companies WAREHOUSING SPACE REQUIREMENTS OF MAJOR MANUFACTURING The primary demand drivers of centres in order to deliver in the shortest 3.1 MANUFACTURING-LED DEMAND located here. Sanand is another area INDUSTRIES IN AHMEDABAD warehousing space in Ahmedabad possible time. Such factors have brought that has picked up significant interest Ahmedabad is one of the largest from various corporates in the last few 12 563 26 can be broadly classified into two the warehousing industry to the forefront 20 categories: manufacturing-led demand of the retail business and compelled manufacturing hubs in Gujarat and years, as the state government’s push and consumption-led demand. The retailers to focus on this segment. accounts for the majority of the to develop it as an automobile and 18 demand from the manufacturing sector production activity in west India. engineering hub has attracted several 16 In the following sections, we have Currently, the pharmaceutical sector arises predominantly due to the distance manufacturing plants here. 14 between the manufacturer’s factories, raw identified the key manufacturing accounts for a lion’s share in the The above factors clearly indicate that 12 material suppliers and the consumption industries in Ahmedabad, their current total production output within the the demand for manufacturing-led markets of the final goods. The need to warehousing requirement, the major region. Intas, Claris Lifesciences, 10 manufacturing hubs and the various Cadila Pharmaceuticals and Dishman warehousing space in Ahmedabad mn sq ft store the raw materials or final goods due 8 will be concentrated primarily on the to this distance, determines the amount regions within Ahmedabad from where Pharmaceuticals and Chemicals are Ahmedabad-Rajkot highway and 6 of space required by each manufacturer. the requirements originate. Similarly, in some of the pharmaceutical majors Sanand highway, with sectors such The quantum of space required is also terms of consumption, we have identified that have their manufacturing units 4 the current warehousing requirement located in this region. Food processing, as pharmaceuticals, automobile, food dependent on the type of product that is 2 processing, metals and textiles leading in manufactured. Hence, each manufacturer of brick-and-mortar stores and E-tail which includes dairies, rice mills, sugar terms of this demand. 0 will have a different requirement for segment. mills, confectionaries, and beverages,
among others, has the second largest extile space, depending on these factors. T Metals Cement
share in the output in Ahmedabad. This ocessing
Consumption-led demand, which is an Total werehousing is followed by the metals, textile and Engineering space requirement Pharmaceuticals equally important demand driver for engineering industries. Food Pr warehousing space, is largely dependent 40 mn sq ft on population, income level and the In terms of the requirement for Source: Knight Frank Research propensity to spend. The changing warehousing space, the pharmaceuticals sector leads with more than 12 mn sq Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse dynamics of the retail industry has Manufacturing-led Consumption-led stock) as of August 2016. This is calculated on the basis of the latest output data from ASI. The majority of the warehousing requirement requirement resulted in the business model of a ft. This is followed by the remaining requirement of the manufacturing sector is fulfilled by captive space, either in terms of space at the manufacturer’s plant or retailer becoming heavily dependent 34 mn sq ft 6 mn sq ft industries, with each requiring company-owned warehouses. warehousing space of around 2-6 mn on a smooth and efficient supply chain Source: Knight Frank Research network. In addition to this, the advent of sq ft. The auto and auto ancillary sector, E-tail in recent years has necessitated the which has gained a lot of traction in the need for huge warehouses close to urban recent years with the commencement of
14 15 INDIA WAREHOUSING MARKET REPORT RESEARCH
MANUFACTURING CLUSTERS WITHIN AHMEDABAD 4. ASLALI-KHEDA WAREHOUSING BELT
Aslali was one of the first warehousing 4.1 TYPES OF WAREHOUSES AND Select warehouse operators markets to be developed in Ahmedabad MAJOR PLAYERS due to the various advantages that this Rudrapratap Indian Logistics Warehouses in locations such as Bareja, location commands. Before the National Sumar Logistics and Industrial Park Expressway-1 (NE-1) was constructed, Kanera, Ghobalaj, Hariyala and Kheda Sara Warehouse & Logistics the Ahmedabad-Vadodara highway are relatively recent constructions. Most of the development on this road used to be the primary access road 4.2 LOCATION AND INFRASTRUCTURE between Ahmedabad and cities like comprises pre-engineered building Vadodara, Surat and Mumbai. Aslali, (PEB) type structures with 24-foot clear The Aslali-Kheda warehousing belt is which is located on this highway just height and basic infrastructure such as located in the southern part of the city on before entering Ahmedabad city from security, ample parking space, fire- the old Ahmedabad-Vadodara highway south, was a major transit point for all fighting equipment and insulation, among and starts after crossing the Sardar Patel the transporters and logistics players. others. Some of the prominent occupiers Ring Road and stretches till the town With increased urbanisation and rising are Panasonic, Ceat, Schenker and of Kheda. This highway is a six-lane land prices, warehousing development Reckitt Benckiser. However, bulk of the national highway connecting Ahmedabad started shifting southwards on this warehouses in Aslali and Jetalpur are old with Mumbai via Vadodara and Surat. highway towards Jetalpur and Bareja. godown-type structures with minimal With the construction of the National Over the last ten years, this shift has amenities and poor infrastructure. Expressway-1, the road attracts very few continued further south on the highway passenger vehicles and is mostly used Currently, most of the incremental with warehousing development stretching by transporters and logistics players. demand comes from the E-tail and all the way till Kheda. This makes is it less prone to traffic FMCG sector companies that not only congestion and is easily accessible form require adequate clear height within the Since the demand drivers for all the city centre within 30-60 minutes of warehouse for multi-level stacking of the warehouse locations along the travel time. Ahmedabad-Vadodara highway are products, but also seek added amenities similar, we have clubbed these locations such as fire-fighting equipment and The Sardar Patel Ring Road, a four-lane into a single warehousing cluster for the enhanced security. This has resulted in road around the periphery of the city, purpose of this report and named it as majority of the new warehouses being provides a smooth access to all the major the ‘Aslali-Kheda warehousing belt’. In constructed to adhere to such standards industrial and retail destinations in the the following sections, we have explained and move away from the traditional city from the Aslali-Kheda warehousing the types of warehouses, major players, godown-type structure. Over the last belt. Major industrial areas such as Vatva, market characteristics, infrastructure five years, a large number of FMCG Naroda and Changodar can be reached development, prevailing rentals and land and 3PL companies have shifted their within 70 minutes. Additionally, most of rates, challenges and the future outlook warehousing space from old godown- the industrial areas of Vadodara can be for this belt. type structures in Aslali towards the accessed within a commutable time of recently constructed good quality 3.2 CONSUMPTION-LED DEMAND daily needs category includes all the While the boom in the E-tail sector may two hours. warehouses in Bareja, Kanera and FMCG products, grocery and other such have eaten into the market share of the Ghobalaj. In terms of retail spending, Ahmedabad daily retail products that are consumed brick-and-mortar retail stores to a great is the largest market in Gujarat with a on a regular basis. Just the top four extent, our analysis indicates that the consumer base of more than 6.3 mn. categories account for majority of the advent of this segment has expanded ROAD DISTANCE AND TRANSIT TIME TO IMPORTANT LOCATIONS FROM THE This retail spending not only includes total warehousing space requirement in the overall consumption pie and led ASLALI-KHEDA WAREHOUSING BELT traditional brick-and-mortar stores, malls, Ahmedabad. to a substantial increase in the urban shopping streets and mom-and-pop consumers’ propensity to spend. Hence, Distance from: Km Travel time in mins stores but also accounts for the spending The E-tail sector has emerged as a major the warehousing space requirement Ahmedabad city centre 15 - 36 30 - 60 by consumers through the e-commerce driver for the incremental warehousing by the E-tail segment is largely the medium. Hence, any type of consumer space requirement in recent years and incremental demand for space and not Vatva industrial area 10 - 32 20 - 40 goods consumed within Ahmedabad, currently accounts for 12% of the total just a replacement of the demand for Kheda industrial area 2 - 20 5 - 18 whether offline or online, is categorised in space requirement of the consumption- space by brick-and-mortar stores. Going the retail spending. led demand. While brick-and-mortar forward, we believe that the share of the Naroda industrial area 26 - 47 45 - 70 stores still lead in terms of space E-tail sector will increase further in the Among the various product categories, Changodar industrial belt 24 - 45 30 - 50 requirement, at 5 mn sq ft, the E-tail total retail spending of consumers. This apparel, sportswear and footwear segment contributes up to 0.7 mn sq ft. will invariably lead to a higher demand for Sanand industrial area 40 - 60 60 - 80 together have the highest share in This is significant, considering that until warehousing space from this segment in demand. Other prominent product Kalol industrial area 55 - 75 70 - 90 just a few years ago, this entire segment the coming years. categories include food and beverages, was non-existent. Source: Knight Frank Research department stores and daily needs. The
16 17 INDIA WAREHOUSING MARKET REPORT RESEARCH
4.3 RENT AND LAND COST OF development of a robust logistic a challenge for warehouse occupiers that FEASIBLE LAND COST MATRIX ON THE ASLALI-KHEDA WAREHOUSING BELT WAREHOUSES ecosystem with transporters, freight service time-sensitive industries such as (` MN/ACRE) operators, warehouse operators and auto and auto ancillary, where they follow Rental value Investor return per annum Warehouses that are closer to all the other allied service operators just-in-time inventory concepts. The Aslali-Kheda (`/sq ft/month) Ahmedabad in locations such as Aslali located within this area. Hence, despite 14% 16% 18% warehousing belt will and Jetalpur are currently quoting the the steep escalation in rental values 4.6 OUTLOOK 10 6 4 2 highest rental values. The rents in these for warehouses, a large number of The Aslali-Kheda warehousing belt will continue to remain locations start from `14/sq ft/month occupiers still prefer to operate from 12 11 8 5 continue to remain as the preferred and in certain cases go as high as `20/ locations that are in close proximity to as the preferred warehousing destination in Ahmedabad 14 16 12 10 sq ft/month, depending on the quality Aslali. This logistics ecosystem that has due to the various inherent advantages warehousing of the warehouse and access from the developed in this cluster provides it with 16 21 17 13 that it offers compared to the other highway. However, there are numerous a distinctive competitive advantage over locations. The sharp appreciation in land 18 26 21 18 destination in reinforced cement concrete (RCC) the other warehousing clusters within the prices in Aslali and Jetalpur have led to structures located in Aslali that offer Ahmedabad region. 20 31 26 21 Ahmedabad due to warehousing space for as low as `11/ the development of locations such as sq ft/month. These are very old godown- Another advantage of this warehousing Bareja, Kanera, Gobhalaj and Kheda Note: The table presents 18 options of land cost in ` mn/acre at different investor returns and rental value combinations. The the various inherent over the past ten years. Since land prices 13 options that are possible to source on this warehousing belt and are upwards of the minimum prevailing land rate, which type structures with poor amenities belt is its accessibility to all the major is `6 mn/acre on this belt, have been highlighted in colour. and hence are offered at a significant retail hubs of the city. The excellent in these emerging locations are still advantages that it below the `15 mn/acre mark, there are Source: Knight Frank Research discount compared to the pre-engineered quality of road infrastructure and minimal offers compared to building (PEB) type structures. Currently, traffic congestion enables a warehouse sufficient feasible options for warehouse Assumptions a large number of the occupiers are occupier to supply products from the development even at the prevailing the other locations. relocating from these RCC structures warehouse to anywhere in the city within rentals. Construction cost (`/sq ft) 1,200 towards modern PEB structures due 60 minutes. Since land cost is the most critical Ground coverage 57% to the various inherent advantages component of warehousing development, such as higher floor strength, fire safety Lack of residential development is Rental escalation per annum 5% it influences the realisable returns to a equipment, security, common amenities another advantage that this cluster great extent. In order to understand the 50%: First year and good quality of approach road. scores over other areas. Unlike west, north and east Ahmedabad, demand feasibility of land cost for warehousing Occupancy 75%: Second year The rental value reduces as we move for housing in South Ahmedabad is activities, we have developed a land cost 100%: Third year onwards further away from Ahmedabad towards relatively weak due to the presence of matrix. This matrix explains the feasible Kheda on the highway and touches various industrial estates in this region. land cost that an investor should ideally Debt funding 80% of construction cost as low as `10/sq ft/month in Kheda. This has limited the scope for residential pay on this belt in order to achieve the Interest rate 12% Similarly, land rates are the highest in development and hence restricted the expected return in the range of 14%-18% Aslali and reduce as we move towards growth in land prices compared to the per annum, subject to the achievable Tax rate 30% rents. For example, with a returns Kheda on the highway. other regions of the city. Such a scenario Cap rate 10% inherently works in favour of warehousing expectation of 16% per annum and an INDICATIVE RENTAL VALUES AND achievable rental value of `16/sq ft/ development as the limited potential of Currently, most of the locations on 18%, if he is able to source land at the up to 16% per annum. Going forward, we LAND RATES month, the feasible land cost amounts to alternate land-use not only keeps the this belt are feasible for warehousing lower range. However, such land parcels believe this belt will continue to attract `17 mn/acre. In other words, investors land prices in check but also feasible for activities at the prevailing land rates, are not available with direct access from both warehouse developers as well as Location Rent Land rate can fetch a 16% per annum return only such activities. subject to a minimum achievable rental the highway, rendering them unsuitable occupiers on the back of affordable land (`/sq ft/ (` mn/acre) if they are able to purchase land at or value of `10/sq ft/month. However, rental for warehouse operations. While an prices and competitive rental values. month) 4.5 CHALLENGES below `17 mn/acre at present and lease it values below this level may not even access road can be constructed by the at `16/sq ft/month. As the purchase price Aslali 14 - 20 18 - 32 fetch returns of 14% per annum to the warehouse developer, this could push the While the Ahmedabad city centre of land goes higher, the realisable return investors at the current land prices. cost of development significantly high Bareja 12 - 14 9 - 14 and Vatva industrial areas are quickly reduces. Similarly, as the achievable accessible from the Aslali-Kheda and make it unviable at the existing rental rental value increases, the feasibility of For investors to achieve returns upwards Kanera 12 - 14 7 - 12 warehousing belt, accessing emerging value. higher-cost land also goes up. of 18% per annum, it is imperative that Gobhalaj 10 - 12 6 - 9 industrial locations such as Changodar the land acquisition cost does not exceed The Aslali-Kheda belt has ample and Sanand takes relatively longer time. Kheda 10 - 12 4.5 - 6 `21 mn/acre and that it can be leased feasible options for investors looking Since most of the new industries are out at a minimum rental value of `20/ to earn returns in the range of 14%- Source: Knight Frank Research being set-up in either Changodar or sq ft/month. Considering the current 16% per annum. Locations such as Sanand, it becomes imperative for the 4.4 COMPETITIVE ADVANTAGES market scenario, only Aslali is able to Bareja, Kanera, Gobhalaj and Kheda vendors of these units to be located as command a rental value upwards of `18/ have sufficient land parcels available Aslali has historically been the dominant close to them as possible. Supplying sq ft/month. Since the prevailing market in the range of `6-14 mn/acre. At the warehousing market in Ahmedabad materials from a warehousing location price of land in this location ranges from prevailing rental range of `10-14/sq ft/ and over the years has become the such as Gobhalaj on the Aslali-Kheda `18-32 mn/acre, a warehouse developer month, these locations offer numerous transportation and logistics hub belt to Sanand could take anywhere can fetch annual returns upwards of opportunities to investors to fetch returns of the city. This has resulted in the between 60 – 80 minutes. This could be
18 19 INDIA WAREHOUSING MARKET REPORT RESEARCH
5. CHANGODAR-BAGODARA WAREHOUSING BELT 5.3 RENT AND LAND COST OF hub of Sanand can be accessed within Bhayala and Bagodara. WAREHOUSES a travel time of 40-60 minutes from here, thereby negating the need to have a Since land cost is the most critical The saturation of vacant land parcels in e-commerce and FMCG players has Warehouses that are closer to Changodar separate warehouse in order to service component of warehousing development, the erstwhile industrial hubs of Naroda been building up. are quoting the highest rental values. The the industries located near Sanand. With it influences the realisable returns to a and Vatva resulted in a large number of rents in these locations start from `16/sq ample availability of land near Bavla great extent. In order to understand the manufacturers setting up their greenfield Select warehouse operators ft/month and in certain cases go as high and Sanand for industrial development, feasibility of land cost for warehousing plants in Changodar on the Ahmedabad- SNK Logistics Park as `20/sq ft/month, depending on the demand for warehousing space will activities, we have developed a land Rajkot highway. The development of Crystal Indus & Logistic Park quality of the warehouse and access from continue to remain strong in this belt cost matrix. This matrix explains the this area as an industrial hub shaped the highway. However, there are a few going forward. feasible land cost that an investor the demand for warehouses, especially Shree Rajlaxmi Logistics RCC structures located here that offer should ideally pay in this belt in order to industrial warehouses. With increased warehousing space for as low as `12/ 5.5 CHALLENGES achieve the expected return in the range 5.2 LOCATION AND INFRASTRUCTURE urbanisation and rising land prices, sq ft/month. These are very old godown- of 14%-16% per annum, subject to the warehousing development started The biggest challenge that the The Changodar-Bagodara warehousing type structures with poor amenities and achievable rents. For example, with a shifting southwards on this highway warehousing sector faces in this belt is belt is located in the south-western part hence are offered at a significant discount returns expectation of 16% per annum towards Bavla and Bhayala. Over the last the availability of viable land parcels. of the city on the Ahmedabad-Rajkot compared to the PEB type structures. and an achievable rental value of `16/sq few years, this shift has continued further The strong preference of manufacturing highway and starts from Sarkhej and ft/month, the feasible land cost amounts south on the highway, with warehousing The rental value reduces as we move units to be located in this belt creates stretches till the town of Bagodara. This to `17 mn/acre. In other words, investors development stretching all the way till further away from Changodar towards unwarranted competition for warehouse highway is currently a four-lane national can fetch a 16% per annum return only Bagodara. Bhayala on the highway and touches as operators in terms of purchasing land. highway and connects Ahmedabad with if they are able to purchase land at or low as ` 11/sq ft/month near Bagodara. Since most manufacturers purchase Rajkot and Kutch. Due to the immense below `17 mn/acre at present and lease it Since the demand drivers for all the Similarly, land rates are highest in land for captive use with a time horizon traffic that this highway attracts, the at `16/sq ft/month. As the purchase price warehouse locations along Ahmedabad- Changodar and reduce as we move of more than 30 years, their feasibility government has already initiated the of land goes higher, the realisable return Rajkot highway are similar, we have towards Bagodara on the highway. for higher cost land increases. This is process of converting it from a four-lane reduces. Similarly, as the achievable clubbed these locations into a single in contrast to a warehouse developer road to a six-lane one. This will provide rental value increases, the feasibility of warehousing cluster for the purpose INDICATIVE RENTAL VALUES AND whose viability to purchase a land parcel a major fillip to the already thriving higher-cost land also goes up. of this report and called it as the LAND RATES is determined by the maximum rent that warehousing market as newer land ‘Changodar-Bagodara warehousing can be fetched from it. This restricts parcels towards Bagodara will become belt’. In the following sections, we have Location Rent Land rate the ability of a warehouse operator to feasible for warehousing development in Warehouses that are explained the types of warehouses, (`/sq ft/ (` mn/ purchase land at high cost as it could the coming years due to reduced travel major players, market characteristics, month) acre) jeopardise his entire business model. closer to Changodar infrastructure development, prevailing time. Changodar 16 - 20 18 - 40 Hence, on the one hand the presence of rentals and land rates, challenges and the manufacturing units helps in sustaining are quoting the highest future outlook for this belt. Bavla 14 - 16 13 - 24 ROAD DISTANCE AND TRANSIT TIME TO IMPORTANT LOCATIONS FROM demand for warehouses in this belt; rental values. The rents it also pushes up the price of land for 5.1 TYPES OF WAREHOUSES AND CHANGODAR-BAGODARA WAREHOUSING BELT Bhayala 12 - 15 7 - 12 warehouse developers. in these locations start MAJOR PLAYERS Bagodara 11 - 14 4 - 6 Distance from: Km Travel time in mins from `16/sq ft/month Source: Knight Frank Research 5.6 OUTLOOK Warehouses in locations such as Bavla, Ahmedabad city centre 20 - 60 40 - 75 and in certain cases Bhayala and Bagodara are relatively 5.4 COMPETITIVE ADVANTAGES The Changodar-Bagodara warehousing Vatva industrial area 28 - 65 40 - 75 recent constructions. Most of the belt is slowly emerging as an alternate to go as high as `20/sq development on these roads comprises Kheda industrial area 45 - 55 50 - 60 The biggest competitive advantage of the the existing warehousing belt of Aslali- pre-engineered building (PEB) type Changodar-Bagodara warehousing belt is ft/month, depending Naroda industrial area 48 - 86 65 - 100 Kheda due to the inherent advantage structures with 24-foot clear height and its proximity to the largest industrial hub of being located in close proximity on the quality of the basic infrastructure such as security, Changodar industrial belt 0 - 40 0 - 45 of Ahmedabad - the Changodar industrial to the major industrial clusters of ample parking space, fire-fighting area. Over the last twenty years, warehouse and access Sanand industrial area 30 - 60 40 - 70 Changodar and Sanand. However, the equipment and insulation, among others. Changodar has emerged as the most sharp appreciation in land prices over from the highway. Some of the prominent occupiers on Kalol industrial area 45 - 85 60 - 90 preferred industrial area in Ahmedabad, the previous five years due to strong this belt are LG, TCI, FedEx and Yazaki. with all the major pharmaceutical and Source: Knight Frank Research demand for industrial land is rendering However, there are a While Changodar still houses some of the engineering companies setting up their certain locations unviable for warehouse few RCC structures old godown-type structures, majority of production units here. The demand for development. Changodar, where land the warehouses on this belt are of PEB warehousing space from the suppliers prices in certain pockets have already located here that offer structure. and vendors of these manufacturing crossed the `40 mn/acre mark, has warehousing space for units has helped in establishing a limited scope for further warehousing Currently, most of the incremental vibrant warehousing market on this belt. development. Nonetheless, the demand for warehousing space in as low as `12/sq ft/ Additionally, the emergence of Sanand opportunities for investors lay beyond this belt comes from manufacturing as the automobile and engineering hub Changodar on the Ahmedabad-Rajkot month companies and 3PL players. However, over the past five years has provided highway in locations such as Bavla, over the last few years, demand from further impetus to this belt. The industrial
20 21 INDIA WAREHOUSING MARKET REPORT RESEARCH
FEASIBLE LAND COST MATRIX ON THE CHANGODAR-BAGODARA WAREHOUSING BELT (` MN/ACRE) The Changodar- Rental value Investor return per annum (`/sq ft/month) Bagodara belt has 14% 16% 18% ample feasible options 10 6 4 2 12 11 8 5 for investors looking 14 16 12 10
to earn returns in 16 21 17 13 the range of 14%- 18 26 21 18 16% per annum. 20 31 26 21 Locations such as Note: The table presents 18 options of land cost in ` mn/acre at different investor returns and rental value combinations. The 11 options that are possible to source in this warehousing belt and are upwards of the minimum prevailing land rate, which is Bavla, Bhayala and `6 mn/acre in this belt, have been highlighted in colour. Source: Knight Frank Research Bagodara have
sufficient land parcels Assumptions
available in the range Construction cost (`/sq ft) 1,200 of `6-24 mn/acre. At Ground coverage 57% the prevailing rental Rental escalation per annum 5% 50%: First year range of `11-16/sq ft/ Occupancy 75%: Second year month, these locations 100%: Third year onwards
offer numerous Debt funding 80% of construction cost opportunities to Interest rate 12% investors to fetch Tax rate 30% returns up to 16% per Cap rate 10% annum
Currently, most of the locations in this month. Considering the current market The Changodar-Bagodara belt has ample belt are feasible for warehousing activities scenario, only Changodar is able to feasible options for investors looking to at the prevailing land rates, subject command a rental value upwards of `18/ earn returns in the range of 14%-16% to a minimum achievable rental value sq ft/month. Since the prevailing market per annum. Locations such as Bavla, of `10/sq ft/month. However, rental price of land in this location ranges from Bhayala and Bagodara have sufficient values below this level may not even `18-40 mn/acre, a warehouse developer land parcels available in the range of `6- fetch returns of 14% per annum to the can fetch annual returns upwards of 18% 24 mn/acre. At the prevailing rental range investors at the current land prices. if he is able to source land at the lower of `11-16/sq ft/month, these locations range. However, such land parcels are offer numerous opportunities to investors Investors with a return expectation of not available with direct access from to fetch returns up to 16% per annum. 18% per annum and above will not be the highway, rendering them unsuitable Going forward, we believe that this belt able to operate in this belt. In order to for warehouse operations. While an will continue to attract both warehouse achieve returns upwards of 18% per access road can be constructed by the developers as well as occupiers on annum, it is imperative that the land warehouse developer, this could push the the back of affordable land prices and acquisition cost does not exceed `21 cost of development significantly high competitive rental values. mn/acre and that it can be leased out and make it unviable at the existing rental at a minimum rental value of `20/sq ft/ value.
22 23 INDIA WAREHOUSING MARKET REPORT RESEARCH
1. MAJOR WAREHOUSING CLUSTERS IN BENGALURU
Bengaluru (formerly Bangalore), the to the industrial and warehousing In terms of industrial activity, Bengaluru capital city of the southern state of activities in Bengaluru. In terms of has precedents like Peenya industrial Karnataka, is recognised globally as geography, the city is land locked and area – yesteryears biggest industrial the technology capital of India. While connectivity to Mumbai and Chennai hub in Asia. As a result, the biggest Bengaluru is the epicentre, the growth for port is an important factor. Towards warehousing cluster has come up in the has spread to the larger geography the north-west, the National Highway neighbouring Nelamangala-Dabaspete identified as the Bengaluru Metropolitan (NH)-4 connects the city to Mumbai at belt on the Bengaluru to Mumbai Region (BMR). The BMR, which approximately 971 km, and the same highway. Similarly, towards the east comprises Bengaluru urban district, NH-4 connects Bengaluru to Chennai of the city is Soukya Road warehouse Bengaluru rural district and Ramanagara towards the east at approx 340 km. With cluster that has come up in close vicinity district, is spread over an area of 8,005 a population base of 9.52 million, coupled of the Whitefield IT/ITeS cluster. The sq km. The industrial and warehouse with serving as a gateway to southern other small factions of warehouses have clusters and the new international airport India, the city is important from the come up in Bidadi on Mysore Road are located across the larger geography, consumption market perspective. Hence, and Bommasandra on Hosur Road, on i.e. the BMR. the warehousing clusters have come up account of the industrial areas in the in light of such factors. southern part of the city. BENGALURU Certain factors have lent a characteristic
MAJOR WAREHOUSING LOCATIONS IN BENGALURU
CLASSIFICATION OF WAREHOUSING LOCATIONS INTO MAJOR CLUSTERS
Warehousing cluster Major warehousing locations Nelamangala-Dabaspet Nelamangala, T Begur, Govenahalli, Dabaspete Others Soukya Road in East Bengaluru, Bidadi on Mysore Road, Bommasandra on Hosur Road
24 25 INDIA WAREHOUSING MARKET REPORT RESEARCH
2. TOTAL REQUIREMENT FOR WAREHOUSING SPACE 3. DEMAND DRIVERS OF WAREHOUSING SPACE IN BENGALURU We have estimated the warehousing of the manufacturing sector is fulfilled by portion of this requirement is witnessing space requirement for the Bengaluru captive space, either in terms of space heightened activity on the emergence market from two sub components, one at the manufacturer’s plant or company- of the E-tail sector, which has created The drivers of demand have been 3.1 MANUFACTURING-LED DEMAND handful of logistics players like Unity being the manufacturing sector and owned warehouses. Although the trend of the need for sophisticated supply chain classified by us as manufacturing-led Logistics and Caravel Logistics. Bengaluru has precedents like Peenya another being the consumption/retail leasing a warehouse rather than owning it systems to ensure faster deliveries at demand and consumption-led demand. industrial area – yesteryears biggest segment. The total warehousing space is steadily picking up with the emergence controlled costs. The demand from the manufacturing industrial hub in Asia. This speaks requirement in the Bengaluru market is of third-party logistics players (3PL), it sector arises predominantly due to the about the early success of industrial thus estimated at 77 mn sq ft. At 71% is still at a nascent stage compared to Of the total warehousing space distance between the manufacturer’s activity in the region. To assess the or 55 mn sq ft, the manufacturing sector developed markets like the USA. requirement, the leasable warehousing factories, raw material suppliers and the scope of manufacturing-led demand accounts for a lion’s share, followed by market in Bengaluru is estimated consumption markets of the final goods. for warehousing, we have captured the the retail sector which accounts for 22 In contrast, the consumption-led at around 60 mn sq ft. The annual The need to store the raw materials length and breadth of manufacturing mn sq ft of the warehousing requirement. warehouse requirement is close to urban transaction volume for the market is or final goods due to this distance, agglomerations and thus in leased approximately 4 mn sq ft. determines the amount of space required activity across the city that can be A part of the warehousing requirement premises close to such urban centres. A by each manufacturer. The quantum of covered at a motorable distance of space required is also dependent on the around four hours. TOTAL REQUIREMENT FOR WAREHOUSING SPACE IN BENGALURU type of product that is manufactured. As such, at 14% the metals sector Hence, each manufacturer will have leads the share in manufacturing a different requirement for space, output followed by textiles and auto depending on these factors. and auto ancillary industries. The other Total warehousing Separately, the consumption-led important industries are food processing, space requirement demand for warehousing is dependent engineering, petroleum and chemicals and pharmaceutical. In terms of the 77 mn sq ft on population, income level and the propensity to spend. The changing resultant warehousing demand, of the dynamics of the retail industry has total manufacturing-led demand, metal resulted in the business model of a contributes the largest at 12 mn sq ft, retailer becoming heavily dependent followed by auto and auto ancillary and on a smooth and efficient supply chain chemicals and pharmaceutical sector at network. In addition to this, the advent of 11 mn sq ft and 10 mn sq ft respectively. 55 mn sq ft 22 mn sq ft E-tail in recent years has necessitated the With the In terms of the geographical footprint, need for huge warehouses close to urban in the heart of Bengaluru city, Peenya construction of the centres in order to deliver in the shortest industrial area along the Bengaluru- possible time. Such factors have brought Tumkur Highway (NH-4), is amongst the NICE Ring Road, the warehousing industry to the forefront larger industrial clusters in the city. Over of the retail business and compelled Nelamangala- 3 mn sq ft the last four decades, the cluster has retailers to focus on this segment. 19 mn sq ft been home to a host of industries from Dabaspete cluster 12 mn sq ft 8 mn sq ft engineering, electrical goods and textile In the following sections, we have witnesses the identified the key manufacturing sector. However, with the population industries in Bengaluru, their current growth of the city, and its neighbourhood vehicular traffic flow warehousing requirement, the major development as residential market, the manufacturing hubs and the various industrial growth is stunted. between Mumbai 6 mn sq ft 3 mn sq ft regions in and around Bengaluru from 11 mn sq ft 9 mn sq ft In the western region, the Kumbalgodu- where the requirements originate. and Chennai, Bidadi belt on Mysore Road is another Similarly, in terms of consumption, we important industrial cluster in the BMR. thereby increasing have identified the current warehousing The 15-km Kumbalgodu-Bidadi stretch requirement of brick-and-mortar stores is a good quality 2x2 lane highway with the acceptance level 2 mn sq ft 3 mn sq ft and the E-tail segment. divider and is connected to the critical for warehousing 6 mn sq ft 10 mn sq ft Nandi Infrastructure Corridor Enterprises Demand drivers (NICE) road. Bidadi is an auto cluster with Source: Knight Frank Research in Bengaluru Note 1: The warehousing space requirement mentioned in the chart above is the total space manufacturing units of automobile and requirement (estimated warehouse stock) as of August 2016. The majority of the warehousing auto ancillary companies. Companies requirement of the manufacturing sector is fulfilled by captive space, either in terms of space 1 mn sq ft 2 mn sq ft like Toyota Kirloskar, Bosch and Lumax at the manufacturer’s plant or company-owned warehouses Manufacturing Consumption have industrial units here. The cluster led demand led demand Note 2: The food & beverages category includes all the dining, quick service restaurants is an industrial belt with a non-descript (QSR) and takeaways. The daily needs category includes all the FMCG products, grocery and warehousing footprint. There are a other such daily retail products that are consumed on a regular basis 4 mn sq ft
26 27 INDIA WAREHOUSING MARKET REPORT RESEARCH
Towards Hosur Road, down south, is FIGURE 1 MANUFACTURING CLUSTERS WITHIN BENGALURU the old industrial area of Bommasandra. SHARE IN OUTPUT OF THE VARIOUS MANUFACTURING INDUSTRIES IN The cluster is an old industrial area BENGALURU with non-significant warehousing activity. The National Highway-7, a 3x3 well-maintained highway with a service road, provides it the primary Metals connectivity. The NH-7 is a preferred route over the NH-4 (Old Madras Road) 14% Textiles 23% for cargo movement towards Chennai Auto and auto ancillary port. This makes it an important inter- 13% state transport corridor too. The 10 Food processing km Jigani-Bommasandra Link Road, 7% Engineering which is a 2x2 road, is an extension of this cluster. A host of pharmaceutical 8% 12% Petroleum products companies like Cipla, Biocon and Micro Labs have manufacturing facilities in Chemicals and pharma 11% 12% this cluster. Over the last decade, the Others real estate development on account Source: Annual Survey of Industries (ASI) and Knight Frank Research of the neighbouring IT/ITeS hub of Electronics City has pushed the land rates higher in this cluster and going forward new industrial development will be affected owning to the high land cost. Warehousing is not a feasible activity FIGURE 2 in this cluster and is non-descript as a WAREHOUSING SPACE REQUIREMENTS OF MAJOR MANUFACTURING result. INDUSTRIES IN BENGALURU On the NH-4 (Old Madras Road) towards 12 811 9 610 the east of Bengaluru city is the Hoskote- 20 Narsapura industrial belt. This 25 km 18 stretch has access through a 3x3 quality road with divider and connects Bengaluru 16 to Chennai. The stretch has developed 14 as an industrial cluster with dominance 12 from the automobile and auto ancillary industry, on account of the proximity 10
mn sq ft to the automobile manufacturing hub 8 of Sriperumbudur in Tamil Nadu. Land 6 prices in this cluster are influenced by the area of Dabaspet has manufacturing consumed within Bengaluru, whether regular basis.
4 residential development until Hoskote, units from industries like automobile, offline or online, is categorised in the as well as the manufacturing plants of pharmaceutical and food and beverage. retail spending. 2 players from the automobile sector on Ample land availability and the 0 the Hoskote-Narsapura belt. Hence, connectivity to Mumbai have made it a Bengaluru has emerged as a top IT/ warehousing is kept at bay because of significant warehouse cluster. ITeS services exporter in the country extiles Metals and accordingly this services sector T high land prices. From the perspective of ocessing Auto and
Chemicals 3.2 CONSUMPTION-LED DEMAND demography has resulted into a booming Engineering
and pharma warehousing, only a handful of old timers auto ancillary like Sairam Logistics are present here. consumption market in the city. The city Food pr Consumption-led demand for Source: Knight Frank Research has a vibrant consumer culture on the Towards the west of Bengaluru city warehousing is driven by the demography back of a 9.52 mn strong population. Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse on Tumkur Road, is the Nelamangala- of the catchment that it is expected to stock) as of August 2016. This is calculated on the basis of the latest output data from ASI. The majority of the warehousing Dabaspet cluster. The 30 km stretch serve. As per our methodology, this is Apparel, sportswear and footwear is requirement of the manufacturing sector is fulfilled by captive space, either in terms of space at the manufacturer’s plant or captured through retail spending not the biggest contributor of the retail company-owned warehouses of this cluster is located on the NH-4, which connects Bengaluru city to the only through traditional brick-and-mortar spending followed by department stores critical port city Mumbai. The region is stores, malls, shopping streets and and daily needs categories. The daily host to warehouses from automobile, mom-and-pop stores but also spending needs category includes all the FMCG electronics, consumer durables and through the e-commerce medium. products, grocery and other such daily FMCG companies. Besides, the industrial Hence, any type of consumer goods retail products that are consumed on a
28 29 INDIA WAREHOUSING MARKET REPORT RESEARCH
FIGURE 3 FIGURE 5 4. NELAMANGALA-DABASPETE WAREHOUSING CLUSTER CATEGORY-WISE SPLIT OF RETAIL SPENDING IN BENGALURU WAREHOUSING SPACE Towards the west of Bengaluru city 4.1 TYPES OF WAREHOUSES AND 4.2 LOCATION AND INFRASTRUCTURE REQUIREMENTS BY E-TAIL AND on Tumkur Road, is the Nelamangala- MAJOR PLAYERS BRICK-AND-MORTAR STORES The Nelamangala-Dabaspete cluster is Apparel, sportswear and footwear Dabaspet cluster. The 30 km stretch 7% of this cluster is located on the NH-4, The warehouses in this cluster are largely on the important Bengaluru to Mumbai Food and beverages 6% which connects Bengaluru city to the those with modern facilities with a few highway, which is a 3x3-lane excellent 24% 15% 8% Department stores critical port city, Mumbai. This cluster old warehouses by unorganised players. road with service lanes, ensuring A large number of third party logistics seamless traffic movement. The road Daily needs predominantly comprises markets like players are present in the cluster with width does go down to a 2x2 lane at T 10% Nelamangala, T Begur, Govenahalli, Home and lifestyle and Dabaspete. The region is a host facilities upwards of 0.5 million sq ft. Begur, but the quality remains upright. 13% Electronics to warehouses from automobile, The NICE Ring Road further enhances The project size in the cluster ranges 16% electronics, consumer durables and its connectivity to the south and eastern Watches, jewellery and accessories from 50,000–1,000,000 sq ft and are 16% FMCG companies. Besides, the industrial parts of the city. With the construction predominantly pre-engineered buildings Others 85% area of Dabaspet has manufacturing of the NICE Ring Road, the road traffic (PEB). The nature of the cargo handled units from industries like automobile, movement from Mumbai to Chennai is Source: Knight Frank Research by the occupier determines the choice of pharmaceutical and food and beverage. handled first on the Bengaluru to Mumbai the structure. Since PEB structures offer Brick-and-mortar stores E-tail Ample land availability and the highway and further on the NICE Ring relatively more vertical storage space Road, thereby avoiding the Old Madras FIGURE 4 Source: Knight Frank Research connectivity to Mumbai have made it a on account of their greater floor–ceiling Road (Hoskote-Narsapura belt). This WAREHOUSING SPACE REQUIREMENTS FOR THE MAJOR RETAIL CATEGORIES significant warehouse cluster. height, such structures are preferred by has increased the importance of the IN BENGALURU We have estimated the consumption- Since, the demand drivers for all occupiers that use pallets and electric- Nelamangala-Dabaspete warehouse led warehousing requirement at 22 mn these warehouse locations are similar, powered forklifts for the purpose of cluster. Thus this cluster enjoys proximity sq ft of which the apparel, sportswear 6.5 3.3 3.4 2.4 1.8 1.4 3.7 we have clubbed the locations into stacking cargo. PEB structures generally to almost all the manufacturing and 10 and footwear category contributes 29%. a single warehousing cluster for the provide a side/clear height of 24–28 ft. consumption hubs of Bengaluru within a The second largest contributor is the 9 purpose of this report and named it the In contrast, RCC structures provide just driving time of two hours, as indicated in food and beverages and the daily needs ‘Nelamangala-Dabaspete warehousing 12–14 ft of vertical space for storage. The the adjoining table. 8 categories with almost similar shares of cluster’. In the sections below, we have load bearing capacity of the floor is trimix 7 15% each. Further, with the emergence explained the primary demand drivers 5 metric tonne per sq m. The roads are of excellent quality for of the E-tail segment in the last few 6 of warehousing space in this cluster, movement of cargo traffic, and similarly, years, its share in the consumption-led market characteristics, infrastructure Select warehouse operators the ecosystem for warehousing has 5 warehousing requirement stands at 15%. mn sq ft development, prevailing rentals and land Vijay Logistics developed in terms of services for trucks 4 Going forward, we believe that the share rates, challenges and the future outlook. and cranes, roofing and garages. of the E-tail sector will increase further in TVS Logistics 3 the total retail spending of consumers. RCPC Supply Chain 2 TCI 1 In terms of the geographical footprint, the 6-km Soukya Road belt has emerged as VRL 0 the top warehousing cluster for the retail
onics facing companies like Aditya Birla Nuvo, Others Madura Garments, Decathlon, Raymond
Electr ROAD DISTANCE AND TRANSIT TIME TO IMPORTANT LOCATIONS FROM Daily needs
and footwear and Max. Even the e-commerce firms
el, sportswear NELAMANGALA-DABASPETE WAREHOUSING BELT and accessories
atches, jewellery like Amazon, Flipkart, Myntra and ABOF Home and lifestyle W Food and beverages Appar have taken up warehouses in this cluster. Distance from: Km Travel time in mins Source: Knight Frank Research The proximity to the residential and office markets of Whitefield and Electronic City Bengaluru city centre 30 - 50 60 - 90 Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of August 2016. This is calculated on the basis of the latest consumption data. The food & beverages category make it a preferred choice amongst these Whitefield 45 - 70 105 - 120 includes all the dining, quick service restaurants (QSR) and takeaways. The daily needs category includes all the FMCG e-commerce firms, which are witnessing products, grocery and other such daily retail products that are consumed on a regular basis. shrinking delivery timelines. Electronic City 50 - 75 60 - 90 Narsapura industrial area 75 - 95 105 - 120 Similarly, Nelamangala-Dabaspete, the largest warehousing cluster in the city, is Bidadi industrial area 45 - 65 60 - 75 also a contender for the consumption-led Jigani industrial area 50 - 75 60 - 90 demand with the presence of occupiers like Tata Global Beverages, Crown Source: Knight Frank Research Electronics, Pantaloons and Shop CJ e-commerce.
30 31 INDIA WAREHOUSING MARKET REPORT RESEARCH
4.3 RENT AND LAND COST OF for which the landlord and tenant are per sq ft per month, this cluster fares the warehousing hub of Soukya Road. 30-km stretch, there is scope for investor should ideally pay in this cluster WAREHOUSES bound to honour the occupancy, varies well. The ample land availability implies enhancement of internal roads, which can in order to achieve the expected returns largely on a case-to-case basis, usually in that the rentals will continue to remain 4.6 OUTLOOK further aid the growth of the warehousing in the range of 12–18% per annum, The rent and land cost dynamics in this excess of five years. The characteristics affordable for a considerable amount of market considering the existing land subject to the achievable rents. For The Nelamangala-Dabaspete cluster warehouse cluster are influenced by of an industrial and warehousing market time. values are much lower 2–3 km off the example, with a return expectation of with its inherent strengths scores over the alternative development options and ample land availability will ensure highway. 14% per annum and an achievable rental other smaller warehouse clusters in the in the neighbouring markets. Moving steady supply of warehouses in this With the construction of the NICE value of `12/sq ft/month, the feasible city. The availability of land and excellent from the Bengaluru city centre towards cluster going forward also. Ring Road, this cluster witnesses the From the pricing perspective, i.e. the land cost amounts to `11 mn/acre. In quality roads will ensure steady supply of Nelamangala, there is no attraction for vehicular traffic flow between Mumbai achievable rent or on-going land rates, other words, investors can fetch a 14% warehouses going forward as well. high-rise residential development beyond INDICATIVE RENTAL VALUES AND and Chennai, thereby increasing the this hub offers a range of options. per annum return only if they are able Yeshwantpur. The kind of residential LAND RATES acceptance level for warehousing. This With land rate as the most important Geographically, we believe that in the to purchase land at or below `11 mn/ development around Nelamangala and ring road has also provided connectivity determinant of warehouse financial cluster, the T Begur to Dabaspete acre at present and lease it at `12/sq ft/ further west on the Mumbai highway is Location Rent Land rate to almost all the manufacturing and feasibility, it is crucial to get it right region holds great potential on account month. As the purchase price of land up to two storey residential developments (`/sq ft/ (` mn/ consumption hubs of Bengaluru within a to achieve success in a warehouse of relatively lower land price within goes higher, the realisable return reduces. in the village areas. Accordingly, the month) acre) driving time of two hours. development project. In order to the cluster, even as good road quality Similarly, as the achievable rental value social infrastructure is also relatively of understand the feasibility of land cost Nelamangala 12 - 16 15 - 35 compensates for the distance travelled increases, the feasibility of higher-cost the lower-end segment compared to The availability of manpower is another for warehousing activities, we have further away from the city. Further, while land also goes up. the city centre or even Whitefield and T. Begur 12 - 15 10 - 20 factor that lends competitive strength developed a land cost matrix. This matrix the cluster itself is an approximately Electronic City. to this cluster. Bengaluru is a densely explains the feasible land cost that an Dabaspete 10 - 14 10 - 30 populated urban agglomeration, and the As indicated in the adjoining table Source: Knight Frank Research presence of old residential catchments reasonable land rates and rents are in and around the cluster ensures an FEASIBLE LAND COST MATRIX ON THE NELAMANGALA-DABASPETE WAREHOUSING BELT (` MN/ACRE) 4.4 COMPETITIVE ADVANTAGES prevailing in the cluster. The rates 1–2 abundant supply of skilled, semi-skilled km off the highway are further lower than The biggest competitive advantage of the and unskilled workers. Rental value Investor return per annum indicated here. The rents displayed in the Nelamangala-Dabaspete warehouse hub (`/sq ft/month) 4.5 CHALLENGES 12% 14% 16% 18% adjoining table reflect the facilities with is its proximity to the densely populated standard construction and amenities. 10 10 6 4 2 consumption hub of Bengaluru. The consumption-led warehousing It would be higher if there are specific This makes it a credible location for requirement, mainly from the 12 14 11 8 5 requirements for flooring, structure consumer-oriented (B2C) companies that e-commerce segment, comes with a set height, insulation and other capex within 14 20 16 12 10 can serve the Bengaluru consumption of challenges for this cluster. With the the facility. market from their warehouses in this e-commerce delivery timelines shrinking 16 25 21 17 13 T Begur to cluster. The next advantage is its Other terms of tenancy may also have a from a few days to same day and now proximity to the manufacturing hubs of a few hours, pockets that are closest Note: The table presents 16 options of land cost in ` mn/acre at different investor returns and rental value combinations. The Dabaspete region bearing on warehouse rents, specifically 9 options that are possible to source on this warehousing belt and are upwards of the minimum prevailing land rate, which is Dabaspete, Narsapura, Mysore Road and clauses related to the security deposit, to the most active consumer base of `10 mn/acre on this belt, have been highlighted in colour. holds great potential Hosur Road. these e-commerce players score over rent escalation and lease tenure. The Source: Knight Frank Research the Nelamangala-Dabaspete cluster. For market practice for the security deposit Warehouse occupiers are sensitive to on account of instance, Whitefield and Electronic City is 4–6 months of rent. The rent escalation rentals and thus, warehousing clusters are the biggest office locations within relatively lower land clause, which determines the quantum that are in a position to offer affordable Assumptions the city and with consumers scheduling and frequency of rental increments, is space would enjoy a competitive same day deliveries to office locations, Construction cost (`/sq ft) 1,200 price within the usually 5% p.a. The market practice for advantage over the others. With some e-commerce firms have preferred lease tenure, i.e. the minimum period warehouse rentals in the range of `10–16 Ground coverage 57% cluster, even as Rental escalation per annum 5% good road quality 50%: First year compensates for the Occupancy 75%: Second year distance travelled 100%: Third year onwards
Debt funding 80% of construction cost further away from Interest rate 12% the city Tax rate 30%
Cap rate 10%
32 33 INDIA WAREHOUSING MARKET REPORT RESEARCH
1. MAJOR WAREHOUSING CLUSTERS IN CHENNAI
Chennai has always been a centre for Warehousing activity in Chennai initially years have seen warehousing activity trade and commerce as is the case with developed in locations such as Guindy mushroom on internal roads branching most port cities. Over the years it has and Ambattur that were promoted out from Sriperumbudur toward also evolved into a manufacturing hub by the Small Industries Development Oragadam, Sunguvarchatram, Mappedu with the automobile industry especially Corporation (SIDCO). However, the and Tiruvallur in the west and toward taking root and expanding in a big turn of the century saw the demand for Periyapalayam and Gummidipoondi in way. This in turn spurred the need for residential and commercial development the north, just off the GNT Road. allied warehousing facilities that have spilling over to the suburbs of Chennai evolved on and around the four arterial and subsequently pushing land prices For the purpose of this report, we have highways that branch out from the centre higher, rendering warehouse development classified the various warehousing of Chennai towards the west such as unviable in these locations. This gave markets into two major clusters: the Grand Southern Trunk Road (GST impetus to warehouse development in Sriperumbudur-Oragadam cluster and the Road/NH 32), Poonamallee High Road peripheral locations where land prices Periyapalayam cluster, based on factors (Bengaluru highway), Chennai Thiruvallur were still viable, such as Oragadam, such as geographical location, access Road (MTH Road) and the GNT Sriperumbudur, Mappedu, Thiruvallur to the city centre and distance from the Road(Kolkata highway, NH 16) toward the in the west and Periyapalayam in the major manufacturing hubs. CHENNAI north. north that are between 40 and 60 km away from the city centre. Recent
34 35 INDIA WAREHOUSING MARKET REPORT RESEARCH
MAJOR WAREHOUSING LOCATIONS IN CHENNAI common warehousing facility, to multiple In contrast to the manufacturing-led with the advent of the E-tail sector, manufacturers, thereby reducing the need requirement for warehousing space, the need for warehousing space close to have a separate warehouse. consumption-led requirement is mostly to the consumption centres has also for leasable space, with very few increased significantly. With the share The Goods and Services Tax (GST) will operators fulfilling their needs through of E-tail expected to rise steadily in the ensure the development of integrated a captive warehouse. This is primarily coming years, we estimate the demand big box warehousing facilities that due to the need to have a fulfilment for warehouses from this segment to will encourage a large number of centre as close to the urban area as increase proportionately as well. The total manufacturers to outsource their logistics possible in order to ensure quick delivery. leasable market in Chennai is currently and warehousing requirements and Over the last ten years, this segment estimated to be in the range of 15-20 focus on their core operations. This will has witnessed a renewed traction, mn sq ft. However, the share of annual create an additional demand for leasable especially in the online retail or E-tail transacted volume is approximately 1-1.5 warehousing space in Chennai in the sector. As the time between placing an mn sq ft. coming years. order and delivery has shrunk drastically
TOTAL REQUIREMENT FOR WAREHOUSING SPACE IN CHENNAI
Total warehousing space requirement
65 mn sq ft
51 mn sq ft 14 mn sq ft
1 mn sq ft 13 mn sq ft 4 mn sq ft 7 mn sq ft
CLASSIFICATION OF WAREHOUSING LOCATIONS INTO MAJOR CLUSTERS 4 mn sq ft 2 mn sq ft Warehousing cluster Major warehousing locations 6 mn sq ft 24 mn sq ft Sriperumbudur-Oragadam cluster Oragadam, Sriperumbudur, Walajabad, Mappedu, Mannur, Tiruvalur and other locations on the in-roads branching from Sriperumbudur Periyapalayam cluster Red Hills, Karanodai, Jagannathpuram, Thatchoor, Periyapalayam
1 mn sq ft 2 mn sq ft 2. TOTAL REQUIREMENT FOR WAREHOUSING SPACE 3 mn sq ft 7 mn sq ft
Chennai’s total requirement for by captive space, either in terms of stage compared to developed markets warehousing space is estimated to be space at the manufacturer’s plant or such as Europe and the US. These 3PL 65mn sq ft, of which approximately company-owned warehouses. Although players, such as Redington, Safexpress, 2 mn sq ft 1 mn sq ft 77%, or 51 mn sq ft, is from the the trend of leasing a warehouse rather Indev Logistics, Nipon Express, DB manufacturing sector. However, the than owning it is steadily picking up with Schenker, Timescan Logistics, Blue Dart majority of the warehousing requirement the emergence of third-party logistics and TCI among others, provide end- of the manufacturing sector is fulfilled players (3PL), it is still at a nascent to-end logistics services, including a 2 mn sq ft
36 37 INDIA WAREHOUSING MARKET REPORT RESEARCH
3. DEMAND DRIVERS OF WAREHOUSING SPACE IN CHENNAI FIGURE 2 WAREHOUSING SPACE REQUIREMENTS OF MAJOR MANUFACTURING The primary demand drivers of on a smooth and efficient supply chain output of Chennai. Ashok Leyland, Royal INDUSTRIES IN CHENNAI warehousing space in Chennai network. In addition to this, the advent of Enfield, Hyundai, Ford Motors, Yamaha, 437 6 24 7 can be broadly classified into two E-tail in recent years has necessitated the Mitsubishi, Renault Nissan, Bharat Benz, 50 categories: manufacturing-led demand need for huge warehouses close to urban TAFE, Caterpillar, Daimler and BMW and consumption-led demand. The centres in order to deliver in the shortest are some of the automobile majors that 45 demand from the manufacturing possible time. Such factors have brought have their manufacturing units located 40 sector arises predominantly due to the the warehousing industry to the forefront in this region. Food processing, which 35 distance between the manufacturer’s of the retail business and compelled includes dairies, rice mills, sugar mills, 30 factories, raw material suppliers and the retailers to focus on this segment. confectionaries, and beverages, among consumption markets of the final goods. others, has the second largest share in 25 In the following sections, we have mn sq ft The need to store the raw materials the output in Chennai. This is followed by 20 or final goods due to this distance, identified the key manufacturing the consumer electronics, engineering, 15 determines the amount of space required industries in Chennai, their current metals and chemicals & pharmaceuticals by each manufacturer. The quantum of warehousing requirement, the major industries. 10 manufacturing hubs and the various space required is also dependent on the 5 type of product that is manufactured. regions within Chennai from where their In terms of the requirement for 0 Hence, each manufacturer will have demand originates. Similarly, in terms warehousing space, the auto and auto a different requirement for space, of consumption, we have identified the ancillary sector leads with approximately onics Metals depending on these factors. For example, current warehousing requirement of 24 mn sq ft. This is followed by the ocessing manufacturers in the automobile industry brick-and-mortar stores and the E-tail remaining industries, each requiring Engineering
segment. warehousing space of around 3–7 mn sq Food pr require their component suppliers to be Source: Knight Frank Research
ft. The city has attracted global leaders Chemicals & pharma uto and auto ancillary able to supply their products at a much Consumer Electr Demand drivers A shorter time frame compared to those in the consumer electronics space such in Chennai Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse in the metals industry. Hence these as Samsung, Dell, Foxconn and Motorola stock) as of August 2016. This is calculated on the basis of the latest output data from the Annual Survey of Industries (ASI). component manufacturers need to be that have invested in large manufacturing 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 located within a one hour driving distance facilities in the city’s periphery. This from their customer. Manufacturing Consumption industry has a requirement of close to led demand led demand 7 mn sq ft and continues to show good Manufacturing activities in Chennai are The above factors clearly indicate that Consumption-led demand, which is an traction in demand. With a steady rise spread across multiple locations. While the demand for manufacturing-led equally important demand driver for 3.1 MANUFACTURING-LED DEMAND in demand for consumer electronics, we locations such as Guindy and Perungudi warehousing space in Chennai will be warehousing space, is largely dependent expect its share in Chennai’s total output used to be the established industrial concentrated primarily along these Chennai is one of the largest on population, income level and the to rise steadily in the coming years and areas in the city, high land prices resulting manufacturing clusters with sectors manufacturing hubs in India and is propensity to spend. The changing cause a subsequent rise in this sector’s from the demand for commercial office such as auto and pharmaceuticals, food a globally recognised hotbed for the dynamics of the retail industry has demand for warehousing. spaces has compelled most of the large processing, metals and textiles leading in automobile industry. Auto and auto resulted in the business model of a manufacturers to shift their production terms of this demand. ancillary companies together account retailer becoming heavily dependent activity outside the city area. The GST for a massive 34% of the manufacturing Road, Bengaluru highway, MTH Road The auto and auto FIGURE 1 and the GNT Road have experienced ancillary companies SHARE IN OUTPUT OF THE VARIOUS MANUFACTURING INDUSTRIES IN prolific growth in industrial development CHENNAI with numerous automobile, consumer account for a Metals electronics, chemical and engineering 6% companies located here. Bulk of the massive 34% of 17% Engineering 8% industrial activity has centred around the manufacturing Consumer Electronics locations such as Sriperumbudur, 8% Oragadam, Maraimalai Nagar, 7% output of Chennai Food processing Gummidipoondi and Periyapalayam on these roads. These locations have 10% 10% Auto and auto ancillary become established industrial locations today with very good roads and allied Petroleum products infrastructure. There is also considerable Chemicals and pharma land available for potential development 34% around the roads connecting these major Others highways.
Source: Annual Survey of Industries (ASI) and Knight Frank Research
38 39 INDIA WAREHOUSING MARKET REPORT RESEARCH
MANUFACTURING CLUSTERS WITHIN CHENNAI a regular basis exceeds only those of FIGURE 3 the electronics and home and lifestyle CATEGORY-WISE SPLIT OF RETAIL SPENDING IN CHENNAI categories.
The E-tail sector has emerged as a major Watches, jewellery and accessories driver for the incremental warehousing 10% 16% Apparel, sportswear and footwear space requirement in recent years and 6% currently accounts for 8% of the total Others space requirement of the consumption- led demand. While brick-and-mortar 14% Departmental Store stores still lead in terms of space requirement at 14 mn sq ft, the E-tail 26% Electronics segment contributes a little over 1 mn 7% Food and Beverages sq ft. This is significant, considering that until just a few years ago, this entire 11% Homes and Lifestyle segment barely existed. 10% Daily needs While the boom in the E-tail sector may
have eaten into the market share of Source: Knight Frank Research the brick-and-mortar stores to a great extent, our analysis indicates that the FIGURE 4 advent of this segment has expanded the overall consumption pie and led WAREHOUSING SPACE REQUIREMENTS FOR THE MAJOR RETAIL CATEGORIES to a substantial increase in the urban IN CHENNAI consumers’ propensity to spend. Hence, the warehousing space requirement 4 2 2 1 123 10 by the E-tail segment is largely the incremental demand for space and not 9 just a replacement of the demand for 8
space by brick-and-mortar stores. Going 7 forward, we believe that the share of the 6 E-tail sector will increase further in the total retail spending of consumers. This 5 mn sq ft will invariably lead to a higher demand for 4 warehousing space from this segment in 3 the coming years. 2
FIGURE 5 1 WAREHOUSING SPACE 0 REQUIREMENTS BY E-TAIL AND onics
BRICK-AND-MORTAR STORES Others Electr Daily needs and footwear el, sportswear Home & lifestyle and accessories atches, jewellery W Food and beverages 8% Appar
Source: Knight Frank Research 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 consumption data. 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. 3.2 CONSUMPTION-LED DEMAND by consumers through the e-commerce demand. Watches, jewellery and medium. Hence, any type of consumer accessories, food and beverages The Chennai metropolitan area has the goods consumed within Chennai, and department stores are the other largest retail market in Tamil Nadu with whether offline or online, is categorised in categories that claim a major share of the 92% a consumer base of nearly 9 mn people. the retail spending. consumption basket. The share of the This retail spending not only includes daily needs category that includes all the traditional brick-and-mortar stores, malls, Among the various product categories, Fast moving consumer goods (FMCG) Brick-and-mortar stores E-tail shopping streets and mom-and-pop apparel, sportswear and footwear products, grocery and other such daily stores but also accounts for the spending together have the highest share in retail products that are consumed on Source: Knight Frank Research
40 41 INDIA WAREHOUSING MARKET REPORT RESEARCH
4. SRIPERUMBUDUR-ORAGADAM WAREHOUSING CLUSTER ROAD DISTANCE AND TRANSIT TIME TO IMPORTANT LOCATIONS FROM The Sriperumbudur-Oragadam cluster as Mannur, Mappedu, Oragadam and 4.2 LOCATION AND INFRASTRUCTURE SRIPERUMBUDUR-ORAGADAM WAREHOUSING BELT was one of the largest warehousing Irungattukotai are relatively recent markets to be developed in Chennai constructions. Most of the development The Sriperumbudur-Oragadam Distance from: Km Travel time in mins warehousing belt is located in the due to the various advantages that this on these roads comprises pre-engineered Chennai city centre 40–50 75–90 location commands. It is centred on building (PEB) type structures with 24- western part of the city along the GST the Chennai-Bengaluru Highway and is foot clear height and basic infrastructure Road, Bengaluru highway and the MTH Gummidipoondi 65–85 90–120 a natural transit stop for goods being such as security, ample parking space, Road. All these roads are good quality industrial area three-lane roads with dividers for the transported to and from Bengaluru which fire-fighting equipment and insulation, Ambattur industrial area 27–40 40–60 is arguably the largest consumption among others. While good quality most part. The GST Road connects centre in South India. Also, the warehouses pepper the landscape in peripheral industrial hotbeds like Perungudi 35–47 55–75 Maraimalai Nagar and Singaperumal Koil concentrated presence of the automobile most of these locations, recent years Ennore Port 60–70 90–120 industry manufacturing units on the GST have seen the entry of integrated logistics to the city. The Chennai International Maraimalai Nagar 15–30 20–30 and Bengaluru highway encouraged the parks operators such as Indospace that Airport is also located on this road development of supporting warehousing represent the next stage in the evolution at Meenambakam. The road has Source: Knight Frank Research a significant amount of residential activity in this cluster. Ambattur is the of the Chennai warehousing market. 4.3 RENT AND LAND COST OF Oragadam and Sriperumbudur to increase in rental values for warehouses, development up until Vandalur, which other significant industrial hub in the These logistics parks are characterised WAREHOUSES locations such as Mappedu and Mannur. a large number of occupiers still prefer to is the southern end of the Chennai west and also has a similarly large by state-of-the-art warehouses and are operate from locations that are in close Outer Ring Road. Post that point, the manufacturing sector presence. fully equipped to handle multi-modal Warehouses that are closest to the GST INDICATIVE RENTAL VALUES AND proximity to these industrial hotspots. population thins out and more industrial transportation, centralised storage and Road and Bengaluru highway quote the LAND RATES Hence, this logistics ecosystem that Sriperumbudur, Irungattukotai and and warehouse development is visible on distribution and information transaction highest rental values, purely by virtue has developed in this cluster provides it Oragadam started to develop as the 30 km stretch further south. services. Some of the prominent of their access to the highways. For Location Rent Land rate with a distinctive competitive advantage industrial and warehousing hubs at the occupiers in this cluster are Panasonic, example, rents in Irungattukottai on the (`/sq ft/ (` mn/ The Poonamallee High Road is part of over the other warehousing clusters in turn of the 21st century as automobile Ceat, DB Schenker and Reckitt Bengaluru highway can go as high as month) acre) the Bengaluru highway that connects Chennai. majors such as Ford and Hyundai Benckiser. `24/sq ft/month, while land is available Chennai to Bengaluru and the city’s Sriperumbudur 18 – 24 35 – 60 established large manufacturing facilities here at a price of `40–50 mn/acre. Another advantage of this warehousing mainland to the industrialised locations on the periphery of the GST Road and While the auto and auto components However, there is limited stock available Oragadam 26 – 28 20 – 35 belt is its accessibility to all the major in the vicinity of Sriperumbudur. It Bengaluru highway. Locations such as sector forms the bulk of the warehousing here and it does not really constitute a retail hubs of the city. The excellent houses a dense residential catchment Mappedu 15 – 17 10 – 15 Maraimalai Nagar and Singaperumal demand, most of the incremental significant market. Similarly, land abutting quality of road infrastructure and minimal and numerous educational institutions Koil on the GST Road were among demand comes from E-tail and consumer the highway at Sriperumbudur is priced Mannur 16 – 18 17 – 25 traffic congestion enables a warehouse till Chembarambakkam and hence the first locations to benefit from the electronics sector companies that not up to `60 mn/acre with warehouse rentals occupier to supply products from the tends to be congested until that point. Irungattukottai 20 – 24 40 – 50 largesse of the automobile sector only require adequate clear height in the vicinity of `18–23/sq ft/month. warehouse to anywhere in the city within Beyond there, the road attracts few Source: Knight Frank Research and the governments support to that within the warehouse for multi-level 60 minutes. passenger vehicles and is mostly used Bulk of the warehousing activity is industry in terms of transport and stacking of products, but also look for 4.4 COMPETITIVE ADVANTAGES power infrastructure and single-window added amenities such as fire-fighting by the industrial and logistics players. concentrated on and around the internal 4.5 CHALLENGES clearance for setting up a manufacturing equipment and enhanced security. This makes is it less prone to traffic roads that branch out from the GST Road Western Chennai locations such as Land prices have been spiralling up unit. This has resulted in the majority of the congestion and renders locations such and Bengaluru highway. Oragadam, Sriperumbudur, Maraimalai Nagar, over the past decade as demand new warehouses being constructed to as Sriperumbudur, Mannur and Mappedu which is located between these two Oragadam and Irungattukotai are for residential and commercial Since the demand drivers for all the adhere to such standards and move accessible form the city centre within arterial roads, is among the well- established industrial concentrations development steadily moves west. warehouse locations in western Chennai away from the traditional godown- 50–75 minutes of travel time. developed industrial and warehousing in Chennai that form regional bases for Even Sriperumbudur that was purely an are similar, we have clubbed these type structure. Over the last five years, markets in this cluster where warehouse industry leaders in the auto and auto The various internal roads that branch out industrial destination has seen interest locations into a single warehousing a large number of companies have rentals quote as high as `26–28/ ancillary, and the consumer electronics from Sriperumbudur towards Oragadam, from residential developers such as Marg cluster for the purpose of this report shifted their warehousing space from sq ft/month. These high rentals have industries. This has created a strong Tiruvallur, Sunguvarchatram and the Group which caused a consequent rise and called it as the ‘Sriperumbudur- older warehouses in Oragadam and encouraged occupiers to look further demand base for warehouses in the Thandalam-Perumbakkam-Thakkolam in prices that have rendered warehouse Oragadam warehouse cluster’. In the Sriperumbudur towards the recently west towards locations like Mappedu, immediate vicinity as the automobile Road that connects Mappedu and development unviable. Although, there is following sections, we have explained constructed good quality warehouses Mannur and Thirukovilur, where most sector requires its vendors to be within Mannur to the GST Road are all of good enough land available in newer locations the types of warehouses, major players, on the Thandalam-Perambakkam- of the good quality warehouses can be a 1–2 hour driving radius from their quality and with two-lane width at the such as Mannur and Mappedu at more market characteristics, infrastructure Thakkolam Road that connects Mannur made available at `15–18/sq ft/month, base. This cluster has thus evolved very least. These roads are well suited for rational price levels, it does increase the development, prevailing rentals and land and Mappedu to Bengaluru highway. and land rates of land parcels not directly as the dominant warehousing market truck traffic and can access all industrial time to transport goods and products rates, challenges and the future outlook abutting the roads are in the range of in Chennai and over the years has destinations including Maraimalai Nagar, required by industries that follow just-in- for this belt. Select warehouse operators `10–20 mn/acre. Currently, the market become the transportation and logistics Ambattur and even Gummidipoondi time inventory management and could is experiencing a lot of resistance as hub of the city. This has resulted in 4.1 TYPES OF WAREHOUSES AND Indospace within a commutable distance of two pose a threat in times to come. Also, the warehouse rents approach `20/sq ft/ the development of a robust logistic MAJOR PLAYERS hours. new international airport being planned Casa Grande month, as occupiers are aware that they ecosystem with transporters, freight by the government at Sriperumbudur Most warehouses in locations such Kailash Logistics will be able to avail of similar quality operators, warehouse operators and all over the next decade will push land warehouses at 15–30% discounts, if the other allied service operators located prices up further much the same way it they choose to shift operations from within this area. Hence, despite the
42 43 INDIA WAREHOUSING MARKET REPORT RESEARCH
had in Navi Mumbai as well and force ft/month, the feasible land cost amounts current land prices. 5. PERIYAPALAYAM WAREHOUSING CLUSTER warehouse development even further to `26 mn/acre. In other words, investors For investors to achieve returns upwards away. can fetch a 14% per annum return only North Chennai has traditionally been development, prevailing rentals and land 5.2 LOCATION AND INFRASTRUCTURE of 14% per annum, it is imperative if they are able to purchase land at or home to small-scale industrial activity, rates, challenges and the future outlook 4.6 OUTLOOK that the land acquisition cost does not below `26 mn/acre at present and lease especially in the light engineering sector. for this belt. The Periyapalayam warehousing cluster exceed `40 mn/acre and that prevailing it at `18/sq ft/month. As the purchase The presence of the Ennore Port and is located in the northern part of the Since land cost is the most critical rental values do not go below `24/sq ft/ price of land goes higher, the realisable the Gummidipoondi Industrial Estate in 5.1 TYPES OF WAREHOUSES AND city on the GNT Road that is part of component of warehouse development, month. Considering the current market return reduces for a particular rental rate. North Chennai encouraged industrial MAJOR PLAYERS the Kolkata highway and starts from it influences the realisable returns to a scenario, only Sriperumbudur, Oragadam Similarly, as the achievable rental value development along the GNT Road. Red Hills and stretches till the industrial great extent. In order to understand the and Irungattukottai quote rental values Warehouses along the Tirupati Road increases, the feasibility of higher-cost The presence of the port has led to town of Gummidipoondi. This highway feasibility of land cost for warehousing and Cholavaram are relatively recent land also goes up. approaching `24/sq ft/month and is currently a three-lane highway activities, we have developed a land cost the development of a large number of above. The prevailing market price of constructions. Most of the development connecting Chennai with Kolkata and matrix. This matrix explains the feasible container freight stations, container yards Currently, most of the locations within land in these locations starts at `20 mn/ on these roads comprises pre- passes through important coastal cities land cost that an investor should ideally and allied warehousing infrastructure to the Sriperumbudur-Oragadam cluster acre and provide reasonable options engineered building (PEB) type structures such as Vishakhapatnam and Kakinada pay in this cluster in order to achieve support consolidation and distribution are feasible for warehousing activities within `40 mn/acre if developers look with 24-foot clear height and basic on the way. It is a good quality road the expected return in the range of activities that take place outside ports. at the prevailing land rates, subject to a for land parcels in the interiors. In order infrastructure such as security, ample but suffers from some congestion due 10%–18% per annum, subject to the minimum achievable rental value of `15/ to achieve returns upwards of 14% per Warehouse and industrial development parking space, fire-fighting equipment to the Vijayanallur toll and the onoing achievable rents. For example, with a sq ft/month. However, rental values below annum, investors will have to consider has however, been pushed further north and insulation, among others. Some of construction the ORR. return expectation of 14% per annum this level may not even fetch returns of new locations within the Sriperumbudur- as demand for residential property the prominent occupiers on this belt are and an achievable rental value of `18/sq 10% per annum to the investors at the Oragadam warehousing cluster where pushed land prices up and forced the Sony, Panasonic, LG, TAFE and Honda. The Tirupathi Road that branches west low-yielding warehouse development Majority of the warehouses in this cluster from the GNT Road to Periyapalayam has FEASIBLE LAND COST MATRIX IN THE SRIPERUMBUDUR-ORAGADAM the land acquisition cost is minimal, and further north and off the GNT Road. The are of PEB structure. attracted a lot of interest from warehouse WAREHOUSING BELT (` MN/ACRE) is well connected to the GST Road and past decade has also seen the auto and developers as it is close to the port Currently, most of the incremental Bengaluru highway. auto components and FMCG sectors and has ample land available at prices Rental value Investor return per annum demand for warehousing space in set up manufacturing units along the that still make warehouse development (`/sq ft/month) this belt comes from manufacturing 12% 14% 16% 18% We believe that locations such as Mannur Periyapalayam Road and along the feasible. This 15 km stretch is made up companies and 3PL players. However, and Mappedu that are located just west northern edges of the GST Road. of a good quality two-lane road which is 14 20 16 12 10 of the Bengaluru Highway and connected over the last few years, demand from ideal for movement of trucks traffic as e-commerce and FMCG players has 16 25 21 17 13 to the same by the 2x2 Thandalam- Since the demand drivers for all the there is limited residential development Perambakkam-Thakkolam Road can warehouse locations along GNT Road are been building up. around this road. 18 31 26 21 18 support investor returns of 16% with the similar, we have clubbed these locations 20 36 31 26 21 prevailing land cost and rental dynamics into a single warehousing cluster for the Select warehouse operators of `10–25 mn/acre and `15–18/sq ft/ purpose of this report and called it as the 22 43 35 30 25 Sugal & Damani month respectively. These locations are ‘Periyapalayam warehousing cluster’. In NDR Logistics 24 47 40 34 29 within a 30–60 minute driving radius the following sections, we have explained from major manufacturing destinations the types of warehouses, major players, 26 53 45 39 33 Sunteck Logistics Park such as Sriperumbudur, Irungattukottai market characteristics, infrastructure Note: The table presents 28 options of land cost in `mn/acre at different investor returns and rental value combinations. The and Maraimalai Nagar. Even the city 11 options that are possible to source in this warehousing cluster and are upward of the minimum prevailing land rate, which centre and port can be reached within is `10 mn/acre in this cluster, have been highlighted in colour. 90 minutes from these locations. Hence, ROAD DISTANCE AND TRANSIT TIME TO IMPORTANT LOCATIONS FROM Source: Knight Frank Research based on these factors, we believe that PERIYAPALAYAM WAREHOUSING CLUSTER locations such as Mannur and Mappedu Assumptions on the Thandalam-Perambakkam- Distance from: Km Travel time in mins Thakkolam Road will witness Construction cost (`/sq ft) 1,200 Chennai city centre 35 – 45 60 – 90 considerable warehousing development Ground coverage 50% in the coming years. Gummudipoondi 0 – 25 0 – 30 Industrial area Rental escalation per annum 5% Ambattur industrial area 33 – 43 60 – 90 50%: First year Perungudi 55 – 70 90 – 120 Occupancy 75%: Second year Ennore port 35 – 45 60 – 90 100%: Third year onwards Maraimalai Nagar 60 – 75 75 – 105 Debt funding 80% of construction cost Sriperumbudur 45 – 60 75 – 95 Interest rate 12% Source: Knight Frank Research Tax rate 30%
Cap rate 10%
44 45 INDIA WAREHOUSING MARKET REPORT RESEARCH
5.3 RENT AND LAND COST OF land available at comparatively rational developers taking up space there. WAREHOUSES prices that are suitable for warehouse However, since land cost is the most FEASIBLE LAND COST MATRIX ON THE PERIYAPALAYAM WAREHOUSE development. critical component of warehousing CLUSTER (` MN/ACRE) Warehouses that are on the southern end development, it influences the realisable Rental value Investor return per annum of the GNT Road such as Madhavaram, The concentrated and increasing returns to a great extent. In order to (`/sq ft/month) Red Hills and Puzhal are quoting the presence of the FMCG and consumer understand the feasibility of land cost 14% 16% 18% highest rental values. The rents in these electronics sector companies due to its for warehousing activities, we have 14 16 12 10 locations start from `14/sq ft/month and proximity to the city centre has provided developed a land cost matrix. This matrix in certain cases go as high as `22/sq ft/ an adequate demand cushion that will explains the feasible land cost that an 16 21 17 13 month, depending on the quality of the ensure that warehousing requirement investor should ideally pay on this belt 18 26 21 18 warehouse and access from the highway. in this cluster will continue to increase in order to achieve the expected return 20 31 26 21 However, Madhavaram and Red Hills with time. It is also well connected to the in the range of 10%–18% per annum, especially, that have quoted rentals at the large manufacturing hubs of the west, subject to the achievable rents. For 22 35 30 25 higher end of the range, have developed such as Sriperumbudur and Maraimalai example, with a returns expectation of into residential locations with land prices Nagar via the Chennai Bypass road and Note: The table presents 15 options of land cost in ` mn/acre at different investor returns and rental value combinations. The 16% per annum and an achievable rental 7 options that are possible to source on this warehousing belt and are upward of the minimum prevailing land rate, which is currently pushing more than `50 mn/ the upcoming Outer Ring Road that will value of `16/sq ft/month, the feasible ` 12 mn/acre in this cluster, have been highlighted in colour. acre and touching `100 mn/acre in some reduce its travel time to Sriperumbudur land cost amounts to `17 mn/acre. In Source: Knight Frank Research areas here. by approximately 20 minutes. other words, investors can fetch a 16% per annum return only if they are able Most warehousing development on the North Chennai has traditionally been to purchase land at or below `17 mn/ Assumptions GNT Road starts after the Vijayanallur toll largely populated by a blue collar acre at present and lease it at `16/sq ft/ at Cholavaram where rentals are in the population and thus the availability of Construction cost (`/sq ft) 1,200 month. As the purchase price of land range of `15 - 18/sq ft/month and this ample skilled and unskilled manpower goes higher, the realisable return reduces. Ground coverage 50% same range continues till Karanodai and also provides a competitive edge to this Similarly, as the achievable rental value Janapanchatram junction post where, a warehousing cluster. Rental escalation per annum 5% increases, the feasibility of higher-cost drop is observed in ware house rentals on land also goes up. 50%: First year the highway and on Periyapalayam road 5.5 CHALLENGES where it is possible to lease good quality Occupancy 75%: Second year The biggest challenge that the warehouse space in the range of `14 - warehousing sector faces on this belt 100%: Third year onwards 16/sq ft/month. is the availability of legally viable land Debt funding 80% of construction cost We believe that INDICATIVE RENTAL VALUES AND parcels. Even though ample land is Interest rate 12% the Periyapalayam LAND RATES available for development, the incidence of land titling issues is much higher in Tax rate 30% Road does have the North Chennai compared to the southern Location Rent Land rate Cap rate 10% (`/sq ft/ (` mn/ and western periphery. Though residential pricing dynamics month) acre) and commercial development has still not been a factor beyond the Vijayanallur Currently, most of the locations on access from the road and access roads today to support Cholavaram 15–18 20–30 toll post, it is just a matter of time before this belt are feasible for warehousing might have to be constructed by the returns of over 16% Redhills 15–18 50–70 alternative land uses push industrial and activities at the prevailing land rates, warehouse developer, which will have an warehousing development further north. subject to a minimum achievable rental impact on the eventual return. Similarly, for investors and Madhavaram 20–22 90–100 value of `14/sq ft/month. Locations such Cholavaram that is located just before the The FMCG companies like Hindustan Puzhal 18–20 30–60 as Madhavaram, Red Hills and Puzhal beginning of the Periyapalayam road, can that this belt will Unilever Ltd. and Procter and Gamble will find it difficult to support warehouse support returns of up to 14% with rentals Karanodai 15–18 20–25 Ltd. among others, have large facilities development due to the higher land at `15–18 and land available at a price continue to attract Periyapalayam 14–16 12–15 set up in this cluster due to the proximity costs. While it is unfeasible to develop range of `20–30 mn/acre. to the dense consumption markets in both warehouse Source: Knight Frank Research warehouses in Madhavaram and Redhills, We believe that the Periyapalayam Road the city. However, the presence of the developers in Puzhal will find it difficult developers as well 5.4 COMPETITIVE ADVANTAGES toll booth is a hindrance today due to to achieve return over 12% in the current does have the pricing dynamics today to toll costs and traffic congestion and this scenario. support returns of over 16% for investors as occupiers on The biggest competitive advantage of scenario will only exacerbate in future as and that this belt will continue to attract the Periyapalayam cluster is its proximity land costs go up. This cluster does have the potential both warehouse developers as well as the back of rational to the large consumption markets in the to sustain warehouse development on occupiers on the back of rational land city and the ample availability of large 5.6 OUTLOOK locations along the 14 km long stretch prices and competitive rental values. land prices and tracts of developable land. North Chennai of the Periyapalayam Road, where The Periyapalayam cluster has emerged has been relatively less impacted by the prevailing rentals at `14–16 can support competitive rental as a promising warehousing corridor increasing demand for residential and returns of 16%, as land is available at a in Chennai with warehouse operators values. commercial development compared to price range of `12–15 mn/acre. However, such as Indospace and large integrated South and West Chennai and hence has such land parcels might not have direct
46 47 INDIA WAREHOUSING MARKET REPORT RESEARCH
1. MAJOR WAREHOUSING CLUSTERS IN HYDERABAD
Hyderabad is the capital of the newly Historically, manufacturing activity in preferred location among warehouse formed state of Telangana and till 2023, Hyderabad had taken place around occupiers due to the concentrated the joint capital of Andhra Pradesh. It is the main city but has been pushed presence of the pharmaceutical and well connected with the major centres of out towards and beyond the Outer healthcare sectors. Its proximity to economic activity in South India, such Ring Road (ORR), as residential and the city centre, strategic access to as Bengaluru and Chennai and because commercial office space development the Nagpur (NH-44) and Karimnagar of its strategic location in South-central gained priority over manufacturing. The highways (SH-1) and availability of land India, it is also known as the gateway to manufacturing sector in Hyderabad has with clear titles have contributed to the South India. The city has historically been grown primarily around the industrial growth of this region as a warehousing a major trade centre and now possesses parks established by the Telangana State cluster. However, increasing land a more diversified technology-centric and Industrial Infrastructure Corporation prices within the ORR, due to rapid service-oriented economic base. Ltd. (TSIIC). Of the six parks that have urbanisation, have caused a gradual been set up by the TSIIC; the parks at exodus of warehouses beyond the The pharmaceutical and biotechnology Jeedimetla, Karimnagar, Patancheru ORR towards locations 20 km north sector has had a large impact on and Shamshabad have been more of Jeedimetla, such as Medchal and the city’s economic landscape, and prominent, in terms of the growth of the Yellampet on the NH-44 and Turkapally HYDERABAD Hyderabad is today one of the largest manufacturing sector. This is mainly due on the SH-1. pharmaceutical and biotechnology to extensive measures taken up by the hubs in India. The constantly growing government, such as the establishment Warehouses are also shifting beyond manufacturing operations of this of the Genome Valley project across the the ORR on the western and southern industry have spawned the growth of northern periphery of the city. This has periphery of the city to locations such warehouses in and around the industrial made Hyderabad arguably the largest as Patancheru, Muthangi, Kothur, clusters occupied by pharmaceutical pharmaceutical and biotechnology hub Shamshabad and on the Warangal and biotechnology companies. With of India. Pharmaceutical/healthcare highway towards the east. However, a population of approximately 7.3 mn majors such as Novartis, Healthcare, even as these locations are beginning to people, Hyderabad is also a major Dr. Reddy’s Labs, Shantha Biotechnics, show some promise today, they still have consumption centre and has seen GSK Consumer, Ashland India and Mylan some distance to go to match the relative e-commerce companies increase Pharma, among others, have set up large scale of their northern counterparts. their warehousing footprint in the production facilities here. Hence, Hyderabad currently has only one city, especially since the formation of established concentration of warehouses Telangana and the recent tax issues The development of these manufacturing that is located towards the north of the faced by the e-commerce players in hubs formed the genesis of the growth of city that we have named the Jeedimetla- Bengaluru. the warehousing industry in Hyderabad. Medchal warehousing hub for the The Jeedimetla cluster emerged as the purpose of this report.
48 49 INDIA WAREHOUSING MARKET REPORT RESEARCH
MAJOR WAREHOUSING LOCATIONS IN HYDERABAD in Hyderabad in the coming years. has witnessed a renewed traction, share of E-tail expected to rise steadily especially in the online retail or E-tail in the coming years, we estimate the In contrast to the manufacturing-led sector, with E-tail giants such as Flipkart demand for warehouses from this requirement for warehousing space, and Amazon operating large fulfilment segment to increase proportionately consumption-led requirement is mostly centres in Gundlapochampally and as well. The total leasable market in for leasable space, with very few Kothur respectively. As the time between Hyderabad is currently estimated to be operators fulfilling their needs through placing an order and delivery has shrunk in the range of 10–15 mn sq ft. However, a captive warehouse. This is primarily drastically with the advent of the E-tail the share of annual transacted volume is due to the need to have a fulfilment sector, the need for warehousing space approximately 0.7–1.2 mn sq ft. centre as close to the urban area as close to the consumption centres has possible in order to ensure quick delivery. also increased significantly. With the Over the last ten years, this segment
TOTAL REQUIREMENT FOR WAREHOUSING SPACE IN HYDERABAD
61 mn sq ft
42 mn sq ft 19 mn sq ft
4 mn sq ft 2 mn sq ft 2 mn sq ft CLASSIFICATION OF WAREHOUSING LOCATIONS INTO MAJOR CLUSTERS 17 mn sq ft Warehousing cluster Major warehousing locations Jeedimetla-Medchal cluster Jeedimetla, Gundlapochampally, Bowrampet, Gajularamaram, Bolarum, Bachupally, Medchal, Turkapally Source: Knight Frank Research 11 mn sq ft 9 mn sq ft 2. TOTAL REQUIREMENT FOR WAREHOUSING SPACE 6 mn sq ft 2 mn sq ft Hyderabad’s total requirement for this has ensured that land costs as well The Goods and Services Tax (GST) is warehousing space is estimated to be as third party warehousing costs stay expected to have a positive impact on 61 mn sq ft, of which approximately depressed. Although the trend of leasing Hyderabad due to its unique location, 69%, or 42 mn sq ft, is from the a warehouse rather than owning it is which is equidistant from major cities manufacturing sector. However, the gradually picking up with the emergence in South and Central India such as 2 mn sq ft 14 mn sq ft majority of the warehousing requirement of third-party logistics players (3PL), Bengaluru, Chennai, Nagpur, Pune 2 mn sq ft 3 mn sq ft of the manufacturing sector is fulfilled it is still at a nascent stage compared and Mumbai. This added impetus, by captive space, either in terms of to other Indian cities such as Mumbai, due to the GST regime, will ensure the space at the manufacturer’s plant or Pune and Bengaluru, primarily because development of integrated big box company-owned warehouses. As the warehouse rentals are among the lowest warehousing facilities that will encourage government is the largest landlord in in the country. These 3PL players provide a large number of manufacturers to Hyderabad and is known for its pro- end-to-end logistics services, including a outsource their logistics and warehousing business stance, acquiring land to set common warehousing facility, to multiple requirements and focus on their core 2 mn sq ft 2 mn sq ft up manufacturing and warehousing manufacturers, thereby reducing the need operations. This will create an additional facilities is relatively easy in this city and to have a separate warehouse. demand for leasable warehousing space
2 mn sq ft 50 51 INDIA WAREHOUSING MARKET REPORT RESEARCH
3. DEMAND DRIVERS OF WAREHOUSING FIGURE 1 Manufacturing activities in Hyderabad SHARE IN OUTPUT OF THE VARIOUS MANUFACTURING INDUSTRIES IN are spread across multiple locations. SPACE IN HYDERABAD HYDERABAD While locations such as Jeedimetla used to be the established industrial areas in The primary demand drivers of the current warehousing requirement of the city, high land prices resulting from warehousing space in Hyderabad brick-and-mortar stores and the E-tail 10% the demand for commercial office spaces can be broadly classified into two segment. Metals and the government’s push to move categories: manufacturing-led demand 21% Demand drivers Engineering most industrial activity beyond the ORR and consumption-led demand. The 9% in Hyderabad by the end of 2017 has compelled most demand from the manufacturing Textiles of the large manufacturers to shift their sector arises predominantly due to the Food processing production activity outside the city area. distance between the manufacturer’s 6% 6% The Nagpur highway and the Karimnagar factories, raw material suppliers and the Manufacturing Consumption Cement led demand led demand highway have experienced prolific consumption markets of the final goods. Chemicals and Pharma growth in industrial development with The need to store the raw materials 25% numerous chemical and pharmaceutical, or final goods due to this distance, 3.1 MANUFACTURING-LED DEMAND consumer electronics and engineering determines the amount of space required Hyderabad is the largest pharmaceutical companies located here. Bulk of the by each manufacturer. The quantum of hub in India and accounts for the Source: Annual Survey of Industries (ASI) and Knight Frank Research industrial activity has centred around space required is also dependent on the manufacturing of a third of India’s bulk locations such as Jeedimetla, Medchal type of product that is manufactured. drugs and close to a fifth of the country’s FIGURE 2 and Turkapally on these roads. These Hence, each manufacturer will have biotechnology output. Chemicals and WAREHOUSING SPACE REQUIREMENTS OF MAJOR MANUFACTURING locations have become established a different requirement for space, pharmaceutical companies together INDUSTRIES IN HYDERABAD industrial locations today with very good depending on these factors. For example, account for 21% of the manufacturing roads and allied infrastructure. There manufacturers in the automobile industry 422911 14 output of Hyderabad. Dr. Reddy’s is also considerable land available for require their component suppliers to be 16 Laboratories, Sanofi Aventis, Johnson potential development around the roads able to supply their products at a much & Johnson, Biocon, Bayer Biosciences 14 connecting these major highways. shorter time frame compared to those Hyderabad and Aurobindo Pharma are some of the in the metals industry. Hence these pharmaceutical majors that have their 12 The above factors clearly indicate that component manufacturers need to be is the largest manufacturing facilities located in this the demand for manufacturing-led located within a one hour driving distance 10 city. However, food processing that warehousing space in Hyderabad will pharmaceutical from their customer. includes dairies, rice mills, sugar mills, 8 be concentrated primarily along these
Mn sq ft manufacturing clusters with sectors hub in India and Consumption-led demand, which is an confectionaries, and beverages, among 6 such as chemicals and pharmaceuticals, equally important demand driver for others, has the largest share in the output accounts for the food processing, metals and engineering warehousing space, is largely dependent in Hyderabad at 25%. These are followed 4 leading in terms of this demand. manufacturing of a on population, income level and the by the metals, engineering and textiles propensity to spend. The changing industries. 2 third of India’s bulk dynamics of the retail industry has In terms of the requirement for - resulted in the business model of a warehousing space, the chemicals drugs and close to a retailer becoming heavily dependent
extiles and pharmaceutical sector leads with Metals
T
Cement
on a smooth and efficient supply chain ocessing fifth of the country’s approximately 14 mn sq ft. This is network. In addition to this, the advent of Engineering followed by the remaining industries,
E-tail in recent years has necessitated the Food Pr biotechnology each requiring warehousing space need for huge warehouses close to urban of around 2–9 mn sq ft. As the city output. Chemicals centres in order to deliver in the shortest Chemicals and Pharma continues to grow as a pharmaceutical possible time. Such factors have brought Source: Knight Frank Research hub, we expect its share in Telangana’s and pharmaceutical the warehousing industry to the forefront total output to rise steadily and cause a Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of August 2016. of the retail business and compelled 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 companies together subsequent rise in this sector’s demand retailers to focus on this segment. captive space, either in terms of space at the manufacturer’s plant or company-owned warehouses. account for 21% of for warehousing. Source: Knight Frank Research In the following sections, we have the manufacturing identified the key manufacturing industries in Hyderabad, their current output of warehousing requirement, the major manufacturing hubs and the various Hyderabad. regions within Hyderabad from where their demand originates. Similarly, in terms of consumption, we have identified
52 53 INDIA WAREHOUSING MARKET REPORT RESEARCH
MANUFACTURING CLUSTERS WITHIN HYDERABAD led demand. While brick-and-mortar FIGURE 3 stores still lead in terms of space CATEGORY-WISE SPLIT OF RETAIL SPENDING IN HYDERABAD requirement at 14 mn sq ft, the E-tail Apparel, sportswear segment contributes a little over 1 mn and footwear 6% sq ft. This is significant, considering that 7% Food and beverages until just a few years ago, this entire segment barely existed. 7% 28% Department stores While the boom in the E-tail sector may Daily needs 10% have eaten into the market share of Home and lifestyle the brick-and-mortar stores to a great extent, our analysis indicates that the 10% Electronics advent of this segment has expanded 14% Watches, jewellery the overall consumption pie and led 18% and accessories to a substantial increase in the urban
Others consumers’ propensity to spend. Hence, the warehousing space requirement Source: Knight Frank Research by the E-tail segment is largely the incremental demand for space and not just a replacement of the demand for FIGURE 4 space by brick-and-mortar stores. Going WAREHOUSING SPACE REQUIREMENTS FOR THE MAJOR RETAIL CATEGORIES forward, we believe that the share of the IN HYDERABAD E-tail sector will increase further in the total retail spending of consumers. This 52 32223 6.00 will invariably lead to a higher demand for warehousing space from this segment in 5.00 the coming years.
4.00
3.00 FIGURE 5 WAREHOUSING SPACE 2.00 REQUIREMENTS BY E-TAIL AND BRICK-AND-MORTAR STORES 1.00
-
s
s
le
y 9%
onic
Other
nd lifest
ccessories
Electr
s, jewellery
Daily needs
a
a
and footwear
el, sportswear
and
atche
Home
W
Appar
Food and beverages
Source: Knight Frank Research 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 consumption data. The food and beverages category includes all the dining, quick service restaurants (QSR) and takeaways. The daily needs category includes all the FMCG 91% products, grocery and other such daily retail products that are consumed on a regular basis.
3.2 CONSUMPTION-LED DEMAND whether offline or online, is categorised in the fast moving consumer goods (FMCG) Brick and mortar stores E-tail the retail spending. products, grocery and other such daily Source: Knight Frank Research The Hyderabad metropolitan area has retail products that are consumed on the largest retail market in Telangana Among the various product categories, a regular basis exceeds only those of with a consumer base of 7.3 mn people. apparel, sportswear and footwear the electronics and home and lifestyle This retail spending not only includes together have the highest share in categories. traditional brick-and-mortar stores, malls, demand. Watches, jewellery and shopping streets and mom-and-pop accessories, food and beverages The E-tail sector has emerged as a major stores but also accounts for the spending and department stores are the other driver for the incremental warehousing by consumers through the e-commerce categories that claim a major share of space requirement in recent years and medium. Hence, any type of consumer the consumption basket. The share of currently accounts for 8% of the total goods consumed within Hyderabad, the daily needs category that includes all space requirement of the consumption-
54 55 INDIA WAREHOUSING MARKET REPORT RESEARCH
INDICATIVE RENTAL VALUES AND space would enjoy a competitive zones had to make way for the city and 4. JEEDIMETLA WAREHOUSING CLUSTER LAND RATES advantage over the others. With push further north, and the Jeedimetla warehouse rentals in the range of `10–14/ industrial cluster that forms a captive Locations such as Balanagar and Sanath supporting infrastructure is not as high ROAD DISTANCE AND TRANSIT TIME Location Rent Land sq ft/month, this cluster fares well. The demand base for warehouses within the Nagar were places where industrial as that of a multinational. This keeps TO IMPORTANT LOCATIONS FROM (`/ rate ample land availability implies that the ORR could face the same scenario. development originally took root but the cost of construction for warehouses JEEDIMETLA CLUSTER sq ft/ (` mn/ rentals will continue to remain affordable eventually gave way to residential and low. Also, rental value of built-to-suit month) acre) for the foreseeable future. 4.6 OUTLOOK commercial development as the city warehouses could go as high as `20/sq Distance Km Travel Jeedimetla 12–14 25–35 Since land cost is the most critical grew. The existing industries located ft/month, depending on the requirement from: time in This cluster is also strategically component of warehouse development, there then moved north of the Mumbai of the occupier. Large pharmaceutical mins Gundla- 12–14 20–30 located close to the heart of the city it influences the realisable returns to a highway, in locations such as Jeedimetla, industry players such as Dr. Reddy’s and pochampally with easy access to the Nagpur and Hyderabad 10–35 35–60 great extent. In order to understand the Bachupally, Bowrampet, and then further Aurobindo Pharma, among others, have Mumbai highways. These locations are city centre feasibility of land cost for warehousing north to Medchal and Turkapally that form multiple manufacturing facilities located Kandlakoya 12–14 20–30 also well connected to almost all the (Begumpet) activities, we have developed a land cost the Jeedimetla-Medchal warehousing in this cluster. manufacturing and consumption hubs of Kompally 12–14 30–40 matrix. This matrix explains the feasible hub today. Jeedimetla 0–20 0–25 Hyderabad within a driving time of two land cost that an investor should ideally Select warehouse operators industrial area Bowrampet 10–12 15–30 hours via the ORR. The Jeedimetla-Medchal warehouse pay in this cluster in order to achieve Durgesh Godowns Gajularamaram 10–12 15–30 cluster has a significant part of it located Shamshabad 70–90 90–120 Warehousing rental levels in Hyderabad the expected return in the range of industrial area within the ORR, due to the presence Vittal Reddy Godowns Medchal 12–14 35–40 are among the lowest in the country 10%–18% per annum, subject to the and it is among the most centrally achievable rents. For example, with a of the Jeedimetla industrial area. It Patancheru 25–50 45–60 Turkapally 12–14 30–35 is well connected to the Nagpur and 4.2 LOCATION AND INFRASTRUCTURE located cities in India having a strong return expectation of 14% per annum Uppal 25–55 45–90 Karimnagar highways and its proximity Dandupally 10–12 25–30 infrastructure set up. This makes it a and an achievable rental value of `16/sq The Jeedimetla warehouse cluster is to the city centre makes it a convenient Hyderabad 70–90 90–120 prime candidate for national players ft/month, the feasible land cost amounts located towards the north of the city Source: Knight Frank Research warehousing location for the food International looking to set up regional big box to `16 mn/acre. In other words, investors and is aligned along the Nagpur and processing industry that requires efficient Airport 4.4 COMPETITIVE ADVANTAGES warehouses or fulfilment centres along can fetch a 14% per annum return only Karimnagar highways. The Karimnagar access to the large consumption market. the Mumbai or Nagpur highway. if they are able to purchase land at or Source: Knight Frank Research and Nagpur highways are both extremely The Jeedimetla-Medchal industrial below `16 mn/acre at present and lease good quality four-lane roads that connect area is an established manufacturing 4.5 CHALLENGES 4.1 TYPES OF WAREHOUSES AND 4.3 RENT AND LAND COST OF it at `14/sq ft/month. As the purchase MAJOR PLAYERS the city to Nagpur, Bengaluru and and warehousing cluster with several price of land goes higher, the realisable WAREHOUSES The biggest challenge that the Karimnagar. Both highways have seen food processing and pharmaceutical return reduces for a particular rental rate. warehousing sector faces along the three The Jeedimetla-Medchal warehouse dense residential development close to Warehouses on land parcels directly companies having committed huge Similarly, as the achievable rental value corridors of this cluster is the availability cluster is peppered with medium-sized the city and this phenomenon tapers out connected to the Nagpur highway capital and set up large-scale facilities increases, the feasibility of higher-cost of legally viable land parcels. Even warehousing facilities measuring up as one moves towards and beyond the quote the highest rental values purely here. It is not easy for these companies land also goes up. though the government is the largest to 0.1 mn sq ft. These are reinforced ORR. The southern end of this cluster is by virtue of their access to the highway. to shift operations to other parts of landlord in the city, acquiring land that is concrete structures (RCC) and have a also reasonably well connected to the For example, rents in Kompally and Hyderabad and this would ensure a free of encumbrances is still a significant height ranging from 14–16 ft and pre- Mumbai highway. Gundlapochampally on the Nagpur captive demand for warehousing activity issue. engineered buildings (PEB) with a height highway can reach as high as `12–14/ in this cluster as these companies grow There are several internal roads that of 22–24 ft. The rental values vary from sq ft/month, while land is available here over time. Further, the government is connect the western extremities of this Even though Hyderabad is an extremely `10–14/sq ft/month, depending on the at a price of `20–40 mn/acre. However, actively promoting the Genome Valley cluster, such as Gajularamam, Bachupally good occupiers’ market as warehousing location and quality of the warehouse. these rentals recede as one looks for as a zone dedicated for pharmaceutical and Bowrampet, to the Jeedimetla rentals are among the lowest in the While the warehouses located closer to warehousing spaces on the various roads operations. This brings the industrial Industrial Estate and the Nagpur highway, country, warehouse development is still the Nagpur highway or the city command that branch out from the Nagpur and operations of these companies close such as the Bachupally Road and the largely unviable from an investor’s return higher rents, those located on internal Karimnagar highways. to the northern extremities of the Pipeline Road. These are of reasonably perspective due to high land rates. There roads or away from the city are available Jeedimetla-Medchal warehousing hub good quality and 20–40 feet wide in most is also little chance for rentals to increase, at a relatively lower cost. Additionally, the Within the ORR limits, bulk of the that has the capabilities to service their stretches, but are prone to congestion, as there is potential for a lot of competing technical aspects such as floor strength, warehousing activity is concentrated warehousing requirements. supply to hit the market at short notice fire safety equipment and ventilation, as truck traffic tends to get stuck at the on and around the internal roads that due to the short construction period security, amenities and approach road, narrower parts of the roads. Also, there branch out from the Nagpur and Mumbai This cluster is aligned along extremely required to build a warehouse. This has among others, have a direct bearing on are significant residential catchments highways towards the Jeedimetla good quality and uncongested highways effectively kept 3PL players from entering the rent of the property. at Bachupally and Suraram locations industrial cluster. Locations along the with ample land available for industrial the market and will continue to be a that add to the congestion. Locations Bachupally and Dullapally roads such as and warehouse development. Locations major hurdle for them going forward. Since the occupier roster of leased further north such as Medchal, Turkapally Bowrampet and Gajularamam provide beyond the ORR have been relatively less warehouses Jeedimetla-Medchal cluster and Dandupally beyond the ORR are affected by the increasing demand for a lot more warehousing options that are Land prices have been spiralling up is largely made up of by small to medium- very well connected via the Nagpur residential and commercial development available in the range of `10–12/sq ft/ over the past decade as demand for scale companies from the chemicals and Karimnagar highways to the city compared to the interior of the city. month with land available at a price of residential and commercial development and pharmaceuticals and the food and have experienced prolific growth in `15–30 mn/acre. steadily pushes existing boundaries. processing industries, their requirement industrial and warehousing development Warehouse occupiers are sensitive to Locations such as Balanagar and Sanath regarding the quality of warehouse and over the years. rentals and thus, warehousing markets that are in a position to offer affordable Nagar that were erstwhile industrial
56 57 INDIA WAREHOUSING MARKET REPORT RESEARCH
FEASIBLE LAND COST MATRIX ON THE PERIYAPALAYAM WAREHOUSE CLUSTER (` MN/ACRE)
Rental value Investor return per annum (`/sq ft/month) 10% 12% 14%
10 13 10 6
12 18 14 11
14 24 20 16
Note: The table presents nine options of land cost in ` mn/acre at different investor returns and rental value combinations. The three options that are possible to source in this warehousing cluster and are upwards of the minimum prevailing land rate, which is `15 mn/acre in this cluster, have been highlighted in colour.
Source: Knight Frank Research
Assumptions
Construction cost (`/sq ft) 1,200
Ground coverage 50%
Rental escalation per annum 5%
50%: First year
Occupancy 75%: Second year
100%: Third year onwards
Debt funding 80% of construction cost While we do believe Interest rate 12% that Hyderabad Tax rate 30% holds immense Cap rate 10% potential as a Most of the locations within the within a cost of `20 mn/acre and lease it Jeedimetla-Medchal warehouse cluster out at `14/sq ft/month. Fresh warehouse warehousing are unfeasible for warehousing activities development is thus unfeasible in the at the prevailing land rates due to low Jeedimetla warehouse cluster at the destination, we rentals. Current rental levels, even at the current land cost and rental levels. consider it an ideal higher end of the range, do not make it feasible to underwrite fresh warehouse While we do believe that Hyderabad occupier’s market development along the Nagpur highway, holds immense potential as a as land costs are too high to achieve an warehousing destination, particularly where rentals will annual return of even 12% comfortably. in the post GST era due to its strategic location and excellent infrastructure, we be prone to staying For investors to achieve returns upwards consider it an ideal occupier’s market of 14% per annum, which is an investor’s where rentals will be prone to staying depressed due to expectation for this property type, it is depressed due to the potential for the potential for imperative that the land acquisition cost enough and more supply that can come does not exceed `16 mn/acre and that up as required in the market. However, enough and more prevailing rental values do not go below it remains to be seen how much the `14/sq ft/month. Considering the current inevitable entry of large-scale 3PL players supply that can market scenario, none of the locations in will affect the existing dynamics in the this warehouse cluster qualify for a 14% three corridors of the Peripheral cluster. come up as required return. A 12% return is the best case in the market. scenario in this cluster, given the current rent and land cost dynamics in a location such as Kandlakoya, if one is able to acquire land and construct a warehouse
58 59 INDIA WAREHOUSING MARKET REPORT RESEARCH
1. MAJOR WAREHOUSING CLUSTERS IN MUMBAI
Mumbai has been the country’s account of the largest number of power account of its proximity to the country’s commercial capital for a long time. looms in the country. Being strategically largest sea port, the Jawaharlal Nehru However, the structure of its economy located within the Mumbai Metropolitan Port Trust (JNPT). The port handles cargo has witnessed a rapid transformation Region (MMR), Bhiwandi is in close traffic originating mostly from or destined during the last 2–3 decades. With rising proximity to the large consumption for Maharashtra, Madhya Pradesh, population and increasing dominance of markets of Mumbai, Thane city and Navi Gujarat, Karnataka, as well as most of the service sector, industrial activity is Mumbai. In addition, a thriving textile North India. The rising container freight moving outside the city. industry, availability of affordable land traffic at JNPT over the last two decades and labour were factors that contributed fuelled the need for warehousing in its While manufacturing faces a challenge, to the development of a warehousing proximity. The Panvel warehouse cluster warehousing activities have flourished ecosystem in Bhiwandi. on account of its proximity to the JNPT on account of large consumption base emerged as a suitable warehouse hub and port driven Export-Import (EXIM) The other prominent warehouse cluster for EXIM cargo that is mainly inbound. cargo movement. As a result, two major in the MMR is the EXIM-driven Panvel Besides, connectivity through the warehousing clusters have developed warehouse cluster. This cluster is national highway network and availability namely Bhiwandi and Panvel. Bhiwandi dominated by industrial warehouses of affordable land aided development of MUMBAI has long been a prominent textile hub on and container freight stations (CFS) on the CFS and warehouses in Panvel.
60 61 INDIA WAREHOUSING MARKET REPORT RESEARCH
MAJOR WAREHOUSING LOCATIONS IN MUMBAI 2.TOTAL REQUIREMENT FOR WAREHOUSING SPACE We have estimated the warehousing mn sq ft of the warehousing requirement. centres. A portion of this requirement space requirement for the Mumbai is witnessing heightened activity on the market from two sub components, one A majority of the warehousing emergence of the E-tail sector, which being the manufacturing sector and requirement of the manufacturing sector has created the need for sophisticated another being the consumption/retail is fulfilled by captive space, either in supply chain systems to ensure faster segment. The total warehousing space terms of space at the manufacturer’s deliveries at controlled costs. Of the total requirement in the Mumbai market is plant or company-owned warehouses. warehousing space requirement, the estimated at 155 mn sq ft. At 78% or In contrast, the consumption-led leasable warehousing market in Mumbai 120 mn sq ft, the manufacturing sector warehouse requirement is close to is estimated at around 60 mn sq ft. The accounts for a lion’s share, followed by urban agglomerations and thus in annual transaction volume for the market the retail sector which accounts for 34 leased premises close to such urban is approximately 3 mn sq ft. TOTAL REQUIREMENT FOR WAREHOUSING SPACE IN MUMBAI
Total warehousing space requirement
154 mn sq ft
120 mn sq ft 34 mn sq ft
2 mn sq ft 32 mn sq ft 18 mn sq ft 13 mn sq ft
12 mn sq ft 6 mn sq ft 9 mn sq ft 18 mn sq ft
3 mn sq ft 6 mn sq ft 11 mn sq ft 51 mn sq ft
Note 1: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of August 2016. The majority of the warehousing requirement of the manufacturing sector is fulfilled by captive space, either in 2 mn sq ft terms of space at the manufacturer’s plant or company-owned warehouses 2 mn sq ft
CLASSIFICATION OF WAREHOUSING LOCATIONS INTO MAJOR CLUSTERS Note 2: The food & beverages category includes all the dining, quick service restaurants (QSR) and takeaways. The daily needs category includes all the FMCG products, grocery Warehousing cluster Major warehousing locations and other such daily retail products that are consumed on a regular basis. 3 mn sq ft Bhiwandi Mankoli, Kalher, Kasheli, Dapode, Padgha Source: Knight Frank Research Panvel Palaspe, Uran road
62 63 INDIA WAREHOUSING MARKET REPORT RESEARCH
3.2 CONSUMPTION-LED DEMAND 3. DEMAND DRIVERS OF WAREHOUSING FIGURE 1 SPACE IN MUMBAI SHARE IN OUTPUT OF THE VARIOUS MANUFACTURING INDUSTRIES Consumption-led demand for The biggest IN MUMBAI warehousing is driven by the demography The drivers of demand have been 3.1 MANUFACTURING-LED DEMAND of the catchment that it is expected to classified by us as manufacturing-led competitive serve. As per our methodology, this is demand and consumption-led demand. The region is home to the first state captured through retail spending not advantage of The demand from the manufacturing government operated industrial only through traditional brick-and-mortar sector arises predominantly due to the estate namely Maharashtra Industrial Petroleum products stores, malls, shopping streets and the Bhiwandi distance between the manufacturer’s Development Corporation (MIDC) Thane. 17% Chemicals and pharma mom-and-pop stores but also spending factories, raw material suppliers and the This speaks clearly of the industrial 21% warehouse hub is through the e-commerce medium. Hence, consumption markets of the final goods. progress in the Mumbai Metropolitan Engineering any type of consumer goods consumed its proximity to the The need to store the raw materials Region. In the recent period, however, the industrial activity in the city limits Metals within Mumbai, whether offline or online, or final goods due to this distance, 6% has given way to service sector activity. 17% is categorised in the retail spending. densely populated determines the amount of space required Textiles by each manufacturer. The quantum of To assess the scope of manufacturing- 9% Mumbai Metropolitan Region is amongst consumption hub of led demand for warehousing, we have Auto and auto ancillary space required is also dependent on the the most populated regions in the country captured the length and breadth of type of product that is manufactured. 10% Mumbai, Thane and 10% Food processing and largely the demography is involved Hence, each manufacturer will have manufacturing activity across the city that 10% in the services sector occupation. can be covered at a motorable distance Navi Mumbai a different requirement for space, Others Accordingly, this services sector of around four hours. This would mean depending on these factors. demography has resulted into a booming manufacturing activity in important consumption market in the city. The city Separately, the consumption-led manufacturing clusters like Nashik, Pune, Source: Annual Survey of Industries (ASI) and Knight Frank Research has a vibrant consumer culture on the demand for warehousing is dependent Valsad and Silvassa has also been taken back of a large population and rapidly on population, income level and the in to account in our analysis. growing metropolitan area. propensity to spend. The changing At 17% each, chemicals and FIGURE 2 dynamics of the retail industry has Apparel, sportswear and footwear is the pharmaceutical and petroleum products WAREHOUSING SPACE REQUIREMENTS OF MAJOR MANUFACTURING resulted in the business model of a biggest contributor of the retail spending contribute the biggest share of the INDUSTRIES IN MUMBAI retailer becoming heavily dependent followed by the daily needs category. manufacturing sector output in Mumbai. on a smooth and efficient supply chain The daily needs category includes all the This is followed by the engineering, 51 11 18 13 18 9 network. In addition to this, the advent of 100 FMCG products, grocery and other such metals and textile sectors at 10% each. E-tail in recent years has necessitated the daily retail products that are consumed At 9% share in industrial output, the 90 need for huge warehouses close to urban on a regular basis. This is followed by the auto and auto ancillary industry follows 80 centres in order to deliver in the shortest food and beverages and the department closely. possible time. Such factors have brought 70 stores categories. the warehousing industry to the forefront In terms of the resultant warehousing 60 of the retail business and compelled requirement, of the total manufacturing- retailers to focus on this segment. 50
led requirement, chemicals and mn sq ft 40 In the following sections, we have pharmaceutical contributes the largest identified the key manufacturing at 51 mn sq ft, followed by the auto and 30 auto ancillary and metals sector at 18 mn industries in Mumbai, their current 20 warehousing requirement, the major sq ft each. 10 manufacturing hubs and the various regions in and around Mumbai from 0 where the requirements originate. extiles Metals T pharma
Similarly, in terms of consumption, we ocessing Auto and Engineering
have identified the current warehousing auto ancillary Chemicals and
requirement of brick-and-mortar stores Food pr and the E-tail segment. Source: Knight Frank Research
Demand drivers Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse in Mumbai stock) as of August 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
Manufacturing Consumption Source: Knight Frank Research led demand led demand
64 65 INDIA WAREHOUSING MARKET REPORT RESEARCH
FIGURE 3 FIGURE 5 4. BHIWANDI WAREHOUSING CLUSTER CATEGORY-WISE SPLIT OF RETAIL SPENDING IN MUMBAI WAREHOUSING SPACE To the north-east of Mumbai is floor ceiling height prefer these RCC the textile hub of the country. Locations REQUIREMENTS BY E-TAIL AND the Bhiwandi warehousing cluster. warehouses. Similarly, occupiers with like Kalher, Kasheli, Purna and Anjur have BRICK-AND-MORTAR STORES Apparel, sportswear and footwear Encapsulating parts of Bhiwandi along a need for climate control through air warehouses for textile companies. 9% the Old Agra Road and the National coolers, for instance pharmaceuticals, Food and beverages 7% 25% 7% Highway-3 (Mumbai-Nashik Highway), prefer these structures. Select warehouse operators Department stores the Bhiwandi warehousing hub is Jai Bhagwan 6% Warehouses along the NH-3 can be Daily needs strategically located in the Mumbai categorised as modern warehouse Renaissance Infra 8% Metropolitan Region (MMR). Home and lifestyle complexes with sizes in excess of 1 mn Indian Logistics Group 15% The cluster is spread across locations sq ft. Mostly, warehouse parks of pre- Electronics Shree Sai Dhara 16% like Kasheli, Kalher, Purna, Dapode, engineered building (PEB) structures with Watches, jewellery and accessories 14% Mankoli, Vadape and Padgha. Since the supporting internal infrastructure can Sumeet Logistics Others demand drivers for all these warehouse be found along this 20 km stretch from 4.2 LOCATION AND INFRASTRUCTURE 93% locations are similar, we have clubbed Mankoli to Padgha Toll Naka. Recent Source: Knight Frank Research the locations into a single warehousing years have seen warehouse development The Bhiwandi warehousing cluster is cluster for the purpose of this report and with quality construction and support strategically located within the Mumbai Brick-and-mortar stores E-tail named it the ‘Bhiwandi warehousing infrastructure comprising a sewage FIGURE 4 Metropolitan Region (MMR). The cluster’. In the sections below, we have treatment plant, adequate internal roads WAREHOUSING SPACE REQUIREMENTS FOR THE MAJOR RETAIL CATEGORIES Source: Knight Frank Research warehouses are mainly concentrated explained the primary demand drivers for truck and trailer movement, fire- IN MUMBAI on the Old Agra Road and the NH-3 of warehousing space in this cluster, fighting equipment, parking and security. (Mumbai-Nasik Highway). Kalher, Kasheli, We have estimated the consumption- market characteristics, infrastructure Purna and Anjur on the Old Agra Road 11.5 6.1 5.9 2.8 2.3 2.0 3.5 led warehousing requirement at 34 mn development, prevailing rentals and land This geographic advantage of proximity 20 and the Mankoli to Padgha stretch of the sq ft of which the apparel, sportswear rates, challenges and the future outlook. to the densely populated consumption NH-3 are the locations where warehouses 18 and footwear category contributes markets of Mumbai, Thane and Navi 34%. The second largest contributor 4.1 TYPES OF WAREHOUSES AND Mumbai make the Bhiwandi warehousing are concentrated. 16 is the foods and beverages segment MAJOR PLAYERS hub a preferred choice of occupiers On account of Bhiwandi’s good 14 followed by the daily needs category. intending to serve the large consumption connectivity to a large part of the MMR, Further, with the emergence of the E-tail The warehouses in this cluster are a mix market of the MMR territory. As a 12 occupiers intending to serve the MMR segment in the last few years, its share of new warehouses with modern facilities result, a diversified set of consumer 10 and old warehouses by unorganised consumption market prefer occupying a mn sq ft in the consumption led warehousing (B2C) oriented industries like retail, warehouse here. Bhiwandi is connected 8 requirement stands at 7%. Going players. Most warehouses on the Old pharmaceutical, FMCG, textile and with Thane and Mumbai through the Old forward, we believe that the share of the Agra Road (Kalher, Kasheli, Purna) and electronics have a presence in Bhiwandi. 6 Agra Road and NH-3. It is connected E-tail sector will increase further in the Dapode Road are old developments with The need for reducing ‘delivery time 4 with Navi Mumbai through NH-4 and the total retail spending of consumers. G+1 RCC structures that provide just to consumer’ makes it a preferred Thane-Belapur Road. JNPT, the country’s 2 12–14 ft of vertical space for storage. warehouse location in the MMR. largest container port, and Mumbai Port 0 In terms of the geographical footprint, These are primarily dominated by the Bhiwandi warehousing cluster occupiers from textiles, pharmaceuticals The other prominent use of this hub are at a maximum distance of 70 km from
onics the Bhiwandi warehouse hub.
Others has emerged as the top warehousing and consumer durables. Occupiers from the production/manufacturing side cluster for the retail facing companies
Electr from industries like consumer durables has been by the textile industry. With a Daily needs The Bhiwandi warehousing cluster has and footwear
el, sportswear like Raymond, Croma, Future Group, and electronics that carry high-value significantly large number of power looms
and accessories come up as an unplanned development atches, jewellery
Home and lifestyle Shoppers Stop, and HyperCITY. Even the fragile cargo and do not require large in the country, Bhiwandi has long been W Food and beverages Appar e-commerce firm, Flipkart, has taken up with a large number of projects being Source: Knight Frank Research ROAD DISTANCE AND TRANSIT TIME TO IMPORTANT LOCATIONS FROM warehousing in this cluster. The proximity developed in village areas between BHIWANDI WAREHOUSING CLUSTER Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse to the residential and office markets of the cities of Thane and Bhiwandi. stock) as of August 2016. This is calculated on the basis of the latest consumption data. The food & beverages category Mumbai, Thane and Navi Mumbai make it Distance from: Km Travel time in mins Initially, the reason for these warehouse includes all the dining, quick service restaurants (QSR) and takeaways. The daily needs category includes all the FMCG a preferred choice amongst e-commerce developments was that these locations products, grocery and other such daily retail products that are consumed on a regular basis. Nariman Point 50 - 70 90 - 120 firms, which are witnessing shrinking were outside the Octroi Zone of both, delivery timelines. Bandra Kurla Complex 35 - 55 45 - 75 the Thane Municipal Corporation and Bhiwandi Municipal Corporation. Andheri 35 - 55 70 - 90 Warehouses that have come up in areas Thane 10 - 35 20 - 45 like Kalher, Kasheli, Purna, Anjur and Mumbai Port Trust 45 - 70 70 - 110 Dapode are part of the villages on the Old
JNPT Port 50 - 70 60 - 120
Pune 150 - 170 180 - 210
Source: Knight Frank Research
66 67 INDIA WAREHOUSING MARKET REPORT RESEARCH
Agra Road and hence regulated by gram excess of five years. 70 km, transit time to the port is only Warehousing activities like loading, this hub. achievable rent or on-going land rates, panchayats of the respective village. As two hours. Such proximity to the port unloading and stacking of cargo involve this hub offers a range of options. a result, the infrastructure development INDICATIVE RENTAL VALUES AND attracts occupiers who import cargo from manual operations. An occupier may Another set of challenges, applicable With land rate as the most important in terms of roads, water, sewerage and LAND RATES international production centres and set employ local labour/mathadi for this to organised/institutional players, is determinant of warehouse financial power was lagging. However, in recent up a distribution centre in Bhiwandi. The purpose or have its own employees to on account of the profile of a large feasibility, it is crucial to get it right years there has been an improvement Location Rent Land rate imported container cargo is unloaded in perform these activities. In either case, number of warehouse developers to achieve success in a warehouse in the quality of main roads like the Old (`/sq ft/ (` mn/ Bhiwandi and then transported across a warai charge has to be paid to the operating in this hub. A large number development project. In order to Agra Road and Dapode Road. The Old month) acre) the country. local labour union, wherein the charges of individuals and owners with small understand the feasibility of land cost land holdings have built warehouses in Agra Road is a four-lane road and has Mankoli 10 - 13 30 - 50 are higher in case of not employing the for warehousing activities, we have got a divider that has improved traffic 4.5 CHALLENGES locals. Most occupiers prefer employing Bhiwandi. Such unorganised players developed a land cost matrix. This Vadpe 10 - 12 20 - 35 movement on the route. The supply their own staff to ensure uninterrupted have return expectations as low as matrix explains the feasible land cost The Bhiwandi warehouse market has of power, with a private enterprise and efficient performance of such 8–12% for warehouse development that an investor should ideally pay in this Padgha 12 - 16 10 - 20 its fair share of challenges that make Torrent Power, has witnessed a marked activities. projects. The reasons for underwriting cluster in order to achieve the expected Source: Knight Frank Research it probably the most difficult market improvement in recent years. projects at such a low internal rate of returns in the range of 12–18% per to comprehend. Being an unplanned Payable to the local labour union, warai return (IRR) vary from lower opportunity annum, subject to the achievable rents. warehousing cluster spread across The NH-3 (Mumbai-Nashik Highway) 4.4 COMPETITIVE ADVANTAGES or mathadi charges range between cost of capital to non-compliance with For example, with a return expectation several densely populated villages, the stretch has witnessed ample `0.50–2.00/sq ft/month calculated on the statutory construction norms and poor of 14% per annum and an achievable The biggest competitive advantage of the complexities of developing and operating development of modern warehouse space leased by a warehouse occupier. It construction quality. However, as a rental value of `12/sq ft/month, the Bhiwandi warehouse hub is its proximity a warehouse have also increased. parks over the last five years. The 20 km is an additional cost for occupiers and is consequence, it becomes extremely feasible land cost amounts to `11 mn/ stretch from Mankoli to Padgha Toll Naka to the densely populated consumption payable over and above the rent and any difficult for institutional players to operate The first set of challenges arise acre. In other words, investors can fetch is the most preferred stretch. The NH-3 hub of Mumbai, Thane and Navi Mumbai. other outgoings like maintenance, taxes in this market at such sub-optimal return on account of the land. Identifying a 14% per annum return only if they are is a well-built four-lane national highway. This advantage makes it a preferred and statutory levies. The warai charges expectation given the associated risk. warehouse projects with a clear land able to purchase land at or below `11 Besides, Bhiwandi has connectivity location for consumer oriented (B2C) in effect increase the cost of leasing a title is a big challenge in Bhiwandi. This mn/acre at present and lease it at `12/ through the NH-4 (Mumbai-Pune companies that can serve the large warehouse in Bhiwandi by 5–20% of the 4.6 OUTLOOK challenge arises on account of improper sq ft/month. As the purchase price of Highway) and Mumbai-Ahmednagar MMR consumption market from their quoted rent thereby having an adverse land records, mainly in the hands of the From the pricing perspective, i.e. the land goes higher, the realisable return Highway. Through the 23 km Chinchoti warehouse in Bhiwandi. impact on the cost competitiveness of local gram panchayat. The ideal size of a Anjur Phata Road, Bhiwandi is also Warehouse occupiers are very sensitive warehouse development is minimum 30 FEASIBLE LAND COST MATRIX IN THE BHIWANDI WAREHOUSING CLUSTER connected with the NH-8 (Mumbai- to rentals and thus warehousing clusters acres. On account of tiny and scattered (` MN/ACRE) Ahmedabad). that are in a position to offer affordable land holdings in the hands of several Rental value Investor return per annum space would enjoy a competitive villagers, identifying a contiguous land 4.3 RENT AND LAND COST OF (`/sq ft/month) 12% 14% 16% 18% Being an unplanned WAREHOUSES advantage over the others. With parcel of the relevant size for warehouse development is a challenge. warehouse rentals in the range of `10–16/ 10 10 6 4 2 warehousing cluster As indicated in the adjoining table, the sq ft/month, Bhiwandi fares well. The The other critical issue is that the land rent across the warehouse facilities in rentals in Bhiwandi are significantly 12 14 11 8 5 spread across use is changing in favour of residential this cluster is in the range of `10–16/ attractive in comparison to competing 14 20 16 12 10 development. With rising population sq ft/month depending on the location warehousing hubs like Panvel, that several densely in the MMR, housing has received the 16 25 21 17 13 within the cluster and quality of facility. commands higher rentals of `17–25/ top most priority for land development. populated villages, Specifications beyond the generally sq ft/month. A significant size of the Note: The table presents 16 options of land cost in ` mn/acre at different investor returns and rental value combinations. While warehouse developments in The 11 options which are possible to source in this warehousing cluster and are upward of the minimum prevailing land rate, prevalent terms in the market command warehouse market, coupled with a large this hub command `1,500–2,500/sq which is ` 10 mn/acre in this cluster, have been highlighted in colour. the complexities rentals outside this range. The rent and quantum of vacant space, implies that ft, residential prices are significantly land cost dynamics in this warehouse rentals will continue to remain affordable Source: Knight Frank Research of developing higher in comparison to warehouse cluster are also influenced by the for a considerable time. Assumptions alternative development options. developments. In the neighbouring Thane and operating a Availability of man power is another city, the residential projects command Construction cost (`/sq ft) 1,200 Other terms of tenancy may also have a factor that lends competitive strength `7,000–15,000/sq ft. Residential prices warehouse have Ground coverage 57% bearing on warehouse rents, specifically to the Bhiwandi warehouse hub. The in the adjoining Kalyan hover at `5,000– also increased in clauses related to the security deposit, MMR is a densely populated urban 7,000/sq ft. Even in dense warehousing Rental escalation per annum 5% rent escalation and lease tenure. The agglomeration and the presence of locations on Old Agra Road, new 50%: First year Bhiwandi. market practice for the security deposit residential catchments, for all income residential projects fetch `3,000–4,000/ is 4–6 months of rent. The rent escalation groups in and around Bhiwandi, ensures sq ft. On account of such prices for the Occupancy 75%: Second year clause, which determines the quantum an abundant supply of skilled, semi- competing residential segment, land 100%: Third year onwards and frequency of rental increments, is skilled as well as unskilled workers. prices in this hub are being influenced usually 5% p.a. The market practice for and will stifle the growth of upcoming Debt funding 80% of construction cost lease tenure, i.e. the minimum period The other advantage of this hub is warehouse projects. Interest rate 12% for which the landlord and tenant are its proximity to the country’s largest bound to honour the occupancy, varies container port, the Jawaharlal Nehru Another challenge in Bhiwandi arises on Tax rate 30% Port Trust (JNPT), as well as the Mumbai account of the warai charges that have largely on a case-to-case basis, usually in Cap rate 10% Port Trust. At a maximum distance of to be borne by warehouse occupiers.
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reduces. Similarly, as the achievable limit and Bhiwandi city municipal limit Nashik) the region has good road plain vanilla storage structures. Such activity has evolved. Internal roads fulcrum of all real estate activity in this rental value increases, the feasibility of (locations like Kalher, Kasheli, Purna, connectivity with the MMR consumption warehouses are concentrated around the however do not meet the same quality, market. higher-cost land also goes up.In terms Anjur, Dapode, Mankoli). However, the centre. Further, being a region with poor Kalamboli Steel Market, Taloja MIDC and especially off the JNPT and Uran Road. of the characteristics, small standalone land use in these locations is now turning suburban train connectivity will work in to a lesser extent along the Mumbai Goa These roads are in a poor condition and The Panvel warehouse hub caters to a godowns will be shunned in favour of in favour of the residential segment. favour of warehouse developments. This Highway (NH-17) and the Mumbai Pune difficult to negotiate even by trucks in broad range of warehousing facilities large warehouse parks with leasing area With residential development emerging is because residential markets flourish Highway (NH-4). some cases. A significant number of that service both ends of the quality in excess of a million square feet bundled as the most remunerative option for in locations with connectivity through internal roads are just two-lanes sans spectrum. Fringe warehouses that are with support infrastructure and utilities. land development, new warehouse mass rapid transport system (MRTS) Select warehouse operators dividers, barely enough to let two trucks cost effective solutions for tenants are mostly located in Kalamboli and Occupiers prefer modern logistics and development will stifle on this stretch. which is the suburban train network in Singh & Chedda Logistics cross each other. This causes frequent warehouse parks that provide support Going forward the location that would case of the MMR. With residential prices traffic jams, delays and increases vehicle to a lesser extent in Taloja in the Jyoti Logistics infrastructure to ensure hassle free and emerge as a hub for new warehouse at a considerable premium to that of maintenance cost. Taloja-Kalamboli cluster. These are uninterrupted warehouse operations. development would be the 15 km. warehouses, land rates become unviable CCI Logistics Park characterised by G+1 RCC or PEB There is adequate power supply in this structures that might not have basic This change in characteristic will gain stretch extending from Rajnoli (junction for warehouse developments. The JWC Logistics momentum. of NH-3 and Bhiwandi Kalyan Road) to relatively poor suburban train connectivity warehouse hub that has improved in facilities like serviceable approach roads Sumeet Logistics Padgha until the toll point. The reasons implies that warehouse developments will recent years as the Maharashtra State or security. Consequently these are used In terms of geography, currently the for the emergence of this region as a not be pitted against lucrative residential Electricity Distribution Company (MSEDC) to house low value products for the 5.2 LOCATION AND INFRASTRUCTURE warehouses are mainly concentrated on promising alternative are varied. Besides developments to secure land on this now sources enough power to fulfil the metals and textile industry. the Old Agra Road and NH-3 locations needs of industries and warehouses land availability, through NH-3 (Mumbai- stretch. The Panvel warehouse cluster is located falling between Thane city municipal in the Panvel hub. Water supply and The highest priced warehouse products close to JNPT and a bulk of its logistics sewerage are also significantly better on offer in the Panvel cluster are located and warehousing facilities are geared to compared to the Bhiwandi hub as ground in the areas within a 5 km. radius of service container traffic and break bulk 5. PANVEL WAREHOUSING CLUSTER water is extensively used. Palaspe Phata and locations on the cargo. The container freight stations are JNPT, Uran and Chirner roads closer to concentrated primarily on JNPT Road, ROAD DISTANCE AND TRANSIT TIME the port. These are typically warehousing Mumbai Pune Highway and Mumbai Goa TO IMPORTANT LOCATIONS FROM parks offering integrated logistics Highway that branch out from Palaspe PANVEL WAREHOUSING CLUSTER solutions that could include pick-up, Phata. CFS facilities have also seen packaging and delivery facilities. State- growth along Chirner Road that is a Distance Km Travel of-the-art construction quality with PEB part of the Virar-Alibaug corridor and in from: time in structures having high ceilings (30-35 locations such as Kalambusare, Koproli mins ft.), climate control, sewage treatment and Kacherpada just south of the JNPT. plants, adequate security and internal Nariman Point 50 - 60 90 - 120 The JNPT Road is a 25 km. stretch that roads characterise these facilities and begins at Palaspe Phata and ends at Bandra Kurla 40 - 50 70 - 105 command a rental rate of INR.20-25/ JNPT. It has the maximum number of Complex sq.ft. CFS facilities among the three specified roads. Andheri 50 - 60 105 - 140 Warehouses further away from the Thane 50 - 55 100 - 120 port command lower rentals. Also, The port handles cargo traffic mostly on the Mumbai Pune Highway rentals Mumbai Port 50 - 55 70 - 90 originating from or destined for progressively reduce as one moves Trust Maharashtra, Madhya Pradesh, Gujarat, further south on the highway in locations Karnataka, as well as most of North JNPT Port 5 - 25 15 - 30 like Shedung, Bhokarpada and Khalapur. India. This warehousing cluster lies Similarly in case of Sawala Apta Road in at the confluence of Mumbai Goa Pune 110 - 140 - 180 To the east of Mumbai city is the Panvel of warehousing space in this cluster, was commissioned in 1989. The early locations towards Rasayani. Highway and Mumbai Pune Highway 140 warehousing cluster. Presence of the market characteristics, infrastructure nineties saw container freight stations that directly connect it with major cities Source: Knight Frank Research Warehousing facilities on the Mumbai country’s largest containerised traffic development, prevailing rentals and land and warehouses mushroom in the vicinity in Maharashtra, Goa, Karnataka, Kerala, Goa Highway are priced relatively higher handling port JNPT adds to the identity rates, challenges and the future outlook. of JNPT as over half of India’s container Andhra Pradesh and Tamil Nadu. While 5.3 RENT AND LAND COST OF than those on the Mumbai Pune Highway of this warehouse cluster. The cluster traffic was being handled by this port. these highways directly connect JNPT WAREHOUSES due to their proximity to the JNPT, the comprises of locations branching out 5.1 TYPES OF WAREHOUSES AND Its dominance as the most viable port and the Panvel cluster with the southern dearth of warehousing products on offer of Palaspe along the Mumbai Pune MAJOR PLAYERS and Navi Mumbai’s accessibility to major Rentals and land rates in the Panvel states, the NH-8, NH-3 and the NH-222 and the relative scarcity of land on this Highway, Mumbai Goa Highway, manufacturing destinations across India warehouse hub are governed primarily The Panvel hub is dominated by connect them with Gujarat, Rajasthan, stretch of the highway. Any development Chirner Road and Uran Road. Since the via the golden quadrilateral makes it by the subject warehouses’ proximity to industrial warehouses and container Uttar Pradesh, Madhya Pradesh and can only take place on the Mumbai Goa demand drivers for all these warehouse one of the most preferred logistics and the JNPT and Palaspe Phata. While the freight stations (CFS) due to its proximity the National Capital Region through the Highway on a 7 km. stretch starting locations are similar, we have clubbed warehousing destinations. broad characteristics across the market to the Jawaharlal Nehru Port Trust northern ends of Mumbai. from Palaspe Phata due to the presence the locations into a single warehousing stay the same, the proliferation of a (JNPT). Logistics and warehousing of the Karnala Bird Sanctuary beyond cluster for the purpose of this report Besides freight driven activity that residential market dictates land prices activity in the Panvel cluster gained The Panvel warehousing hub is very that boundary. Warehouse facilities are and named it the ‘Panvel warehousing demands logistics and warehousing that see a declining trend going south of prominence with the growth of container well served by the national highways thus priced higher on the 4 km. stretch cluster’. In the sections below, we have facilities of a higher quality, the Panvel Palaspe Phata as this location forms the traffic passing through the JNPT that around which logistics and warehousing explained the primary demand drivers hub also contains warehouses that are
70 71 INDIA WAREHOUSING MARKET REPORT RESEARCH
starting from Chirvat till the boundary of in building sustainable infrastructure Residential projects have started coming Assumptions the Karnala Bird Sanctuary. in terms of roads, power and water up as far as Khalapur on the NH4. Land availability. The fact that the CIDCO’s owners are more tempted to partner Construction cost (`/sq ft) 1,200 INDICATIVE RENTAL VALUES AND geographical boundaries have been with residential developers who offer Ground coverage 57% LAND RATES extended to envelope the entire hub quicker returns compared to warehouse enhances its prospects further. The focus operators in which case the pay-out is Rental escalation per annum 5% Location Rent Land rate of the DMIC and DFC projects on the more spread out over time. Over the 50%: First year (`/sq ft/ (` mn/ JNPT will only boost the attractiveness years, the growing residential market month) acre) of this market. Abundant availability has pushed land prices up especially Occupancy 75%: Second year Palaspe 20 - 25 30 - 50 of skilled and unskilled labour in Navi in locations close to Palaspe Phata, 100%: Third year onwards Mumbai and the absence of specific while rentals have not gone up at the Uran Road 17 - 22 25 - 40 local labour issues like the payment of a same pace due to a lull in the market. Debt funding 80% of construction cost Source: Knight Frank Research “Warai” charge that is commonplace in The relative paucity of contiguous land Interest rate 12% the Bhiwandi market also makes logistics and fragmented land holdings also pose 5.4 COMPETITIVE ADVANTAGES Tax rate 30% and warehousing activity in Panvel more challenges in identifying viable land for The single largest advantage that attractive. development. Cap rate 10% supports the Panvel warehouse hub’s 5.5 CHALLENGES 5.6 OUTLOOK growth is its proximity to the JNPT. The Panvel warehousing hub represents up in a 5 km. radius from Palaspe Phata the higher end of logistics and but it is unlikely that further warehouse The fact that more than half of india’s In spite of the fundamental factors From the pricing perspective, i.e. the warehousing facilities in the Mumbai development will come up in this area as container traffic is routed through this that support the growth of a thriving achievable rent or on-going land rates, market and is continuously evolving as land owners here will favour residential port virtually cements its position as warehouse hub, the Panvel cluster this hub offers a range of options. a greater number of logistics parks bring development due to the more lucrative the one of the strongest warehousing has its fair share of challenges. The With land rate as the most important about consolidation of warehousing proposition that it represents. The hubs in India as nearly all containerised announcement of the Special Economic determinant of warehouse financial activities. As occupiers increasingly enhanced Sion Panvel Highway, planned exim cargo requires CFS or warehouse Zone in 2002 and the upcoming Navi feasibility, it is crucial to get it right prefer outsourcing their logistics introduction of fast trains on the harbour facilities. This also enables it to command Mumbai airport, led to Panvel and its to achieve success in a warehouse and warehousing operations to third line and increasing the frequency of train significantly higher rental and occupancy surrounding locations being touted as development project. In order to party experts and demand seamless services on the Diva-Panvel-Somatane levels than Mumbai’s only other major the next big residential hub. Unavailability understand the feasibility of land cost operations, the market will continue to route are among the infrastructure warehouse cluster of Bhiwandi. Efficient of viable land for warehousing and its for warehousing activities, we have see growth in terms of sheer volume and developments that will vastly reduce access to most container traffic spiralling prices due to a burgeoning developed a land cost matrix. This matrix improved operations. The anticipated travel time to Mumbai’s business districts destinations via the national highway residential market that has kept explains the feasible land cost that an rise in container traffic in the JNPT port and encourage residential developments The unviability of network (Mumbai Pune Expressway, Old spreading its boundaries are by far the investor should ideally pay in this cluster will consequently result in an increase in here. The unviability of land prices closer Mumbai Pune Highway, Mumbai Goa most pressing issues in this cluster. in order to achieve the expected returns demand for logistics and warehousing to Palaspe Phata will push warehouse land prices closer Highway) is also a critical factor aiding in the range of 12–18% per annum, activities in the Panvel cluster. development further south towards the this market’s growth. Prices in residential projects within a subject to the achievable rents. For to Palaspe will 3 km. radius of Palaspe Phata have periphery of the Mumbai Goa Highway example, with a return expectation of The land-use is largely favourable for A large portion of the Panvel warehousing crossed INR. 5,000/ sq.ft. while nearby where land prices are still feasible enough push warehouse 14% per annum and an achievable rental industrial and warehouse development hub has always been under the residential markets like Kharghar to support a business case for this value of `18/sq ft/month, the feasible in the Panvel hub. The 25 km. stretch on development further jurisdiction of CIDCO and has aided and Kamothe are priced even higher. property type. land cost amounts to `26 mn/acre. In the JNPT Road between the JNPT and other words, investors can fetch a 14% Palaspe Phata is peppered with CFS south towards per annum return only if they are able facilities and as land rates have gone FEASIBLE LAND COST MATRIX IN THE PANVEL WAREHOUSING CLUSTER the periphery of to purchase land at or below `26 mn/ up, there is comparatively less scope for (` MN/ACRE) acre at present and lease it at `18/sq ft/ further development there as commercial the Mumbai-Goa Rental value Investor return per annum month. As the purchase price of land viability is an issue. The last 5-7 years (`/sq ft/month) goes higher, the realisable return reduces. have seen high quality warehouses come Highway, where 12% 14% 16% 18% Similarly, as the achievable rental value 16 25 21 17 13 increases, the feasibility of higher-cost land prices are still land also goes up. 18 31 26 21 18 feasible to support 20 36 31 26 21 a business case for 22 43 35 30 25 this property type 24 47 40 34 29
Note: The table presents 20 options of land cost in ` mn/acre at different investor returns and rental value combinations. The 14 options which are possible to source in this warehousing cluster and are upward of the minimum prevailing land rate, which is ` 25 mn/acre in this cluster, have been highlighted in colour.
Source: Knight Frank Research
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1. MAJOR WAREHOUSING CLUSTERS IN NCR
Historically, warehousing activities in warehousing activities as land prices on have observed massive warehousing NCR have been concentrated in the GT Road became unviable. development in recent years. peripheral areas of New Delhi, such as Over the last ten years, with residential Alipur, GT Road, Kapashera, Bamnoli, For the purpose of this report, we have and commercial development Dhulsiras and Okhla, with godown-type classified the various warehousing mushrooming on the NH-8 stretch, structures dominating the landscape. As markets into two major clusters: NH-8 warehousing activities have gradually land prices became unfeasible for such cluster and Ghaziabad cluster, based on shifted towards locations on the internal activities, they slowly started shifting factors such as geographical location, roads of Haryana. These locations are proximity to the national highway, access outside the Delhi border. In the southern just off the main national highway but to the Delhi city centre and distance from region, markets such as Kherki Daula well connected to it. Locations such as the major manufacturing hubs. Since and Manesar on NH-8 started attracting the Gurgaon-Pataudi road, Jamalpur- NATIONAL warehousing activities, while Kundli Panchgaon road, Bilaspur-Tauru road and these two clusters collectively account and Sonipat on NH-1 in the northern Barota have witnessed a phenomenal for the majority of the warehousing space CAPITAL region developed as alternative markets. growth in terms of warehousing demand in the NCR market, the rest of Similarly, NH-91, NH-24 and NH-58 space over the last decade. Similarly, the locations have been classified into REGION (NCR) near Ghaziabad became attractive for Dharuhera on NH-8 and Palwal on NH-2 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
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Satvik Logistics, Good Luck Warehouse, CLASSIFICATION OF WAREHOUSING LOCATIONS INTO MAJOR Ashiana Logistics, IndoSpace, Acorn Future Warehouse Solutions, Lord Balaji Select warehouse operators Warehouses & Logistics Parks, Adani Group, CLUSTERS Warehousing, Om Kiran Warehouse Value Logistics Complex Warehousing cluster Major warehousing locations Rental value range (`/sq ft/month) 12 - 21 14 - 20
Dharuhera, Gurgaon-Pataudi road, Jamalpur-Panchgaon road, Bilaspur-Tauru road, Land cost range (` mn/acre) 25 -40 20 - 40 NH-8 cluster Barota, Kherki Daula, Palwal and other such areas accessible from NH-8 and NH-2 Proximity to the most industrialised region in Proximity to the manufacturing hubs of NCR. More than 43% of NCR’s manufacturing Ghaziabad, Faridabad and Sonipat. 42% Ghaziabad cluster Ghaziabad, Dadri and other such areas accessible from NH-24, NH-91 and NH-58 activity is located within a two-hour drive from of NCR’s manufacturing activity is located this cluster. within a two-hour drive from this cluster. Competitive advantages Others Alipur, Kundli, Sonipat, Murthal and Mundka Proximity to the densely populated Easily accessible to the two most important consumption hubs of Ghaziabad, Delhi, retail markets in NCR- Gurgaon and Delhi. Source: Knight Frank Research Noida and Greater Noida. These hubs Gurgaon and Delhi together account for more together account for 95% of the total retail than 86% of the total retail spending in NCR. spending in NCR. 2. SNAPSHOT OF MAJOR WAREHOUSING CLUSTERS IN NCR Frequent traffic congestion due to poor infrastructure and densely populated urban NH-8 cluster Ghaziabad cluster areas
Takes significant time to convert land use Major roads NH-8 and NH-2 NH-91, NH-24 and NH-58 from agriculture to industrial/warehousing Rapid urbanisation, leading to unviable land Challenges rates for warehousing activity. Rapid urbanisation leading to unviable land Connects to various ports in western India Connects to various ports in eastern rates for warehousing activity. Connectivity and the industrial belt of the Delhi-Mumbai India and the industrial belt of the Eastern Industrial Corridor (DMIC) Dedicated Freight Corridor (Eastern DFC) Quality of internal roads starkly inferior compared to the national highways. This restricts the opening up of new land parcels NH-8 is a six-lane national highway with NH-91 is a 2x2 ill-maintained road with for warehousing activities. flyovers and service lanes at all the major vehicular and pedestrian congestion, junctions. leading to traffic snarls. 3. TOTAL REQUIREMENT FOR WAREHOUSING SPACE The NH-24 Hapur–Ghaziabad stretch is NH-2 is a four-lane highway and witnesses a 2x2 good quality road with a host of Currently, NCR’s total requirement for manufacturers, thereby reducing the requirement for warehousing space, Infrastructure frequent traffic congestion. educational institutes. warehousing space is estimated to need to have a separate warehouse. such consumption-led requirement is mostly The expressway between Manesar The NH-58 Ghaziabad–Meerut Road is be 223 mn sq ft, of which more than a leasable market in NCR is currently for leasable space, with very few and Palwal, which is part of the Kundli- a 2x2 good quality road with a host of 80%, or 187 mn sq ft, is from the estimated to be in the range of 100-120 operators fulfilling their needs through a Manesar-Palwal (KMP) Expressway, old residential developments along the manufacturing sector. However, the mn sq ft. However, the share of annual captive warehouse. This is primarily due connects NH-8 and NH-2. highway. majority of the warehousing requirement transacted volume is approximately 7 mn to the need to have a fulfilment centre of the manufacturing sector is fulfilled by sq ft. as close to the urban area as possible Demand drivers: major manufacturing Auto and auto ancillary, metals, textile and Food processing, metals, chemicals and captive space, either in terms of space in order to ensure quick delivery. Over With the Goods and Service Tax (GST) sectors engineering pharmaceuticals at the manufacturer’s plant or company- the last ten years, this segment has owned warehouses. Although the trend of set to become operational, the need witnessed a renewed traction, especially leasing a warehouse rather than owning it for captive warehouses will reduce in the E-tail sector. As the time between Demand drivers: consumption/retail Delhi, Ghaziabad, Noida, Greater Noida further. We believe that a large number Delhi, Gurgaon and Faridabad is steadily picking up with the emergence placing an order and delivery has shrunk sector and Faridabad of third-party logistics players (3PL), of manufacturers will outsource their drastically with the advent of the E-tail it is still at a nascent stage compared logistics and warehousing requirements sector, the need for warehousing space Warehousing space requirement from and focus on their core operations. This 94 mn sq ft 57 mn sq ft to developed markets such as Europe has also increased significantly. With manufacturing sector and the US. These 3PL players,such as will create an additional demand for the share of E-tail expected to rise Safexpress, Blue Dart, TCI and Future leasable warehousing space in NCR in steadily in the coming years, we estimate Warehousing space requirement from Supply Chain, among others, provide the coming years. the demand for warehouses from this 30 mn sq ft 34 mn sq ft consumption/retail sector end-to-end logistics services, including a segment to increase proportionately as In contrast to the manufacturing-led common warehousing facility, to multiple well.
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TOTAL REQUIREMENT FOR WAREHOUSING SPACE IN NCR 4. DEMAND DRIVERS OF WAREHOUSING SPACE IN NCR
The primary demand drivers of Consumption-led demand, which is an identified the key manufacturing warehousing space in NCR can be equally important demand driver for industries in NCR, their current broadly classified into two categories: warehousing space, is largely dependent warehousing requirement, the major manufacturing-led demand and on population, income level and the manufacturing hubs and the various consumption-led demand. The demand propensity to spend. The changing regions within NCR from where the from the manufacturing sector arises dynamics of the retail industry has requirements originate. Similarly, in terms predominantly due to the distance resulted in the business model of a of consumption, we have identified the between the manufacturer’s factories, raw retailer becoming heavily dependent major product categories, their current material suppliers and the consumption on a smooth and efficient supply chain warehousing requirements and important markets of the final goods. The need to network. In addition to this, the advent of consumption clusters in the region. store the raw materials or final goods due E-tail in recent years has necessitated the to this distance, determines the amount need for huge warehouses close to urban of space required by each manufacturer. centres in order to deliver in the shortest The quantum of space required is also possible time. Such factors have brought dependent on the type of product that is the warehousing industry to the forefront manufactured. Hence, each manufacturer of the retail business and compelled will have a different requirement for retailers to focus on this segment. space, depending on these factors. In the following sections, we have
4.1 MANUFACTURING-LED DEMAND However, in terms of the requirements space requirement is the highest. The for warehousing space, the cement cement sector accounts for 23% of the NCR is one of the largest manufacturing sector leads with more than 42 mn sq total warehousing requirement from the hubs in the country and accounts for ft. As discussed earlier, the quantum manufacturing-led demand. the majority of the production activity and type of warehousing space required in north India. Food processing, which for each manufactured product is The other big demand drivers for includes dairies, rice mills, sugar mills, different. Additionally, each industry warehousing space in NCR are the food confectionaries, and alcoholic and follows a different inventory cycle, which processing, auto and auto ancillary, non-alcoholic beverages, among others, influences the amount of space required chemicals and pharmaceutical sectors. has the largest share in the output in to a great extent. Hence, despite the Just the top four sectors account for NCR. This is followed by the auto and cement sector contributing just 4% of more than 70% of the total warehousing auto ancillary and metals industries. NCR’s total output, its warehousing space 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 Note l: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of August 2016. The majority of the warehousing require- ment of the manufacturing sector is fulfilled by captive space, either in terms of space at the manufacturer’s plant or company-owned warehouses. Engineering
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 prod- Source: Annual Survey of Industries (ASI) and Knight Frank Research ucts, grocery and other such daily retail products that are consumed on a regular basis. Source: Knight Frank Research
78 79 INDIA WAREHOUSING MARKET REPORT RESEARCH
WAREHOUSING SPACE REQUIREMENTS OF MAJOR MANUFACTURING MANUFACTURING CLUSTERS WITHIN NCR INDUSTRIES IN NCR
34 33 21 15 9 25 42 8 50
40
30 mn sq ft 20
10 Currently, NCR’s total requirement for warehousing space is Textile Metals estimated to be Cement Engineering 223 mn sq ft, of which Food processing Auto & auto ancillary
more than 80%, or 187 Chemicals & pharma Consumer electronics
mn sq ft, is from the Note: The warehousing space requirement mentioned in the chart above is the total space requirement (esti- manufacturing sector. mated warehouse stock) as of August 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 However, the majority terms of space at the manufacturer’s plant or company-owned warehouses. Source: Knight Frank Research of the warehousing
requirement of the Manufacturing activities are concentrated manufacturing units, their share in NCR’s manufacturing sector largely in the southern and north-eastern total production output is considerably lower than the other regions. Western Dedicated parts of NCR. Currently, the NH-8 and Freight Corridor is fulfilled by captive NH-2 clusters in the southern region The factors clearly indicate that Eastern Dedicated space, either in and the NH-24, NH-91 and NH-58 Freight Corridor the demand for manufacturing-led Proposed National clusters in the north-eastern region terms of space at the warehousing space in NCR will be Expressway together account for 85% of the total concentrated primarily in the NH-8 and Railway Line manufacturer’s plant manufacturing activity within NCR. This KMP Expressway- Ghaziabad clusters, with sectors such Under Construction is one of the primary reasons for which as auto and auto ancillary, cement, or company-owned KMP Expressway- most of the existing warehouses operate chemicals and pharmaceuticals and Operational warehouses. Such from one of these clusters. While Delhi, food processing leading in terms of this leasable market in NCR NH-1 and NH-10 also have various demand. Manufacturing is currently estimated to Industrial areas be in the range of 100- Cluster Industrial areas within Delhi, such as Narela, Okhla, MAJOR MANUFACTURING CLUSTERS IN NCR 120 mn sq ft. However, Delhi Bawana and Rohtak Road, among others the share of annual Manufacturing activities are concentrated largely in the southern and north-eastern parts of NCR. Currently, the NH-8 and Industrial areas accessible from NH-8 and NH-2, such NH-2 cluster in the southern region and the NH-24, NH-91 and NH-58 cluster in the north-eastern region together account transacted volume is NH-8 & NH-2 as Manesar, Bhiwadi, Neemrana, Faridabad and Palwal, for 85% of the total manufacturing activity within NCR. This is one of the primary reasons for which most of the existing among others warehouses operate from one of these clusters. While Delhi, NH-1 and NH-10 also have various manufacturing units, their approximately share in NCR’s total production output is considerably lower than the other regions. Industrial areas accessible from NH-1 and NH-10, such 7 mn sq ft. NH-1 & NH-10 as Sonipat, Panipat, Bahadurgarh and Rohtak, among These factors clearly indicate that the demand for manufacturing-led warehousing space in NCR will be concentrated others primarily in the NH-8 and Ghaziabad clusters, with sectors such as auto and auto ancillary, cement, chemicals and Industrial areas accessible from NH-24, pharmaceuticals and food processing leading in terms of this demand. NH-24, NH-91 & NH-58 NH-91 and NH-58, such as Ghaziabad, Dadri and Meerut, among others
80 81 INDIA WAREHOUSING MARKET REPORT RESEARCH
Share in output of each manufacturing cluster within NCR CATEGORY-WISE SPLIT OF RETAIL SPENDING IN NCR
Apparels, sportswear & footwear
Food & beverages
Department store
Daily needs
Home & lifestyle
Electronics
Watches, jewellery & accessories
Others The E-tail sector has emerged as Source: Knight Frank Research a major driver for Delhi NH-8 & NH-2 NH-1 & NH-10 NH-24, NH-91 & NH-58 the incremental Source: Annual Survey of Industries (ASI) and Knight Frank Research warehousing space 4.2 Consumption-led demand currently accounts for 14% of the total requirement in recent space requirement of the consumption-led In terms of retail spending, NCR is the demand. While brick-and-mortar stores WAREHOUSING SPACE REQUIREMENTS FOR THE MAJOR RETAIL CATEGORIES IN NCR years and currently largest market in India with Delhi, Gurgaon still lead in terms of space requirement, at accounts for 14% 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, of the total space brick-and-mortar stores, malls, shopping considering that until just a few years streets and mom-and-pop stores but also ago,this entire segment was non-existent. requirement of the 15 5 4 3 2 2 4 accounts for the spending by consumers 16 consumption-led through the e-commerce medium. Hence, While the boom in the E-tail sector may any type of consumer goods consumed have eaten into the market share of demand. While brick- 12 within NCR, whether offline or online, is the brick-and-mortar stores to a great and-mortar stores categorised in the retail spending. extent, our analysis indicates that the 8 advent of this segment has expanded mn sq ft still lead in terms of Among the various product categories, the overall consumption pie and led 4 space requirement, apparel, sportswear and footwear together to a substantial increase in the urban have the highest share, at 43%, in the at 31 mn sq ft, consumers’ propensity to spend. Hence,
total retail spending in NCR. Thus, even in the warehousing space requirement by the
r the E-tail segment 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 Others contributes upto sq ft or 38%. Other prominent product replacement of the demand for space by & footwea Electronics categories include food and beverages, brick-and-mortar stores. Daily needs
5 mn sq ft. However, & accessories
department stores and daily needs. The Home & lifestyle Food & beverages we estimate space daily needs category includes all the FMCG Going forward, we believe that the share jewellery Watches, requirement from products, grocery and other such daily of the E-tail sector will increase further in sporstwear Apparels, retail products that are consumed on a the total retail spending of consumers. This the E-tail segment to will invariably lead to a higher demand for regular basis. Just the top four categories Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of August 2016. The food and warehousing space from this segment in increase by 60%, to account for more than 80% of the total beverages category includes all the dining, quick service restaurants (QSR) and takeaways. The daily needs category includes all the FMCG products, grocery and other warehousing space requirement in NCR. the coming years. As per our estimates, such daily retail products that are consumed on a regular basis. more than the warehousing space requirement from Source: Knight Frank Research 8 mn sq ft by 2020. 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.
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WAREHOUSING SPACE REQUIREMENTS BY E-TAIL AND BRICK-AND-MORTAR STORES 5. NH-8 WAREHOUSING CLUSTER National Highway 8 (NH-8) and National over the last few decades. years. Since the demand drivers for all The NCR market can be further classified majority of the warehouses in NCR will Highway 2 (NH-2) are the two most the warehouse locations along NH-8 Factors such as easy connectivity to into five sub-markets — Delhi, Gurgaon, have to be located in areas that have important roads that connect NCR to and NH-2 are similar, we have clubbed NCR, access to the major industrial areas Faridabad, Noida and Greater Noida, and easy access to Delhi, with minimal the western and central regions of India. these locations into a single warehousing of Haryana and Rajasthan and direct port Ghaziabad — for the purpose of gauging time to deliver products. This opens Apart from providing direct access from cluster for the purpose of this report connectivity have led to a huge demand the consumption-led demand. Delhi, up the potential for all the major entry NCR to Jawaharlal Nehru Port Trust and called it as the ‘NH-8 warehousing for warehousing space along these roads. the largest sub-market among these, points into Delhi to be developed as (JNPT), one of the busiest ports in the cluster’. In the following sections, we Apart from the massive development of accounts for 75% of NCR’s population. warehousing hubs, be it NH-8 and NH-2 country, NH-8 is also connected to other have explained the primary demand important ports in Gujarat. Additionally, warehouses on either side of the national drivers of the warehousing space in However, it contributes to more than 80% in the south, NH-1 in the north, NH- most of the industrial areas in Haryana highway, locations such as Gurgaon- this cluster, market characteristics, of the total retail spending in the region. 10 in the west and NH-24, NH-91 and and Rajasthan are concentrated along Pataudi road, Jamalpur-Panchgaon infrastructure development, prevailing This is primarily due to the higher level NH-58 in the east. Currently, all these these highways. These factors have road, Bilaspur-Tauru road and Barota rentals and land rates, challenges and the of per capita income and the greater clusters have warehousing activities resulted in NH-8 becoming one of the have witnessed an unprecedented future outlook. propensity to spend among Delhi’s in some or the other form. However, busiest national highways in the country construction of warehouses in recent residents. NH-8 has the highest concentration of Brick-and-mortar stores E-tail such warehouses, which are driven by NH-8 WAREHOUSING CLUSTER Source: Knight Frank Research The above analysis indicates that the consumption-led demand.
Western Dedicated CLUSTER-WISE POPULATION SPLIT IN NCR SHARE OF EACH CONSUMPTION Freight Corridor CLUSTER IN RETAIL SPENDING IN Proposed National NCR Expressway Railway Line KMP Expressway- Under Construction
KMP Expressway- Operational
Delhi Others including Gurgaon, Noida, Greater Noida, Ghaziabad and Faridabad
Source: Knight Frank Research
Source: Census 2011
84 85 INDIA WAREHOUSING MARKET REPORT RESEARCH
5.1 DEMAND DRIVERS OF consumption-led demand. Of the two Suzuki, Honda Motorcycle & Scooter The demand for warehousing space (PEB) type structures with 24-foot clear country, NH-8 seldom witnesses traffic WAREHOUSING SPACE IN THE NH-8 categories, the manufacturing-led and Hero MotoCorp having their plants is closely linked to the type of height and basic infrastructure such as congestions due to the provision of manufacturing industries that are power backup, ample parking space, flyovers and service lanes at all the major CLUSTER demand accounts for the lion’s share due located within this cluster. Among the the massive concentration of industrial other manufacturing industries, the serviced through them. Hence, despite fire-fighting equipment and insulation, junctions. Although the majority of the among others. Some of the prominent The demand drivers of warehousing activity along these routes. Within the metals, textile and engineering sectors the auto and auto ancillary sector warehouses are located on the internal accounting for the largest share in occupiers are Lifestyle Home Centre, space in this cluster can be broadly manufacturing segment, the auto and constitute a major portion of the output, roads of NH-8, the travel time from these terms of output within this cluster, it Arvind Brands, Amazon, TCI, Gati roads to the highway is less than 15 classified into two sub-segments: auto ancillary sector leads in terms of followed by food processing, chemicals is the cement industry that requires KWE and Fedex. However, most of the minutes due to their excellent quality. manufacturing-led demand and output, with auto majors such as Maruti and pharmaceuticals, and cement. the maximum warehousing space. warehouses in Kherki Daula and certain This ensures seamless road connectivity parts of NH-8 are old godown-type SHARE IN OUTPUT OF VARIOUS MANUFACTURING INDUSTRIES IN THE NH-8 CLUSTER Currently, the estimated requirement of between the various warehousing warehousing space in this cluster by the structures with minimal amenities and markets located in this cluster and the cement sector is 30 mn sq ft, followed by poor infrastructure. industrial areas situated along this route. the auto and auto ancillary sector, at 25 Additionally, the Delhi city centre can be Currently, most of the incremental Auto & auto ancillary mn sq ft. The total warehousing space reached within a travel time of about demand comes from E-tail sector requirement from the manufacturing 60-100 minutes from most of the companies that not only require adequate Metals sector is in excess of 94 mn sq ft. warehouses located in this cluster. clear height within the warehouse for Textile Apart from the manufacturing sector, multi-level stacking of products, but also NH-2, which connects Delhi and there is also a very strong demand for look for added amenities such as power Engineering Faridabad to central and eastern India, warehousing space from the retail sector. backup, fire-fighting equipment and is a relatively narrower four-lane highway enhanced security. This has resulted in Food processing The retail sector primarily includes all and witnesses frequent traffic congestion. the majority of the new warehouses being the consumption-led products, such The presence of various manufacturing Chemicals & pharma constructed to adhere to such standards as grocery, FMCG products, apparel, units along the highway makes it difficult and move away from the traditional consumer durables and furniture, among for a smooth flow of traffic. However, Cement godown-type structure. others, which are consumed by end the recently inaugurated expressway Others users. This also includes the demand between Manesar and Palwal, which is serviced by online players, such as Select warehouse operators part of the Kundli-Manesar-Palwal (KMP) Source: Knight Frank Research Flipkart, Snapdeal, Pepperfry and Big Expressway, has reduced the travel time Basket. Since the NH-8 and NH-2 Ashiana Logistics between NH-2 and NH-8 significantly. warehousing clusters are located in close The effective travel time has reduced to WAREHOUSING SPACE REQUIREMENT OF MAJOR MANUFACTURING INDUSTRIES IN THE NH-8 CLUSTER proximity to the major consumption Indospace less than 60 minutes from the earlier 100- centres of NCR such as Delhi and 120 minutes. This has brought the various 25 11 7 5 6 10 30 Gurgaon, there is an inherent demand for Acorn Warehouses & Logistics Parks manufacturing units and warehouses 40 warehouses from such companies and located on NH-2 considerably closer their dealers. Adani Group to NH-8, thus narrowing the difference between the two warehousing clusters. Currently, Delhi and Gurgaon account 30 Value Logistics for more than 86% of the total retail Warehouses located on the NH-8 cluster spending in NCR. This means that can service the two major consumption mn sq ft upto 86% of NCR’s retail market can 5.3 LOCATION AND INFRASTRUCTURE markets in NCR (Delhi and Gurgaon) 20 be serviced through the warehousing within 100 minutes. Additionally, all The NH-8 warehousing cluster can be cluster on NH-8. As per our estimates, the major industrial hubs located close divided further into two sub-markets the total requirement of warehousing to NH-8 and NH-2 can be accessed based on their access from the two major 10 space originating from consumption-led within two hours. However, servicing roads: NH-8 and NH-2. NH-8 is a six-lane demand in this cluster is 30.6 mn sq ft, the industrial hubs of Ghaziabad, national highway starting from Delhi and including 4.4 mn sq ft from the E-tail Bahadurgarh, Bawana, Sonipat and passing through the most industrialised segment. Rohtak from this cluster may exceed two regions of country – Gurgaon, Jaipur,
hours and could extend upto three hours 5.2 TYPES OF WAREHOUSES AND Ahmedabad, Vadodara, Surat and Vapi. in certain cases. In addition to this, the
Food MAJOR PLAYERS The road finally connects to Mumbai and Textile Metals transport of goods through Delhi in large Cement ancillary JNPT through NH-4. Apart from being the & pharma
Chemicals Warehouses in locations such as commercial vehicles is taxed heavily and processing Engineering Auto & auto busiest national highway, it is also a part Gurgaon-Pataudi road, Jamalpur- there is a strict restriction on their entry of the upcoming Delhi-Mumbai Industrial Panchgaon road, Bilaspur-Tauru road and time. Such factors make these industrial Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of August 2016. This is calculated Corridor (DMIC). 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 Barota are relatively recent constructions. hubs located on the northern and eastern space at the manufacturer’s plant or company-owned warehouses. Most of the development on these roads Despite passing through Gurgaon, part of NCR even more inaccessible from Source: Knight Frank Research comprises pre-engineered building one of the most urbanised areas in the NH-8 and NH-2.
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ROAD DISTANCE AND TRANSIT TIME TO IMPORTANT LOCATIONS FROM WAREHOUSING CLUSTERS ON NH-8 AND NH-2 5.4 RENT AND LAND COST OF (Gurgaon and Faridabad) have lower WAREHOUSES rents, primarily due to the relatively lower cost of land in such areas. However, Currently, the Currently, warehouses that are closer there are certain other factors that could Distance from km Travel time in mins to Gurgaon or located on the national influence the rental values, apart from estimated highways are quoting the highest rental the location and cost of land. Technical values. As we move away from the requirement of national highways towards the internal aspects, such as floor strength, fire Delhi City Centre (Connaught Place) 40 - 80 60 - 100 warehousing roads, the rental values reduce, based on safety equipment, power back-up, the distance and travel time taken from security, common amenities and quality space in the NH-8 of approach road, among others, have a the national highways. Also, warehouses warehousing cluster Gurgaon city centre (DLF CyberCity) 22 - 60 28 - 90 located away from the urban centres direct bearing on the rent of the property. by the cement INDICATIVE RENTAL VALUES AND LAND RATES sector is 30 mn IMT Manesar 5 - 65 10 - 80 Quoted rent Quoted land rate sq ft, followed by Location (`/sq ft/month) (` mn/acre) the auto and auto
Dharuhera & Bhiwadi industrial belt 5 - 55 10 - 70 NH-8 16 – 19 30 – 40 ancillary sector, at 25 mn sq ft. The total Gurgaon-Pataudi Road 12 – 17 28 – 40 warehousing space Bawal industrial area 28 - 100 30 - 100 Jamalpur-Panchgaon Road 15 – 21 30 – 40 requirement from the manufacturing sector Neemrana industrial area 52 - 120 50 - 130 Bilaspur-Tauru Road 14 – 18 30 – 40 is in excess of 94 mn sq ft. Barota 11 – 14 25 – 35 Faridabad industrial belt 24 - 95 36 - 100
Dharuhera 12 – 17 25 – 40 Palwal industrial area 5 - 80 10 - 90 NH-2, Palwal 15 – 18 30 – 40
Source: Knight Frank Research Ghaziabad industrial belt 80 - 100 130 - 150 5.5 COMPETITIVE ADVANTAGES in NCR- Gurgaon and Delhi. Gurgaon and Delhi together account for more The biggest competitive advantage of than 86% of the total retail spending in Bahadurgarh industrial cluster 40 - 110 60 - 140 this warehousing cluster is its proximity NCR and hence, it becomes imperative to the most industrialised region in NCR. for retailers to have their warehouses More than 40% of NCR’s manufacturing located as close to their target market as activity is located within a two-hour possible. Moreover, with the emergence Bawana industrial area 60 - 100 100 - 170 drive from this cluster. Additionally, the of E-tail, the delivery time from the concentration of auto companies in warehouse to the customer has shrunk this region accentuates the need for to under three hours. In order to cater to warehouses to be located in the vicinity such demand, it becomes necessary for Sonipat industrial area 82 - 120 120 - 180 to their plants. This is primarily to service E-tailers to have a warehouse within a these auto plants in a minimum time driving distance of 60-90 minutes. Since period, as most of them follow the ‘just- the city centre of Delhi and Gurgaon can be reached within a time frame of 30-90 Rohtak Industrial cluster 70 - 90 140 - 160 in-time’ inventory system. minutes from most of the warehousing Another advantage is the ease of access markets situated in this cluster, it gives Source: Knight Frank Research to the two most important retail markets the cluster an edge.
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5.6 CHALLENGES 5.7 OUTLOOK Road. Such developments could lead to Currently, most of the locations within the In order to achieve returns upwards of In order to achieve a sharp appreciation of land prices in the NH-8 cluster are feasible for warehousing 14% per annum, investors will have The biggest challenge of this NH-8 is expected to further consolidate adjoining localities and this could push up activities at the prevailing land rates, to consider new locations within the returns upwards of warehousing cluster is the rapid its position as a manufacturing hub with the rental expectations of land owners even subject to a minimum achievable rental NH-8 warehousing cluster where the the development of the Delhi-Mumbai 14% per annum, urbanisation that this region has value of `14/sq ft/month. However, rental Industrial Corridor (DMIC) along this route. further. land acquisition cost is minimal, and is witnessed over the last ten years. This values below this level may not even investors will have Additionally, the presence of various well connected to the national highway has inherently led to an exponential rise Since land cost is the most critical fetch returns of 10% per annum to the to consider new in land rates, thereby making most of automobile majors will continue to attract through a good quality 40-60 foot road. component of warehousing development, investors at the current land prices. the locations unviable for warehousing auto ancillary and engineering sector Locations that fit these criteria will be locations within the it influences the realisable returns to a great business. This is primarily because companies. With rising land rates and For investors to achieve returns upwards able to attract occupiers. We believe that extent. In order to understand the feasibility NH-8 warehousing the appreciation in rental values has unaffordable rentals, warehouses are of 14% per annum, it is imperative that the NH-71 stretch between Rewari and expected to gradually move towards the of land cost for warehousing activities, we significantly lagged the increase in the land acquisition cost does not exceed Jhajjar offers such an opportunity for cluster where the various internal roads in Haryana and the have developed a land cost matrix. This land prices. While developers that had `26 mn/acre and that it can be leased future development. Although this stretch land acquisition cost periphery of the highway. matrix explains the feasible land cost that previously purchased land at low rates out at a minimum rental value of `18/ is located further away from NH-8, the an investor should ideally pay in this cluster sq ft/month. Considering the current is minimal, and is are able to survive, any new development Warehouse rents on locations such as driving time to most of the manufacturing in order to achieve the expected return in market scenario, only certain locations, at the current costs seems unviable. NH-8, NH-2 near Palwal, and Jamalpur- hubs located near the highway is less well connected to the range of 10%-16% per annum, subject such as NH-8, Jamalpur-Panchgaon Panchgaon Road within the NH-8 than 90 minutes due to the good quality Going forward, If the current pace of the national highway warehousing cluster have already moved to the achievable rents. For example, with Road, Bilaspur-Tauru Road and NH-2 residential and commercial development 2x2 roads on this stretch. Additionally, the beyond `15/sq ft/month and are quoting a returns expectation of 14% per annum near Palwal are able to command a through a good continues, we believe that even the Delhi city centre can be reached within as high as `21/sq ft/month in certain and an achievable rental value of rental value upwards of `18/sq ft/ existing warehousing players may convert month. However, the prevailing market 120 minutes from here. Hence, based on quality 40-60 foot cases. Such high rentals have already `18/sq ft/month, the feasible land cost their land into more lucrative uses, price of land in these locations is higher these factors, we believe that the NH- rendered warehousing activity for certain amounts to `26 mn/acre. In other words, road. Locations that such as residential or commercial. This than `30 mn/acre, thereby rendering 71 stretch between Rewari and Jhajjar manufacturing industries unviable, and investors can fetch a 14% per annum fit these criteria will could push the future development of any further rise in rents could push the them unfeasible for the 14% per annum will witness considerable warehousing return only if they are able to purchase warehouses further south on the national remaining occupiers towards alternative investor return. development in the coming years. be able to attract land at or below `26 mn/acre at present highways or deeper into the interiors cheaper locations. Going forward, the rapid and lease it at `18/sq ft/month. As the occupiers. We of Haryana. The downside of such a development of residential and commercial scenario is the likely increase in driving projects in the vicinity could threaten the purchase price of land goes higher, the Assumptions believe that the time and delays in servicing the target feasibility of warehouse operations in realisable return reduces. Similarly, as NH-71 stretch segment due to the poor quality of roads certain locations of this cluster, such as the achievable rental value increases, the and infrastructure in these regions. Manesar and pockets of Gurgaon - Pataudi feasibility of higher-cost land also goes up. Construction cost (`/ sq ft) 1,200 between Rewari and Jhajjar offers such an FEASIBLE LAND COST MATRIX IN THE NH-8 WAREHOUSING CLUSTER (` MN/ACRE) Ground coverage 57% opportunity for future development. Rental value Investor return per annum Rental escalation per annum 5% (`/sq ft/month) 10% 12% 14% 16% 18%
50%: First year 12 18 14 11 8 5
14 25 20 16 12 10 Occupancy 75%: Second year
16 31 25 21 17 13 100%: Third year onwards
18 37 31 26 21 18 Debt funding 80% of construction cost 20 43 36 31 26 21 Interest rate 12%
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. Tax rate 30% Source: Knight Frank Research
Cap rate 10%
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6. GHAZIABAD WAREHOUSING CLUSTER 6.1 DEMAND DRIVERS OF industrial activity along these routes. In WAREHOUSING SPACE IN THE the manufacturing segment, the food To the east of the National Capital Region stretch on NH-58. Besides, warehouses below, we have explained the primary GHAZIABAD CLUSTER processing sector leads in terms of (NCR) are the warehousing markets can also be identified in parts of GT Road demand drivers of warehousing space output, with food processing and dairy of National Highway 24 (NH-24) and and Greater Noida. in this cluster, market characteristics, The demand drivers of warehousing product firms,such as Mother Dairy National Highway 91 (NH-91). Spread infrastructure development, prevailing space in the Ghaziabad cluster can and Amul Dairy, having their plants Knight Frank around Ghaziabad, the gateway to the Since the demand drivers for all these be broadly classified into two sub- rentals and land rates, challenges and the in this cluster. The food processing densely populated state of Uttar Pradesh, warehouse locations are similar, we segments: manufacturing-led demand industry accounts for a quarter of the Research estimates future outlook. this cluster predominantly comprises have clubbed the locations into a single and consumption-led demand. Of the industrial output. This is followed by the warehousing markets along the Ghaziabad–Dadri warehousing cluster for the purpose of two categories, the manufacturing-led other manufacturing industries, such as stretch on NH-91, the Ghaziabad–Hapur this report and named it the ‘Ghaziabad demand accounts for the lion’s share petroleum, metals, chemicals and the requirement from the belt on NH-24 and the Ghaziabad–Meerut warehousing cluster’. In the sections due the massive concentration of pharmaceutical sector. manufacturing sector GHAZIABAD WAREHOUSING CLUSTER to be 57 mn sq ft in SHARE IN OUTPUT OF VARIOUS MANUFACTURING INDUSTRIES IN THE GHAZIABAD CLUSTER the Ghaziabad cluster. The food processing sector accounts for Food processing 31% or 18 mn sq ft Petroleum products of the manufacturing-
Metals led market due to the
Chemicals & pharma agrarian landscape and the presence of Textile numerous dairies and Auto & auto ancillary ancillary activities in the Consumer electronics cluster. Engineering
Others
Source: Knight Frank Research
The Ghaziabad cluster accounts for with companies manufacturing products 42% of the manufacturing sector output such as milking machines, milk testing across NCR – only marginally lower equipment, butter churners, cream than the 43% share of the NH-8 and separators and milk analysers. NH-2 clusters. The prominence of such manufacturing sector activity creates The chemical and pharmaceutical the demand for warehousing space sector is the second largest occupier depending on the nature of the cargo and of warehouses in the cluster, with a the target delivery timelines of the supply warehouse market size of 12 mn sq ft or chain. 21% of the manufacturing-led market. Companies such as Dabur, Century Knight Frank Research estimates the Laminating, Modi Paints and Simbhaoli warehousing requirement from the Sugars are present in the cluster and are manufacturing sector to be 57 mn sq Western Dedicated involved in the production of medicines, Freight Corridor ft in the Ghaziabad cluster. The food plywood, paints, alcohol, industrial Eastern Dedicated processing sector accounts for 31% or Freight Corridor 18 mn sq ft of the manufacturing-led chemicals and gases, among others. Proposed National The warehousing demand composition Expressway market due to the agrarian landscape and the presence of numerous dairies and favours the metals, auto and auto Railway Line ancillary activities in the cluster. The dairy ancillary, consumer electronics, textiles products ecosystem has been created and engineering sectors.
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WAREHOUSING SPACE REQUIREMENT OF MAJOR MANUFACTURING INDUSTRIES IN THE GHAZIABAD CLUSTER 6.3 LOCATION AND benefit immensely with the upcoming availability of land and its proximity to the INFRASTRUCTURE Eastern Dedicated Freight Corridor (DFC) industrial hubs of Faridabad, Ghaziabad alignment at Dadri. and Sonipat. Notable names, such as Dr. 18 8 12 5 6 6 3 The Ghaziabad cluster enjoys proximity Reddy’s and Safexpress, have warehouse 20 to the manufacturing and consumption The NH-24 Hapur–Ghaziabad stretch facilities in this belt. hubs of Uttar Pradesh, Haryana also enjoys good connectivity, with the and Delhi. This strategic location presence of the manufacturing and The warehouses present in this cluster 15 has established it as an important consumption hubs of NCR, as listed have the strategic advantage of being warehousing cluster in NCR. in the adjoining table. The stretch is a located within a two-hour distance from 2x2 good quality road with a host of The NH-91 Ghaziabad–Dadri belt the manufacturing hubs of Ghaziabad, mn sq ft educational institutes. On account of its 10 Faridabad and Sonipat. However, the is a national highway, but has poor accessibility to the agricultural markets automobile cluster of IMT Manesar is infrastructure. It is a 2x2 ill-maintained and dairy farms that dot the cluster, this road with vehicular and pedestrian located more than two hours away, 5 warehouse space has been taken up by making the industry’s ‘just in time’ congestion, leading to traffic snarls. It is many food processing and milk product an old industrial town, dotted with old companies, such as Mother Dairy. delivery requirement challenging. warehouses and residential development. Servicing Bhiwadi and Neemrana would Such a situation makes multi-axle truck The NH-58 Ghaziabad–Meerut Road, entail even more time. The most vibrant movement slower. The situation is better which is part of the same cluster, is a consumption hubs of Delhi and Gurgaon around Dadri, where the bypass of the 2x2 good quality road with a host of are located approximately two hours Metals Textiles town area is managed with a 3x3 well- old residential developments along away.
Engineering maintained stretch of NH-91. Going the highway. The warehousing market forward, the warehousing activities will here benefits on account of the ample Food processing ROAD DISTANCE AND TRANSIT TIME TO IMPORTANT LOCATIONS FROM THE GHAZIABAD WAREHOUSING CLUSTER Auto & auto ancillary Chemicals & pharma Consumer electronics
Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of August 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 Distance from km Travel time in mins space at the manufacturer’s plant or company-owned warehouses. Source: Knight Frank Research Ghaziabad industrial belt 5–35 15–50 Besides the manufacturing sector, electronics, and home and lifestyle. serviced from the Ghaziabad cluster are consumption-led warehousing Such warehousing demand across NCR Ghaziabad, Noida, Greater Noida and Delhi City Centre (Connaught Place) 25–65 60–120 requirement is also prevalent in this is estimated to be around 36 mn sq ft, Delhi. Together, these markets account market. The consumption-led demand which also includes 5 mn sq ft by e-tail for a warehouse requirement of 32 mn sq Faridabad industrial belt 40–70 90–130 emanates from the storage requirement players such as Flipkart, Snapdeal and ft, which includes the e-tail demand of of product categories ranging from Amazon. However, the most accessible 4.3 mn sq ft. Sonipat industrial area 55–90 100–140 apparel, food and beverages (F&B), consumption centres that can be
Gurgaon city centre (DLF CyberCity) 45–85 90–150 6.2 TYPES OF WAREHOUSES AND from 50,000–500,000 sq ft and are MAJOR PLAYERS predominantly pre-engineered buildings Palwal industrial area 75–100 120–160 (PEB). A few of the warehouse facilities Select warehouse operators The warehouses in this cluster are only have sheds, and still fewer have Bawana industrial area 45–80 100–160 a mixed bag of old warehouses by only the RCC structure. The nature unorganised players and those with of the cargo handled by the occupier Satvik Logistics IMT Manesar 70–110 120–180 modern facilities. The warehouses at determines the choice of the structure. the beginning of the Ghaziabad–Dadri Since PEB structures offer relatively Bahadurgarh industrial cluster 55–90 120–180 stretch on NH-91 are primarily old more vertical storage space on account Good Luck Warehouse structures from the unorganised sector. of their greater floor–ceiling height, such Dharuhera & Bhiwadi industrial belt 90–130 150–200 The amenities and construction quality structures are preferred by occupiers of these old warehouse facilities are of that use pallets and electric-powered Future Warehouse Solutions Bawal industrial area 120–155 160–220 a lower specification. However, there forklifts for the purpose of stacking cargo. are options of new facilities coming up PEB structures generally provide a side/ in localities such as Dhoom Manikpur, clear height of 24–28 ft. In contrast, RCC Lord Balaji Warehousing Rohtak industrial cluster 100–140 170–220 Pilkhuwa-Hapur Road and Meerut Road structures provide just 12–14 ft of vertical (NH-58). space for storage. The load bearing Neemrana industrial area 140–180 180–240 capacity of the floor is trimix 5 metric Om Kiran Warehouse Complex The project size in the cluster ranges tonne per sq m. Source: Knight Frank Research
94 95 INDIA WAREHOUSING MARKET REPORT RESEARCH
6.4 RENT AND LAND COST OF Other terms of tenancy may also have a 6.6 CHALLENGES NH-8 cluster in contrast to just 7% in the WAREHOUSES bearing on warehouse rents, specifically case of the Ghaziabad warehouse cluster. The industrial setups The Ghaziabad warehouse cluster has clauses related to the security deposit, Such industrial activity implies that the in the Ghaziabad The rental values in the cluster are its share of challenges. Being an old demand for automobile space in the rent escalation and lease tenure. The industrial town, the industrial setups in almost similar on the highways, with the competing NH-8 cluster is 25 mn sq ft or cluster are within the market practice for the security deposit this cluster are within the urban area, Dadri region commanding marginally four times that of the Ghaziabad cluster, is 4–6 months of rent. The rent escalation unlike the NH-8 cluster, where industrial urban area, unlike the higher rentals in the cluster. The rentals resulting in a better occupier profile. clause, which determines the quantum activity is well beyond the Gurgaon city NH-8 cluster, where are lower on the internal roads, as one and frequency of rental increments, is area. The presence of dense residential Similar is the case with the consumption- moves away from the national highway. and industrial activity together has led demand on account of the industrial activity usually 5% p.a. The market practice for The rents displayed in the adjoining impacted the vehicular traffic movement. vibrant Gurgaon residential and office lease tenure, i.e. the minimum period is well beyond the table reflect the facilities with standard The cargo movement is also impacted by development over the last decade. for which the landlord and tenant are Gurgaon city area. construction and amenities. It would be the quality of roads, which are generally The consumption markets of Delhi and higher if there are specific requirements bound to honour the occupancy, varies 2x2-lane roads without service lanes. Gurgaon can be serviced through a The presence of for flooring, structure height, insulation largely on a case-to-case basis, usually in These are inferior compared to those in warehouse on the NH-8 cluster, in line dense residential and other capex within the facility. excess of five years. the competing NH-8 cluster and thus, with the tight delivery requirements of cargo movement at similar distances even the e-commerce players. Likewise, and industrial take a longer delivery time. Additionally, companies such as Amazon, Arvind activity together INDICATIVE RENTAL VALUES AND LAND RATE quality of internal roads is starkly inferior Brands and Lifestyle, and several has impacted compared to the national highways. This logistics firms such as Future Supply Quoted rent Quoted land rate restricts the opening up of new land Chain, Fedex, TCI and Safexpress, have Location the vehicular (`/sq ft/month) (` mn/acre) parcels for warehousing activities. favoured the cluster. Further, the overall infrastructure and business environment traffic movement. Our interactions with landowners and are superior in the NH-8 cluster The Ghaziabad Additionally, quality Ghaziabad–Dadri, NH-91 16–20 30–40 warehouse developers highlight another compared to the Ghaziabad cluster. cluster will be difficulty regarding the regulatory The completion of the Manesar–Palwal of internal roads environment. Due to the ambiguity of stretch of the upcoming Kundli–Manesar– dominated by the land laws, the conversion of land use is starkly inferior Ghaziabad–Hapur, NH-24 15–19 20–35 Palwal (KMP) expressway has added food processing from agriculture to industrial takes sheen to this warehouse cluster. compared to the much longer in the Ghaziabad cluster industry, and national highways. compared to the NH-8 cluster in Haryana. Ghaziabad–Meerut, NH-58 14–19 20–35 Such a situation results in taking a longer manufacturing This restricts the time for any development project. companies from the
opening up of Source: Knight Frank Research Another set of challenges arises on lower end of the new land parcels account of the competition from the spectrum. The ample development of alternative residential real for warehousing 6.5 COMPETITIVE ADVANTAGES land availability implies that the rentals estate, which influences the land price availability of land at in warehouse localities near Ghaziabad activities. will continue to remain affordable for a feasible costs that The biggest competitive advantage of the city. While the rents continue to remain considerable amount of time. Ghaziabad warehouse hub is its proximity at an affordable level, land has become is in sync with the expensive, mainly for land parcels to the densely populated consumption The Dadri node of the cluster is on the quoted rents implies abutting the highways. hubs of Ghaziabad, Delhi, Noida and Eastern Dedicated Freight Corridor Greater Noida. This makes it a credible a steady supply of alignment and will thus lead to heightened The other critical challenge arises on location for consumer-oriented (B2C) cargo movement along the eastern part account of the NH-8 warehouse cluster, warehouse space in companies that can serve the NCR of the country. This will increase the which offers a relatively superior occupier the cluster. Hence, consumption market from their warehouses warehousing requirement in the Ghaziabad profile at a similar occupancy cost. This in this cluster. The next advantage is its we believe that no cluster. is the case for both, the manufacturing- proximity to the manufacturing hubs of led and consumption-led demand, which new markets will Ghaziabad, Faridabad and Sonipat. includes e-commerce. The manufacturing The availability of manpower is another emerge in this cluster factor that lends competitive strength to base of NH-8 is much stronger on Warehouse occupiers are sensitive to account of the strong presence of the rentals and thus, warehousing clusters that this cluster. NCR is a densely populated in the near future. automobile industry, which pays relatively urban agglomeration, and the presence are in a position to offer affordable space higher rentals because of its ‘just in time’ of residential catchments for all income would enjoy a competitive advantage inventory model. The auto and auto groups in and around Ghaziabad ensures over the others. With warehouse rentals ancillary sector contributes 29% of the in the range of `14–20 per sq ft per an abundant supply of skilled, semi-skilled manufacturing output in the competing month, Ghaziabad fares well. The ample and unskilled workers.
96 97 INDIA 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 (` MN/ACRE) The future demand for warehousing will be shared mainly between the NH-8 and Ghaziabad clusters. The competing Rental value Investor return per annum (`/sq ft/month) NH-8 cluster has superior infrastructure, 10% 12% 14% 16% 18% well developed internal roads, celebrated manufacturing clusters and a growing 12 18 14 11 8 5 residential and office catchment. Thus, the bulk of the warehousing demand from 14 25 20 16 12 10 high-value manufacturing sector occupiers and e-commerce companies would be 16 31 25 21 17 13 centred in this cluster. The progress on the Kundli–Manesar–Palwal Expressway and the Western Dedicated Freight Corridor 18 37 31 26 21 18 (Western DFC) will improve the future prospects of this competing market even 20 43 36 31 26 21 further.
On the other hand, the Ghaziabad cluster will be dominated by the food processing Note: The table presents 25 options of land cost in ` mn/acre at different investor returns and rental value combinations. The 14 industry, and manufacturing companies options which are possible to source in Ghaziabad and are upward of the minimum prevailing land rate, which is ` 20 mn/acre in this cluster, have been highlighted. from the lower end of the spectrum. The Source: Knight Frank Research ample availability of land at feasible costs that is in sync with the quoted rents implies 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 hub offers a range of options. With land Ground coverage 57% 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 a return expectation of 14% per annum Interest rate 12% and an achievable rental value of `18/sq ft/ month, the feasible land cost amounts to Tax rate 30% `26 mn/acre. In other words, investors can fetch a 14% per annum return only if they Cap rate 10%
98 99 INDIA WAREHOUSING MARKET REPORT RESEARCH
1. MAJOR WAREHOUSING CLUSTERS IN PUNE
Historically, Pimpri-Chinchwad was Motors, JCB and INA Bearings. hubs seeded the growth of the developed as an industrial town with warehousing industry in Pune. Chakan large production facilities of companies The development of three large MIDCs emerged as the preferred location among like Bajaj Auto, Forbes Marshall and in the northern region of Pune has led warehouse occupiers due to its proximity Alfa Laval, among others. However, this belt to be commonly referred to to multiple MIDCs and easy connectivity with the city expanding and residential as the manufacturing hub of Pune. It is with Mumbai and Nashik. Alternatively, development gaining priority over also referred to as the ‘auto hub’ due to Wagholi in North-east Pune gained manufacturing activity, the viability the presence of a large number of auto prominence as a warehouse destination of existing industrial clusters in the and auto ancillary units. Another major due to its proximity to Pune city centre city reduced. This led to the gradual industrial cluster that has gradually and the manufacturing hub of Sanaswadi. exodus of industries to newer industrial developed in Pune is the Sanaswadi- However, with the rapid urbanisation of areas where the Maharashtra Industrial Shikrapur belt. This is also situated in East Pune and residential development Development Corporation (MIDC) the north-eastern part of the city where gaining priority over warehousing activity, was allotting plots for carrying out manufacturing units of companies like Wagholi has been witnessing a gradual manufacturing activities. Chakan, in North John Deere, Tranter and Yamazaki Mazak exodus of warehouses towards the PUNE Pune and Ranjangaon, in North-east are located. Since this industrial cluster is Lonikand-Sanaswadi-Shikrapur belt. Pune were developed by the MIDC as not developed by the MIDC, it is relatively This belt is located 8 - 16 km further east alternate hubs, since a large number of small compared to the other clusters in of Wagholi on the Pune-Ahmednagar auto and auto ancillaries and consumer Pune. Highway. durables’ companies established their Rising land prices and non-availability manufacturing base in these locations. For the purpose of this report, we have of contiguous land within the above While companies like Volkswagen, classified the various warehousing mentioned clusters have led to the Bajaj Auto, Mahindra & Mahindra and markets into two major clusters: emergence of Shirwal in South Pune Bridgestone, among others, are located Chakan-Talegaon belt and Wagholi- as an alternate manufacturing hub and in Chakan, Ranjangaon is host to the Ranjangaon belt, based on factors such many companies have already shifted manufacturing facilities of FIAT, Whirpool, as geographical location, proximity to their base here. Although this cluster LG Electronics and Haier Appliances, the national highway, access to the is not developed by the MIDC, leading among others. With vacant land slowly city centre and distance from the major manufacturing companies such as Godrej getting exhausted here, the MIDC manufacturing hubs. These two clusters & Boyce, Alfa Laval and Finolex, among developed an alternate industrial area collectively account for the majority of the others, have shifted here. in Talegaon situated in North-west Pune warehousing space demand in the Pune market. that has companies such as General The development of these manufacturing
100 101 INDIA WAREHOUSING MARKET REPORT RESEARCH
MAJOR WAREHOUSING LOCATIONS IN PUNE 2. TOTAL REQUIREMENT FOR WAREHOUSING SPACE Currently, Pune’s total requirement for manufacturers, thereby reducing the requirement for warehousing space, warehousing space is estimated to be need to have a separate warehouse. consumption-led requirement is mostly 45 mn sq ft, of which more than 80%, or Such leasable market in Pune is currently for leasable space, with very few 36 mn sq ft, is from the manufacturing estimated to be in the range of 20-25 operators fulfilling their needs through a sector. However, the majority of the mn sq ft. However, the share of annual captive warehouse. This is primarily due warehousing requirement of the transacted volume is approximately 1 mn to the need to have a fulfilment centre manufacturing sector is fulfilled by sq ft. as close to the urban area as possible captive space, either in terms of space in order to ensure quick delivery. Over at the manufacturer’s plant or company- With the Goods and Services Tax (GST) the last ten years, this segment has owned warehouses. Although the trend of set to become operational, the need witnessed a renewed traction, especially leasing a warehouse rather than owning it for captive warehouses will reduce in the E-tail sector. As the time between is steadily picking up with the emergence further. We believe that a large number placing an order and delivery has shrunk of third-party logistics players (3PL), of manufacturers will outsource their drastically with the advent of the E-tail it is still at a nascent stage compared logistics and warehousing requirements sector, the need for warehousing space to developed markets such as Europe and focus on their core operations. This has also increased significantly. With and the US. These 3PL players, such as will create an additional demand for the share of E-tail expected to rise Safexpress, Blue Dart, TCI and Future leasable warehousing space in Pune in steadily in the coming years, we estimate Supply Chain, among others, provide the coming years. the demand for warehouses from this end-to-end logistics services, including a segment to increase proportionately as common warehousing facility, to multiple In contrast to the manufacturing-led well.
TOTAL REQUIREMENT FOR WAREHOUSING SPACE IN PUNE
Total arehousin s ace requirement
45 mn sq ft
Manufacturing-led Consumption-led requirement requirement
36 mn sq ft 8.8 mn sq ft
0.7 mn sq ft 8.1 mn sq ft
4 mn sq ft 2 mn sq ft Source: Knight Frank Research Apparels, Food and sportwear Auto and auto beverages and footwear CLASSIFICATION OF WAREHOUSING LOCATIONS INTO MAJOR CLUSTERS ancillary 3.4 mn sq ft 1.4 mn sq ft 5 mn sq ft 13 mn sq ft Warehousing cluster Major warehousing locations Home and Chakan-Talegaon belt Chakan, Talegaon, Kuruli, Chimbali Chenmicals Lifestyle and pharma 1.1 mn sq ft 1.5 mn sq ft Wagholi-Ranjangaon belt Wagholi, Lonikand, Chakan-Shikrapur road, Sanaswadi, Ranjangaon 5 mn sq ft 7 mn sq ft
Note 1: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of August 2016. The majority of the warehous- Source: Knight Frank Research ing requirement of the manufacturing sector is fulfilled by captive space, either in terms of 0.6 mn sq ft 0.6 mn sq ft space at the manufacturer’s plant or company-owned warehouses
Note 2: The food & 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. 0.2 mn sq ft
Source: Knight Frank Research
102 103 INDIA WAREHOUSING MARKET REPORT RESEARCH
3. DEMAND DRIVERS OF WAREHOUSING FIGURE 1 SHARE IN OUTPUT OF THE VARIOUS MANUFACTURING INDUSTRIES IN PUNE SPACE IN PUNE While brick-and- The primary demand drivers of 3.1 MANUFACTURING-LED DEMAND Auto and auto ancillary warehousing space in Pune can be mortar stores still broadly classified into two categories: Pune is one of the largest manufacturing Engineering 18% lead in terms of manufacturing-led demand and hubs in west India and accounts 30% Food processing consumption-led demand. The demand for the majority of the production space requirement, activity in Maharashtra. Auto and auto 5% from the manufacturing sector arises Chemicals and pharma predominantly due to the distance ancillary has the largest share in the at 8.1 mn sq ft, between the manufacturer’s factories, raw total manufacturing output in Pune, 9% Metals material suppliers and the consumption with companies such as Volkswagen, the E-tail segment Bajaj Auto, Mahindra & Mahindra and Consumer Electronics markets of the final goods. The need to 9% Mercedes-Benz leading in terms of 17% contributes up store the raw materials or final goods due Others to this distance, determines the amount auto sector output in the region. This 12% to 0.7 mn sq ft. of space required by each manufacturer. is followed by engineering and food The quantum of space required is also processing sectors. Food processing This is significant, dependent on the type of product that is includes dairies, rice mills, sugar mills, confectionaries, and alcoholic and non- considering that until manufactured. Hence, each manufacturer Source: Annual Survey of Industries (ASI) and Knight Frank Research will have a different requirement for alcoholic beverages, among others. just a few years ago, space, depending on these factors. In terms of the In terms of the requirements for this entire segment Consumption-led demand, which is an warehousing space, the auto and auto requirements for equally important demand driver for ancillary sector leads with more than 13 was non-existent mn sq ft. This is largely spread across warehousing space, warehousing space, is largely dependent on population, income level and the locations such as Chakan, Talegaon, FIGURE 2 the auto and auto propensity to spend. The changing Sanaswadi and Ranjangaon. The other WAREHOUSING SPACE REQUIREMENTS OF MAJOR MANUFACTURING dynamics of the retail industry has big demand drivers for warehousing INDUSTRIES IN PUNE ancillary sector leads resulted in the business model of a space in Pune are the chemicals and pharmaceutical, food processing and retailer becoming heavily dependent 13 557 43 with more than on a smooth and efficient supply chain engineering sectors. Just the top four 20 network. In addition to this, the advent of sectors account for more than 82% of 13 mn sq ft. This 18 E-tail in recent years has necessitated the the total warehousing space requirement 16 is largely spread need for huge warehouses close to urban of the region. centres in order to deliver in the shortest 14 across locations possible time. Such factors have brought 12 the warehousing industry to the forefront such as Chakan, 10
of the retail business and compelled mn sq ft Talegaon, Sanaswadi retailers to focus on this segment. 8 6 and Ranjangaon. In the following sections, we have identified the key manufacturing 4 The other big industries in Pune, their current 2 warehousing requirement, the major 0 demand drivers manufacturing hubs and the various onics
regions within Pune from where the Metals
for warehousing ocessing requirements originate. Similarly, in terms Auto and Chemicals Electr Consumer Engineering auto ancillary space in Pune are of consumption, we have identified and pharma Food pr the major product categories and their Source: Knight Frank Research the chemicals and current warehousing requirements. pharmaceutical, Demand drivers Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse in Pune stock) as of August 2016. This is calculated on the basis of the latest output data from ASI. The majority of the warehousing food processing and requirement of the manufacturing sector is fulfilled by captive space, either in terms of space at the manufacturer’s plant or engineering sectors. company-owned warehouses Manufacturing- Consumption-led led demand demand
104 105 INDIA WAREHOUSING MARKET REPORT RESEARCH
retail products that are consumed on a FIGURE 3 MAJOR MANUFACTURING CLUSTERS IN PUNE regular basis. Just the top four categories CATEGORY-WISE SPLIT OF RETAIL SPENDING IN PUNE account for more than 85% of the total warehousing space requirement in the city. Apparel, sportswear and footwear 8% The E-tail sector has emerged as a major Food & beverages 5% driver for the incremental warehousing Daily needs space requirement in recent years and 9% 33% currently accounts for 8% of the total Home & lifestyle space requirement of the consumption- 10% led demand. While brick-and-mortar Watches, jewellery and accessories stores still lead in terms of space requirement, at 8.1 mn sq ft, the E-tail Electronics segment contributes up to 0.7 mn sq ft. 16% Others This is significant, considering that until 19% just a few years ago, this entire segment was non-existent.
While the boom in the E-tail sector may Source: Knight Frank Research
have eaten into the market share of FIGURE 4 the brick-and-mortar stores to a great WAREHOUSING SPACE REQUIREMENTS FOR THE MAJOR RETAIL CATEGORIES extent, our analysis indicates that the IN PUNE advent of this segment has expanded the overall consumption pie and led 3.4 1.4 1.5 1.1 0.6 0.6 to a substantial increase in the urban 10
consumers’ propensity to spend. Hence, 9 the warehousing space requirement 8 by the E-tail segment is largely the incremental demand for space and not 7 just a replacement of the demand for 6 space by brick-and-mortar stores. Going 5
forward, we believe that the share of the mn sq ft E-tail sector will increase further in the 4 total retail spending of consumers. This 3 will invariably lead to a higher demand for 2 warehousing space from this segment in the coming years. 1 0 FIGURE 5 WAREHOUSING SPACE onics Electr
REQUIREMENTS BY E-TAIL AND Daily needs and footwear
BRICK-AND-MORTAR STORES el, sportswear Home & lifestyle and accessories atches, jewellery Food & beverages W Appar
8% Source: Knight Frank Research Note: The warehousing space requirement mentioned in the chart above is the total space requirement (estimated warehouse stock) as of August 2016. This is calculated on the basis of the latest consumption data. The food & 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.
3.2 CONSUMPTION-LED DEMAND by consumers through the e-commerce 33%, in the total retail spending in Pune. medium. Hence, any type of consumer Thus, even in the warehousing space In terms of retail spending, Pune is the goods consumed within Pune, whether requirement, this category contributes second largest market in Maharashtra offline or online, is categorised in the the most, at 3.4 mn sq ft or 38%. with a population base of more than 5 retail spending. Other prominent product categories 92% mn. This retail spending not only includes include food and beverages, daily traditional brick-and-mortar stores, malls, Among the various product categories, needs and home and lifestyle. The daily shopping streets and mom-and-pop apparel, sportswear and footwear needs category includes all the FMCG Brick-and-mortar stores E-tail stores but also accounts for the spending together have the highest share, at products, grocery and other such daily Source: Knight Frank Research
106 107 INDIA WAREHOUSING MARKET REPORT RESEARCH
4. CHAKAN-TALEGAON WAREHOUSING BELT ROAD DISTANCE AND TRANSIT TIME TO IMPORTANT LOCATIONS FROM THE CHAKAN-TALEGAON WAREHOUSING BELT Warehousing activity in the Chakan- Warehouses on the Talegaon-Chakan facilities provided by it in terms of power Distance from: Km Travel time in mins Talegaon belt is primarily dominated by road are relatively recent constructions connectivity, sewerage treatment, internal industrial warehouses. The presence with most of the development comprising roads, water supply and other common Pune city centre 32 - 34 60 - 70 of a large number of automobile pre-engineered building (PEB) type amenities. However, units outside the Nearest port (JNPT) 115 - 130 140 - 180 manufacturers requires vendors to structures. These warehouses have MIDC campus fall under the local gram either set up their manufacturing unit more than 24-foot clear height and basic panchayat area and have to invest in Chakan MIDC 2 - 15 5 - 20 here or have a warehouse in close infrastructure such as power backup, their own infrastructure. Although power Talegaon MIDC 2 - 15 5 - 20 proximity in order to ensure uninterrupted ample parking space, fire-fighting and water is supplied by the government supply. Additionally, most of these auto equipment and insulation, among others. agencies, construction of internal roads Ranjangaon MIDC 50 - 65 70 - 90 companies follow the Just-in-Time (JIT) However, most of the warehouses in and sewerage treatment plants need Sanaswadi industrial cluster 30 - 45 50 - 70 concept of production that necessitates Kuruli and Chimbali are old godown-type huge investments. their vendors and suppliers to be able structures with minimal amenities and Pimpri-Chinchwad industrial area 20 - 22 40 - 45 Chakan is connected with the old to deliver at a very short notice. A short poor infrastructure. Khed City industrial area 22 - 35 40 - 60 notice could be as little as 2-3 hours Mumbai-Pune Highway and Pune-Nashik of window for delivery. This ensures Currently, maximum incremental demand Highway by a two-lane state highway Shirwal industrial cluster 80 - 95 150 - 170 constant demand for warehousing from comes from multinational companies known as the Talegaon-Chakan Highway. Source: Knight Frank Research companies that either do not have a that not only require adequate clear Although this road is narrower compared 4.3 RENT AND LAND COST OF 4.4 COMPETITIVE ADVANTAGES already shot up drastically during the last production unit nearby or the amount height within the warehouse for multi- to the national highways, multiple exit level stacking of products, but also look and entry points to the MIDC keeps it WAREHOUSES five years. With land rates of highway- of space in their plant is insufficient for The biggest competitive advantage of for added amenities such as power relatively free flowing without any major touching properties on the Talegaon- storage. Most of the warehouses on the Chakan- this cluster is the location of two major backup, fire-fighting equipment and traffic congestion. Additionally, a large Chakan Highway already breaching `30 Talegaon belt are pre-engineered building MIDCs in its vicinity, namely Chakan Another type of warehousing that is enhanced security. This has resulted in number of warehouses are located on the mn/acre, the viability of warehousing (PEB) structures with a load-bearing MIDC and Talegaon MIDC. Additionally, prominent in the Chakan belt is service the majority of the new warehouses being Pune-Nashik Highway, which is a four- activity within this cluster is questionable. capacity of 5 tonnes/sq m and height it is also very well connected with the parts distribution centre of capital goods constructed to adhere to such standards lane road with a divider. Internal roads in Scarcity of land has paved the way for ranging from 9-10 metres. The rental Ranjangaon MIDC and Sanaswadi companies. These are the companies and move away from the traditional non-MIDC areas within this cluster are in innovative deals between the land owners values vary from `16 – 30/sq ft/month industrial area, which are at a distance of that supply heavy machinery to other godown-type structure. a relatively poor condition. and warehouse operator/occupier. The depending on the location and quality of 50 km and 40 km respectively. Hence, a manufacturing companies that use warehouse operator/occupier pays the warehouse. While highway-touching warehouse in Chakan is within an hour’s them for further production. As any Select warehouse operators The upcoming Pune Ring Road on 18-20 months’ rent in advance to the warehouses command higher rent, those drive from four major manufacturing hubs breakdown in such heavy machinery the periphery of Pune city will provide land owner who uses this money for Indospace located on internal roads are available at of western India. Apart from this, JNPT due to the normal wear and tear can a major boost to the heavy vehicles, constructing the warehouse. This helps TCI a relatively lower cost. Additionally, the and three major cities of Maharashtra, disrupt the production schedule, it as it will bypass the city traffic once both the parties as the operator/occupier technical aspects such as floor strength, namely Mumbai, Nashik and Ahmednagar becomes essential for these capital TVS Logistics Services constructed. The ring road will connect is able to keep his balance sheet light the Mumbai-Pune Highway, Pune- fire safety equipment and ventilation, are linked via highways from Chakan. by not capitalising the asset and the goods manufacturers to supply the spare Vijay Logistics Nashik Highway, Pune-Ahmednagar security, amenities and approach road, land owner gets construction funding in parts within a minimal time frame. This Another advantage is the availability of Ash Logistics Highway, Pune-Solapur Highway and among others, have a direct bearing on terms of advance. Although such a model warrants a service parts distribution talent pool due to the large number of the Pune-Bengaluru Highway. As the the rent of the property. Since Chakan ensures a built-to-suit property for the centre in the vicinity of such clusters educational institutes present in Pune. 4.2 LOCATION AND alignment of this road is through Chakan, is largely dominated by multinational operator/occupier, he runs the risk of in order to maintain the steady flow of Also, affordable residential development INFRASTRUCTURE warehousing activity in this cluster will companies, their requirement regarding facing delays in delivery. supply of such replacement parts. around Pimpri, Chinchwad, Moshi and benefit immensely on the back of this the quality of warehouse and supporting The concentration of manufacturing Chikhali of North Pune has ensured Since the demand drivers for all the road. However, the project is still at infrastructure is according to global Another challenge is the gradual activities around Chakan has led to availability of skilled and semi-skilled warehouse locations along the Chakan- the conceptualisation stage and will standards. This results in higher cost of expansion of Pune’s urban area. Although the development of this region as a labour. Talegaon road including Kuruli and take another 4-5 years to become fully construction for such warehouses, thus Chakan is around 30 km north of Pune warehousing hub. The Talegaon-Chakan Chimbali are similar, we have clubbed operational. pushing the rentals further high. Also, city centre, the rapid urbanisation being road that is connected with the old 4.5 CHALLENGES these locations into a single warehousing rental value of built-to-suit warehouses witnessed around Chakan, Talegaon and Mumbai-Pune Highway on the west cluster for the purpose of this report could go further high depending on the Land availability is the biggest challenge Moshi could tilt the preference of land and the Pune-Nashik Highway on the and called it as the ‘Chakan-Talegaon requirement of the occupier. in Chakan as the real estate cost has owners towards residential development east, has witnessed the development warehousing belt’. In the following of numerous warehouses. Additionally, sections, we have explained the primary INDICATIVE RENTAL VALUES AND LAND RATES the stretch from Moshi to Chakan on the demand drivers of the warehousing Pune-Nashik Highway has also attracted Location Rent (`/sq ft/month) Land rate (` mn/acre) space in this belt, market characteristics, several warehousing companies. Chakan 22 - 30 20 - 34 infrastructure development, prevailing rentals and land rates, challenges and the A large part of the Chakan industrial Talegaon 18 - 25 10 - 22 future outlook. area is developed and managed by Kuruli 16 - 22 20 - 30 the MIDC. Since MIDC is a special 4.1 TYPES OF WAREHOUSES AND planning authority, units within the MIDC Chimbali 16 - 22 20 - 30 MAJOR PLAYERS area have access to the infrastructure Source: Knight Frank Research
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in the distant future. The current Airport development could lead to a minimum achievable rental value of `16/ Assumptions residential property prices in Chakan sharp appreciation of land prices in the sq ft/month. However, rental values below and Talegaon range anywhere between adjoining localities and this could further this level may not even fetch returns of Construction cost (`/sq ft) 1,200 `3,200 – 4,200/sq ft. This could pose a push rent expectation of land owners. 14% per annum to the investors at the Ground coverage 57% serious threat to warehousing activity, Although the airport project is still at a current land prices. as viability of non-MIDC land will reduce very nascent stage, the explicit intention Rental escalation per annum 5% For investors to achieve returns upwards further due to better remuneration from of the state government to locate the 50%: First year residential development. project near Chakan could pose a of 22% per annum, it is imperative that challenge to warehousing activity in the the land acquisition cost does not exceed Occupancy 75%: Second year 4.6 OUTLOOK `31 mn/acre and that it can be leased out coming years. 100%: Third year onwards at a minimum rental value of `30/sq ft/ The Chakan-Talegaon belt is expected Land cost is the most critical component month. Considering the current market Debt funding 80% of construction cost to further consolidate its position as of warehousing development, as it scenario, only certain locations in Chakan Interest rate 12% a manufacturing hub with the MIDC influences the realisable returns to a with world-class warehousing facilities expanding its area beyond the existing great extent. In order to understand the are able to command a rental value Tax rate 30% cluster. Additionally, the presence of feasibility of land cost for warehousing upwards of `28/sq ft/month. Hence, it is Cap rate 10% various automobile majors will continue activities, we have developed a land cost possible for an investor to earn returns to attract auto ancillary and engineering matrix. This matrix explains the feasible up to 22% per annum from warehousing sector companies. With rising land rates land cost that an investor should ideally development on this belt, subject to 5. WAGHOLI-RANJANGAON WAREHOUSING BELT and unaffordable rentals, warehouses pay on this belt in order to achieve the sourcing land at a feasible cost and the Historically, warehousing activities in distribution centres. 5.2 LOCATION AND INFRASTRUCTURE are expected to gradually move towards expected return in the range of 14%-22% ability to fetch rents upwards of `30/sq ft/ the periphery of the Talegaon-Chakan per annum, subject to the achievable Pune have been concentrated in Wagholi month. 5.1 TYPES OF WAREHOUSES AND The Wagholi-Ranjangaon warehousing Highway. Warehouse rents within Chakan rents. For example, with a returns with a large number of warehouses MAJOR PLAYERS belt is located in the north-eastern part have already moved beyond `22/sq ft/ expectation of 16% per annum and an mushrooming here post 1995. These month and any further increase could warehouses were primarily serving the of Pune along the Pune-Ahmednagar achievable rental value of `24/sq ft/ Since most of the development around render such activity unfeasible to most Pune consumption market acting as Highway, more commonly referred month, the feasible land cost amounts to Wagholi happened before 2005, the area of the occupiers. Besides, demand for the regional retail distribution centres. to as the Nagar Road. Warehouses `34 mn/acre. In other words, investors is dominated by RCC type structures industrial land from the manufacturing Post 2005, Wagholi witnessed large- are scattered across the entire 30 can fetch a 16% per annum return only with poor supporting infrastructure and sector could pose a challenge to scale residential development due km stretch starting from Wagholi till if they are able to purchase land at or amenities. Most of these warehouses are warehousing activity as the threshold to its proximity to the city centre and Ranjangaon. However, Wagholi, Lonikand below `34 mn/acre at present and lease it owned/operated by local players and are of paying rent by manufacturing units is employment hubs of Kharadi and and Sanaswadi have the highest at `24/sq ft/month. As the purchase price much smaller in size compared to those comparatively higher. Additionally, the Hadapsar. Capital value of residential concentration of warehouses along this of land goes higher, the realisable return in Chakan. While Wagholi is dominated rapid development of residential projects projects in Wagholi has appreciated belt. reduces. Similarly, as the achievable by smaller warehouses catering to the in the vicinity could threaten the feasibility substantially during the last five years rental value increases, the feasibility of retail distribution segment, warehouses Unlike Chakan, the Wagholi-Ranjangaon of warehouse operations in the area. with the ongoing quoted rate hovering higher-cost land also goes up. in Lonikand, Chakan-Shikrapur road, belt has not been developed by the MIDC around `4,200 – 5,500/sq ft, making Sananswadi and Ranjangaon are and the manufacturing units located here Going forward, construction of the Currently, most of the locations on this it much more remunerative for land relatively larger in size, primarily catering have been primarily developed on private Pune International Airport near Chakan belt are feasible for warehousing activities owners to opt for residential development to the industrial segment. land, except for those located within could pose as a serious threat to at the prevailing land rates, subject to a instead of warehousing. Such a trend the Ranjangaon MIDC. This has led to warehousing activity in this region. has resulted in a gradual exodus of Over the last five years, Ranjangaon sporadic development on both sides of warehouses further east on the Pune- has been attracting a lot of interest the entire 30 km stretch with no common FEASIBLE LAND COST MATRIX ON THE CHAKAN-TALEGAON WAREHOUSING Ahmednagar Highway towards Lonikand, from occupiers and this has resulted in infrastructure facilities. The Pune- BELT (` MN/ACRE) Sanaswadi, Chakan-Shikrapur road and numerous warehouses mushrooming Ahmednagar Highway is a four-lane road Ranjangaon. Rental value Investor return per annum on the stretch between Shikrapur and connecting to Ranjangaon in the east and (`/sq ft/month) Ranjangaon MIDC. Most of these Sanaswadi and Ranjangaon are home Chakan in the north-west via the Chakan- 14% 16% 18% 20% 22% warehouses are PEB structures with to a large number of engineering Shikrapur road. It is also connected with 16 21 17 13 11 8 modern amenities such as power and auto ancillary companies and the Pune-Nashik Highway through the backup, fire-fighting equipment and 20 31 26 21 18 15 these markets are slowly emerging Alandi-Markal Road, which is a two-lane enhanced security. as alternate warehousing clusters to road passing through Phulgaon and 24 40 34 29 25 21 Wagholi. Lower land prices, absence of Alandi. Although the quality of this road is Select warehouse operators 28 50 43 37 32 28 residential development and presence of relatively poor as compared to the Pune- Phoenix Warehousing Ahmednagar Highway, it is a shorter 30 55 47 41 36 31 manufacturing majors like John Deere, Tranter, Kalyani Forge and Comau India, Sanghvi Logistics Park route from Lonikand towards Chakan. among others, have attracted the interest The traffic on these roads is usually fast Note: The table presents 25 options of land cost in ` mn/acre at different investor returns and rental value combinations. Chamadia Group moving except for certain junctions near The 16 options that are possible to source on the Chakan-Talegaon belt and are upwards of the minimum prevailing land rate of warehouse developers/occupiers. have been highlighted in colour. The warehouses located here are a Safe Express Logistics Park Wagholi due to the presence of various residential projects here. Source: Knight Frank Research mix of industrial warehouses and retail Global Group
110 111 INDIA WAREHOUSING MARKET REPORT RESEARCH
The upcoming Pune Ring Road of retail distribution centres due to its 5.4 COMPETITIVE ADVANTAGES consolidation is expected to shift the warehouses already touching `22/sq ft/ below `21 mn/acre at present and lease it is expected to further boost the proximity to the city centre, Lonikand, retail distribution activities in favour of month, it is only a matter of time that at `20/sq ft/month. As the purchase price The biggest advantage of this connectivity of this hub with all the major Chakan-Shikrapur road, Sanaswadi and locations closer to Mumbai. With rentals occupiers will begin scouting for alternate of land goes higher, the realisable return warehousing belt is its proximity to the highways on the periphery of Pune. The Ranjangaon are dominated by industrial in Bhiwandi quoting much lower rates cheaper locations. Unlike Chakan, reduces. Similarly, as the achievable city centre. Wagholi is located barely ring road will connect Wagholi with the warehouses. Additionally, the quality of than the Wagholi-Ranjangaon belt, where there is a designated government rental value increases, the feasibility of 16-18 km from the Pune railway station Pune-Nashik Highway, Mumbai-Pune warehouses in Wagholi is comparatively it would make more sense for retail planning authority (MIDC) that restricts higher-cost land also goes up. and 12-16 km from the prominent retail companies to make Bhiwandi the regional the land use to industrial activities, Highway, Pune-Solapur Highway and inferior to those in other locations of this destinations of the city. The travel time hub and supply to the Pune market from development of the Wagholi-Ranjangaon Currently, most of the locations on Pune-Bengaluru Highway, thereby giving belt as most of the construction activity taken for the last mile distribution to here. Additionally, the sheer size of the belt has primarily taken place on private this belt are feasible for warehousing an easy access to cities like Nashik, in the area took place before 2005. Many the various parts of the city is less than Mumbai retail market skews the need land. This could tilt the preference of land activities at the prevailing land rates, Mumbai, Solapur and Kolhapur. As the of these structures resemble the erstwhile an hour’s drive from Wagholi, thereby for locating a regional distribution centre owners towards residential development, subject to a minimum achievable rental alignment of this road is through Wagholi, godowns with poor flooring, ventilation, increasing its attractiveness. Additionally, here instead of Pune. Such a trend could if such an opportunity presents itself value of `14/sq ft/month. However, rental warehousing activity in this cluster will lightning and fire-fighting systems. the connectivity with the major industrial eventually limit the need for having a in the near future. This scenario could values below this level may fetch returns benefit immensely on the back of this In contrast to this, the warehouses hubs of Sanaswadi, Ranjangaon and separate distribution centre in Pune in the open up the possibility of warehousing downwards of 18% per annum to the road. However, the project is still at in Lonikand, Chakan-Shikrapur road, Chakan is excellent from this cluster, coming years and restrict the growth of activities shifting towards the Chakan- investors at the current land prices. the conceptualisation stage and will Sanaswadi and Ranjangaon are relatively as these hubs are located at a drivable such centres in the Wagholi-Ranjangaon Shikrapur road in the north and For investors to achieve returns upwards take another 4-5 years to become fully new PEB structures with higher load- distance of five minutes, 30 minutes warehousing belt. Ranjangaon in the east. While the cost of and 60 minutes respectively. With the of 24% per annum, it is imperative that operational. bearing capacity and height ranging land is relatively cheaper here, they share completion of the proposed Pune Ring Contrary to retail distribution centres, the land acquisition cost does not exceed between 8-10 metres. similar characteristics with Wagholi in `15 mn/acre and that it can be leased out ROAD DISTANCE AND TRANSIT Road in another 4-5 years, travel time to demand for industrial warehousing terms of connectivity and could emerge at a minimum rental value of `22/sq ft/ TIME TO IMPORTANT LOCATIONS The rental value is highest in Wagholi the Pune-Solapur Highway and Pune- is expected to remain strong in this as an alternate warehousing hub in the month. Considering the current market FROM THE WAGHOLI-RANJANGAON and decreases gradually as one moves Bengaluru Highway will also reduce cluster as manufacturing companies coming years. significantly. This will provide an inherent from the engineering and auto ancillary scenario, only modern warehouses of WAREHOUSING BELT towards Lonikand and Sanaswadi. This is competitive advantage for industrial sectors continue to prefer locating Since land cost is the most critical PEB-type structure are able to command primarily because of the high cost of land warehousing activity in this cluster, as all here. Additionally, the accessibility to component of warehousing development, a rental value upwards of `20/sq ft/ Distance Km Travel time in Wagholi. However, due to the relatively the major manufacturing hubs are easily Ranjangaon MIDC and Chakan MIDC it influences the realisable returns to a month. Since the prevailing market price better quality of construction in the from: in mins accessible from here. will work in favour of this belt due to its great extent. In order to understand the of land on this belt ranges from `8-45 remaining locations of this belt, the rental Pune city 20 - 50 40 - 80 central location. The proposed Pune Ring feasibility of land cost for warehousing mn/acre, a warehouse developer can value of a large chunk of warehouses is 5.5 CHALLENGES fetch annual returns upward of 24% if he centre Road will further boost the attractiveness activities, we have developed a land cost equally high in these locations too. In fact of this belt as it will connect the Pune- matrix. This matrix explains the feasible is able to source land at the lower range. Rapid urbanisation and expansion of Nearest port 150 - 180 - 220 some of the old godown-type structures Solapur Highway and Pune-Bengaluru land cost that an investor should ideally residential areas beyond Wagholi could Land parcels in locations such as (JNPT) 180 in Wagholi quote a much lower rent Highway with Wagholi. Hence, the profile pay on this belt in order to achieve the pose a serious challenge to warehouse Lonikand, Chakan-Shikrapur road, despite being located on an expensive of warehouse occupiers is expected expected return in the range of 18%-24% Chakan MIDC 40 - 55 60 - 70 developers, as the already high cost of Sanaswadi and Ranjangaon are available piece of land due to their poor quality to gradually shift towards industrial per annum, subject to the achievable land could inch up further. Additionally, in the range of `8-26 mn/acre. Hence, an Talegaon 55 - 75 80 - 100 of construction and lack of supporting warehouses from retail distribution rents. For example, with a returns the Development Plan (DP) of the Pune investor who is able to source land at the MIDC centres. expectation of 18% per annum and an infrastructure. Hence, depending on the Municipal Corporation (PMC) could lower range in these areas and lease it at achievable rental value of `20/sq ft/ Ranjangaon 5 - 40 10 - 50 location and quality of construction, the restrict the zoning of this cluster to a rental value of `20-22/sq ft/month, can The rapid urbanisation of this belt month, the feasible land cost amounts to MIDC rental value in this cluster ranges from residential development, thereby forcing could put further pressure on land rates aim to generate returns in excess of 22% `21 mn/acre. In other words, investors `14 – 22/sq ft/month. However, rent for warehouses to relocate further north- and render warehousing an unviable per annum. Sanaswadi 0 - 20 0 - 25 can fetch an 18% per annum return only built-to-suit structures with higher quality east in the coming years. Wagholi is activity here. With rental value in certain if they are able to purchase land at or industrial of construction and better amenities already witnessing such a trend with cluster could go beyond `22/sq ft/month. residential projects rapidly replacing erstwhile warehouses. While Lonikand Pimpri- 30 - 60 50 - 90 and Sanaswadi have substituted Wagholi FEASIBLE LAND COST MATRIX ON THE WAGHOLI-RANJANGAON Chinchwad as the new warehousing hubs in the last WAREHOUSING BELT (` MN/ACRE) industrial area INDICATIVE RENTAL VALUES AND 4-5 years, it is only a matter of time that Rental value Investor return per annum Khed City 40 - 45 60 - 70 LAND RATES these areas will witness a similar type of (`/sq ft/month) industrial area urbanisation, leading to further exodus of 18% 20% 22% 24% Location Rent Land rate warehousing activities. Shirwal 70 - 100 120 - 150 14 10 7 5 3 (`/sq ft/ (` mn/ industrial 5.6 OUTLOOK month) acre) 16 13 11 8 6 cluster Wagholi 18 - 22 22 - 45 The location of a retail distribution 18 18 14 12 9 Source: Knight Frank Research centre is primarily driven by the urban Lonikand 14 - 22 16 - 26 centres it services apart from rental and 20 21 18 15 12 5.3 RENT AND LAND COST OF transportation cost. As India prepares WAREHOUSES Chakan- 14 - 22 16 - 26 22 25 21 18 15 Shikrapur road to move towards a GST regime, consolidation of such warehouses is The Wagholi-Ranjangaon warehousing Note: The table presents 20 options of land cost in ` mn/acre at different investor returns and rental value combinations. Sanaswadi 14 - 22 12 - 22 inevitable in the coming future. Since belt has a mix of retail distribution The 13 options that are possible to source on the Wagholi-Ranjangaon warehousing belt and are upwards of the minimum Pune is only a 3-4 hours’ drive from prevailing land rate have been highlighted in colour. centres and industrial warehouses. While Ranjangaon 14 - 22 8 - 15 Mumbai, any move towards such Wagholi has a higher concentration Source: Knight Frank Research Source: Knight Frank Research
112 113 INDIA WAREHOUSING MARKET REPORT RESEARCH
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INDIA WAREHOUSING MARKET REPORT 2016
Knight Frank India research provides development and strategic advisory to a wide range of clients worldwide. We regularly produce detailed and informative research reports which provide valuable insights on the real estate market. Our strength lies in analysing existing trends and predicting future trends in the real estate sector from the data collected through market surveys and interactions with real estate agents, developers, funds and other stakeholders. RECENT MARKET-LEADING RESEARCH PUBLICATIONS © Knight Frank India Pvt. Ltd. This report is published for general information only and not to be relied upon in anyway. Although high standards have been used in the preparation of the information analysis, views and projections presented in the report, no responsibility or liability whatsoever can be accepted by Knight Frank for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank to the form and content within which it appears. GLOBAL CITIES INDIA REAL ESTATE HYDERABAD RETAIL NCR WAREHOUSING 2017 REPORT JAN- JUN 2016 MARKET REPORT CIN No. – U74140MH1995PTC093179
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