RISKS & REWARDS OF INVESTING IN WAREHOUSING SECTOR

BY Realty Plus

Gautam Saraf, Managing Director, Mumbai & New Business India, Cushman & Wakefield said, “Investing in Indian warehousing sector accelerated post COVID. GST turned out to be the boon however input tax credit remains a pain point. While the demand and supply in the warehousing industry remains robust, the gap in the flattish rents and rising costs is worrying.”

Tapan Bhatt - Head of Investment - Ascendas Firstspace stated, “Many developers that entered in this segment had unplanned growth strategies. Now that the institutional investors are stepping in, we are seeing consolidation. In the next phase we'll see more Grade A warehouses and opening of new geographies for the sector."

Ashish Joshi, Founder and CEO, Landmark Capital Advisors was of the view that the construction material price rise is an aberration and will stabilize but the land price will continue to move up, which is the bigger risk. Therefore, beyond the point the market has to accept that the higher rentals will reflect the rising cost.

Anay Shukla – Chief Customer Officer, Welspun One Logistics Parks expressed, “Land prices will go up and needless to say the rentals too will have to shift up from a sustainability point of view. But, the capital markets are bullish on the sector which is still very nascent with a lot of room to grow. It will be the ability to offer value for money to the customers that will bridge the cost and rent gap.”

Rahul Virmani, Director, Operations & Business Development, S. M Logistics & Warehousing agreed, “It's a relatively new industry and last five, six-quarter had been tough for all businesses. The warehousing providers will have to show value of a Grade A facility to beat the hyper-competition in around the area that is willing to rent the space at much lower prices.”

Sandeep Narayan Singh Deo, Senior Director & Head - Industrial Investment Services, Savills India added, “Understand the tenant’s business and advise them on how to reduce costs across other areas such as using volumetric storage and technology driven management to reduce costs and compensate for higher rents. After all warehousing rentals comprise just 4% to 6% of the entire logistic costs.”

"In the last 10 to 15 years, investors have gained a lot more confidence in Indian warehousing market. The structural reforms have removed the undesirables from the system. People have increasingly realized that, after the United States and China, India will be the largest market in terms of E-commerce and warehousing as an asset class. Taking developmental risks is considerably easier now that the investors have gained confidence, stated. Tapan Bhatt.

"The interest has been extremely high from investors for warehousing due to assured rental and lower churn in tenancy. The size of the warehousing investment is also manageable, easier than a commercial office,” said Ashish Joshi.

Rahul Virmani mentioned, “Industry players need to get out of the main city locations. We need the entire ecology on our side from nearby transportation hub to labour accommodation, transit facilities for materials and connectivity infrastructure. Thus, there will be a lot of demand in Tier-2 cities and Tier-3 cities near industrial corridors.”

Anay Shukla supported the idea of expanding the market. “If we keep creating competition in the same micro-market, we will eventually start pushing the land prices up, start becoming unviable as you're taking a hit on the yield or you're taking a risk with the customer because your rents are going up, Creating more micro markets in an existing Tier-1 market and to collectively explore Tier-2 city locations will be the way forward.”

Sandeep Narayan Singh Deo pointed out, “In-city, warehousing is an amazing opportunity as there is a constant need to reduce the delivery timeline on a logistics. Furthermore, developing built-to-suit warehouses in strategic locations is becoming appealing to investors as developers identify clients’ requirements in advance and ensure cash flows.”

Gautam Saraf concluded that if Indian warehousing sector can reach even 50% of the USA which is the gold standard of industrial real estate development, given the domestic consumption we have, we have a fantastic growth ahead.

Tags : Ashish Joshi Founder and CEO Landmark Capital Advisors Gautam Saraf Managing Director Mumbai & New Business India Cushman & Wakefield Tapan Bhatt - Head of Investment - Ascendas Firstspace Anay Shukla – Chief Customer Officer Welspun One Logistics Parks Rahul Virmani Director Operations & Business Development S. M Logistics & Warehousing Sandeep Narayan Singh Deo Senior Director & Head - Industrial Investment Services Savills India