INDIAN INDUSTRIAL and WAREHOUSING MARKET a Long-Term Structural Play COLLIERS RADAR INDUSTRIAL | RESEARCH | INDIA | 28 NOVEMBER 2019
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COLLIERS RADAR INDUSTRIAL | RESEARCH | INDIA | 28 NOVEMBER 2019 Diksha Gulati Manager | Research | Mumbai +91 77 0090 1826 [email protected] INDIAN INDUSTRIAL AND WAREHOUSING MARKET A long-term structural play COLLIERS RADAR INDUSTRIAL | RESEARCH | INDIA | 28 NOVEMBER 2019 Summary & Recommendations The Indian industrial and warehousing sector is on a growth tide, on the back of increasing demand from manufacturing, third-party logistics (3PL) and e-commerce companies. Increasing demand for larger In the past, the Indian industrial and facilities and higher quality assets is attracting top-tier developers with strong global track records. warehousing sector has been Occupiers in heavy industries such as the automotive, auto ancillary and aerospace sectors often spend at characterized by fragmented sheds and the top end of the range, INR28-35 per sq foot per month (USD0.4-0.5 per sq foot per month), on leasing godowns. However, led by demand for warehousing facilities for their specific requirements. They should look at warehousing spaces available in larger facilities from e-commerce select micromarkets across Bengaluru, Chennai and Pune to meet their requirements. companies, the sector is becoming more Consumption-led demand from e-commerce and 3PL occupiers, along with occupiers in other sectors such organized. Transformation is brought as cement, textiles, chemicals, steel, engineering and manufacturing should support ample warehousing about by government initiatives, global facilities in various micromarkets across Chennai, Delhi-NCR, Kolkata, Mumbai and Pune, with rents trade dynamics, an influx of technology ranging between INR21-27 per sq foot per month (USD0.3-0.4 per sq foot per month). and evolving consumption patterns. Occupier preferences are changing and Cost-conscious occupiers especially in the pharmaceuticals, bio-technology, fast moving consumer goods (FMCG) and fast moving consumer durables (FMCD) sectors should consider leasing warehousing space in investor interest is increasing. emerging micromarkets in their preferred city in order to meet their requirements. The rents in these > We recommend developers continue micromarkets range between INR14-20 per sq foot per month (USD0.2-0.28 per sq foot per month). to expand in the industrial and Warehousing Rents warehousing sector by collaborating (INR/sq ft/month) with corporates and government agencies owning land banks in viable micromarkets. Developers should Delhi-NCR Delhi-NCR provide BTS solutions in order to cater to the specific requirements of Pune Mumbai Kolkata Pune Pune occupiers by offering quality products Hyderabad that should help retain tenants and Bengaluru Chennai Chennai maintain asset value. Chennai Bengaluru > Occupiers mulling large contiguous warehouse leases, especially in the e- commerce and 3PL sectors, should look at select micromarkets in Mumbai and Pune that offer a good mix of Nature of Pharmaceuticals, Bio- E-commerce, 3PL, Cement, Automobile, industrial and multi-purpose Technology, FMCG, FMCD, Textiles, Rubber, Chemical, Steel, Auto ancillary, occupiers Electronics Engineering and Manufacturing Aerospace warehouses. Bengaluru should also be Source: Colliers International explored as it offers seamless transfer Diksha Gulati Note: USD1 = INR70.67 of goods between states, benefitting Manager from the removal of state-level taxes. Research | Mumbai 2 COLLIERS RADAR INDUSTRIAL | RESEARCH | INDIA | 28 NOVEMBER 2019 TABLE OF CONTENTS Page Page WAREHOUSING DEMAND LED BY 3PL INDUSTRIAL AND WAREHOUSING ASSETS ON OPERATORS; E-COMMERCE TO GAIN TRACTION INVESTORS’ RADAR 4 IN DELHI-NCR 12 WHAT IS DRIVING INDUSTRIAL AND LOCAL DEVELOPERS LOOKING TO INVEST, WAREHOUSING DEMAND? 5 EXPAND AND UPGRADE THEIR FACILITIES TO ATTRACT OCCUPIERS’ INTEREST IN HYDERABAD 14 GST heralding modernization of warehousing facilities 5 KOLKATA: A REGIONAL HUB FOR THE WAREHOUSING SECTOR 16 Large consumption market with strong growth in e-commerce 6 PRESENCE OF JAWAHARLAL NEHRU PORT TRUST (JNPT) BODES WELL FOR WAREHOUSING DEMAND IN MUMBAI 18 Make in India: Catalyst for manufacturing-led industrial and warehousing demand 7 E-COMMERCE DRIVING CONSUMPTION-LED WAREHOUSING DEMAND IN PUNE 20 Indian manufacturing to benefit from evolving global trade dynamics 7 TOP-TIER DEVELOPERS DESCENDING INTO BENGALURU LED BY CONSUMPTION DEMAND 8 MULTIMODAL LOGISTICS PROGRAM (MMLP) TO TRANSFORM CHENNAI INTO A MEGA INDUSTRIAL HUB 10 3 COLLIERS RADAR INDUSTRIAL | RESEARCH | INDIA | 28 NOVEMBER 2019 The attractiveness of the logistics sector has improved further with the INDUSTRIAL AND WAREHOUSING government according infrastructure status to the sector in November 2017. This has been implemented as part of government efforts to bolster ASSETS ON INVESTORS’ RADAR infrastructure development in the country. This policy change has enabled warehousing companies to raise longer tenure debt funding from banks at The industrial and warehousing sector in India has attracted significant competitive rates and cheaper foreign currency funding through external investor interest since 2017 led by robust demand from e-commerce and commercial borrowing. We foresee that the availability of lower cost debt at other consumer-led occupiers. a time when there is selective lending in the economy, will improve the return profile from investments in the sector. We believe that besides the Private equity investments in the Indian industrial and warehousing strong consumption in the economy over the last five years, investors are sector (USD million) buoyed by this reform. Colliers International expects that the available capital pool will further increase as other large foreign and domestic players enter the sector driven by favourable demand drivers. Key joint ventures in the Indian industrial and warehousing sector Per Colliers International, the sector has attracted interest from multiple large institutional investors since 2017, with investment inflows of INR254 billion (USD3.6 billion), signifying a large pool of capital available for investment in this sector. Source: Colliers International Investment Investor Developer/Partner Interestingly, this investment capital came from foreign investors such as the (USD million) Abu Dhabi Investment Authority, Canada Pension Plan Investment Board Abu Dhabi Investment (CPPIB) and Ivanhoe Cambridge, to name a few. We expect the inflow of Shapoorji Pallonji 1,200 investors, both foreign and domestic, to continue due to multiple tailwinds, Authority which are discussed later in the report. Colliers International projects the investment inflow is likely to touch INR495 billion (USD6.9 billion) by 2021 as CPPIB IndoSpace 500 existing participants expand their portfolio and new players enter the Ivanhoe Cambridge, Logos 400 market. For reference, Blackstone Group is mulling an INR11 billion (USD150 Quadreal million) investment to acquire and build logistics assets in India. Once Ascendas finalized, this would be Blackstone’s maiden investment in the burgeoning Temasek 300 Singbridge industrial and warehousing sector in India. Note: USD1 = INR70.67 Source: Colliers International, media articles, company press releases 4 COLLIERS RADAR INDUSTRIAL | RESEARCH | INDIA | 28 NOVEMBER 2019 The warehousing market in India has long been fragmented; characterized WHAT IS DRIVING INDUSTRIAL AND by Grade B warehouses, godowns and sheds. WAREHOUSING DEMAND? We believe that now with institutional investors descending into the sector, more top-tier developers are likely to enter the sector and develop superior The Indian industrial and warehousing sector is benefiting from government and more efficient Grade A warehouses. In order to compete with such policy initiatives such as the Goods and Services Tax (GST) implementation warehouses, we urge local developers to upgrade their facilities. and Make in India program, as well as global trade dynamics and evolving We recommend developers invest in modernizing their warehousing consumption patterns. The initiatives augmented growth and private sector facilities, by enhancing additional floor-load capacity, greater floor-to-roof participation in a sector which was not well-regulated. height, offering bigger pallets for storage and improving fire safety norms. In GST heralding modernization of warehousing facilities our view, these aspects will probably help in enhancing the value and utility of assets, enabling developers to command higher rents from occupiers. The central government enforced the GST from April 2017, which helped streamline the indirect tax regime in India. After GST Before GST GST implementation has enabled consolidation of the tax structure Tax across states, which in turn is enabling companies to set up a more Occupiers in warehousing facilities consolidation efficient distribution network. were forced to operate within an inefficient distribution channel. For tax We are now witnessing companies developing large, centrally- optimization purposes, they were located warehousing facilities, and even incorporating forced to be present in all states due to Organized warehousing warehousing management systems to optimize their distribution inconsistent indirect taxes levied by the channels. states. Hence, we believe that over the next five years, the hub-and- Hub-and- spoke model, a centralized, integrated logistics system where TAX spoke model distribution centers receive products from many different origins, consolidate the products, and send them directly to destinations, will become more prevalent. Cost This type