COMMERCIAL BRIEFING For the latest news, views and analysis RESEARCH of the commercial property market, visit knightfrankblog.com/commercial-briefing/ 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 MARKET REPORT INDIA WAREHOUSING 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. 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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.