‘In warehousing, many things have fallen into place in last five years, making it a stable asset class’


Leasing activity stood at 33 million sq ft, a 30 per cent year-on-year (y-o-y) increase in 2019, a CBRE report said, adding that places like Bengaluru, National Capital Region (NCR) and Mumbai accounted for about 60 per cent of the overall space taken up during the year.

According to Jasmine Singh, Nation Head – Industrial & Logistics Services & Senior Executive Director Advisory & Transactions Services, CBRE South Asia, it was 3PL firms that accounted for about half of the leasing activity with e-commerce players being the second-largest segment.

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Industrial and logistics space take-up last year was dominated by small-sized transactions (less than 50,000 sq ft) followed by medium-sized ones (between 50,000 sq ft and one lakh sq ft). Large-sized deals (greater than one lakh sq ft) accounted for 28 per cent of the leasing activity.

In an interview to BusinessLine, Singh talks about the warehousing boom and how the segment is being looked at as a “stable asset class”. Edited excerpts:-

What is the reason for this sudden warehousing boom?

Compared to warehousing, returns in commercial real estate are lower. This apart, everyone wants to hedge their risks in real estate.

Typically, a lot of things in warehousing have fallen into place over the last five years, thereby making it a stable asset class. You can talk about the imagery that the first Modi regime put into play, be it GST or other reforms. That is on the structural side at a macro level.

For instance, demonetisation created the perception that a foreign investor could come in and buy land at parity with local developers. GST created a perception that consolidation was happening and rationalistion of supply chain was a logical extension of that. The last five years were also the time when e-commerce was able to reach out to the masses.

So, there’s been some good things that have happened for the industry over the last five years.

But why are foreign investors leaving mature markets and investing in Indian logistics platforms?

Return on a greenfield investment could be as high as 13 per cent, especially if the developer manages costs including that of buying land. Over a period of time of stable rental income, this return on investment could touch 14-15 per cent.

So, naturally, it makes sense (for foreign capital) to borrow in the local market even at, say 9.5 per cent, and then invest. Now if you can list the warehousing assets through REITs and hive them off at a 7.5-8 per cent rate, it still makes sense. Because, in a comparable mature market, the large logistics assets could trade between 4.5 and 6 per cent.

Are these investors willing to take funds beyond Tier-I cities or their peripheral areas?

With foreign investors coming in now, warehousing has got some scale. Otherwise the scale was absent. The developer community was fragmented and very localised. For example, someone in Kolkata would hardly move even within the eastern region. But, today, you have large platforms who have at least a mutli-city presence. We are now looking at a scenario, beyond the metros where developers are willing to take the fund to the Tier-II markets, especially state capitals which are large consumer centres.

Most of the large developers who are coming in are looking at ready platforms; and in the absence of ready platforms, today they are going green-field, brownfield (developer has land and licenses and construction is on) or these investors take an equity position in one of the larger platforms.

Which are these other areas where growth is possible?

May be a Chandigarh-Ludhiana belt because of the affluence there, the highway between Lucknow and Kanpur as it becomes a gateway for Eastern Uttar Pradesh, Coimbatore and Vizag has seen some traction, Tangi (along Bhubaneshwar) could end up as another area that can service the whole of Odisha, and Guwahati since it is a gateway to the North East.

What has been the FDI flow in this segment?

At least 10,000 acres of land is currently under consideration in India. And this includes 1,200-1,500 acres in metros being considered. Even at 1 crore being invested per acre, you will see around 10,000 crore being invested in the segment in India over the next three to four years.

In order to build a Grade A warehouse, the construction cost could be around 4 crore per acre. If you are buying brownfield, then you add a premium cost. So, this 10,000 crore cost will only go up.

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