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INDIA
WAREHOUSING
MARKET
2016
REPORT
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 &
COUNTRYS 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
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INDIA WAREHOUSING
MARKET REPORT RESEARCH
TABLE OF CONTENTS
EXECUTIVE
06
SUMMARY
INTRODUCTION 08 CHENNAI 34
REPORT AUTHORS
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INDIA WAREHOUSING
MARKET REPORT RESEARCH
Warehousing space
Total additional space Annual additional space
requirement
CAGR* required from required from
2016 2020E 20162020 20162020
The biggest challenge that Indias 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
T
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)
estate 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%
also serves as a detailed handbook led demand has not been considered 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%
and government agencies. It delves spread across a vast geography of the top seven markets of India. Periyapalayam Chennai 14 22 12 100 14% 16%
into the key warehousing markets of country. Additionally, the government
contracted agriculture warehouses have While factors such as Goods and Chakan-Talegaon belt Pune 16 30 10 34 14% 22%
India, such as Mumbai, National Capital
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
Similarly, export-import (EXIM) based from the manufacturing sector, it is the Jeedimetla-Medchal warehousing cluster Hyderabad 10 14 15 40 Upto 12%
an exhaustive analysis on the existing
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%.
The need to quantify the size of the to investors willing to explore this report is not only to familiarise the reader scenario.
the need for the storage of raw materials
sector. Currently, one of the biggest with the various aspects of the Indian
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INDIA WAREHOUSING
MARKET REPORT RESEARCH
A1 A2 A3 B1 B2 B3 C1 C2 C3
INTRODUCTION-
Warehouse
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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)
down the cost and improve service levels of Industries (ASI) and Indicus were and Inland Container Depots (ICDs).
A1 B1 C1
through economies of scale. Supply used for estimation of subject markets 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,
routes, distribution and sourcing, wherein with godown-type structures. Thus, EXIM
Warehouse
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
nufacturer broadly classified into three areas the need for the storage of raw materials sector offers opportunities across the
Ma logistics value chain. With regards to
transportation, distribution and and finished products from industries
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 1535% 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 requirement of the manufacturing sector and wallet to enter into this segment.
functioning of supply chain networks.
With this thought process, we embarked is fulfilled by captive space, either in The improving regulatory environment
Regional Warehouse for
upon the much-needed but uncharted terms of space at the manufacturers for the Indian Real Estate Investment
States X,Y &Z
territory of warehouse sector research in plant or company-owned warehouses. Trust (REIT), which also covers the
India. Our first report in the seriesIndia 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 citys 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
among others. It set the ball rolling with Pune. Accordingly, we have made the pursuit in the warehousing sector.
D1 D2 D3 D4 D5 D6 D7 D8 D9 adjustment to address such overlap while
regards to the exploration of the India
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
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INDIA WAREHOUSING
MARKET REPORT RESEARCH
AHMEDABAD
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INDIA WAREHOUSING
MARKET REPORT RESEARCH
2. TOTAL REQUIREMENT FOR WAREHOUSING SPACE production facilities of Tata Motors and
Ford India near Sanand, still account
FIGURE 1
SHARE IN OUTPUT OF THE VARIOUS MANUFACTURING INDUSTRIES IN
Currently, Ahmedabads total requirement to have a separate warehouse. the last ten years, this segment has for less than 5% of the total output of
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 Ahmedabads 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 manufacturers 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
Ahmedabad in the coming years. Manufacturing activities in Ahmedabad
is steadily picking up with the emergence well.
are spread across multiple locations. 17% Textile
of third-party logistics (3PL) players, 10%
In contrast to the manufacturing-led Currently, the leasable market in While Naroda and Vatva used to be
it is still at a nascent stage compared
requirement for warehousing space, Ahmedabad is estimated to be in the the largest industrial areas in the Engineering
to developed markets such as Europe
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 16% Others
for leasable space, with very few share of annual transacted volume is restrictions from the pollution control
Safexpress, Blue Dart, TCI and Future
operators fulfilling their needs through a approximately 0.6-0.8 mn sq ft. This board have compelled most of the large
Supply Chain, among others, provide
captive warehouse. This is primarily due includes transaction volume from manufacturers to shift their production Source: Annual Survey of Industries (ASI) and Knight Frank Research
end-to-end logistics services, including a
to the need to have a fulfilment centre manufacturing-led and consumption-led activity outside the city area. The
common warehousing facility, to multiple
as close to the urban area as possible demand. Ahmedabad-Rajkot highway, from
manufacturers, thereby reducing the need
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,
textile and engineering companies
FIGURE 2
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 5 6 3 2 6
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 governments 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
arises predominantly due to the distance In the following sections, we have Currently, the pharmaceutical sector manufacturing plants here. 14
between the manufacturers factories, raw identified the key manufacturing accounts for a lions share in the
industries in Ahmedabad, their current total production output within the The above factors clearly indicate that 12
mn sq ft
material suppliers and the consumption
warehousing requirement, the major region. Intas, Claris Lifesciences, the demand for manufacturing-led 10
markets of the final goods. The need to
manufacturing hubs and the various Cadila Pharmaceuticals and Dishman warehousing space in Ahmedabad
store the raw materials or final goods due 8
regions within Ahmedabad from where Pharmaceuticals and Chemicals are will be concentrated primarily on the
to this distance, determines the amount
the requirements originate. Similarly, in some of the pharmaceutical majors Ahmedabad-Rajkot highway and 6
of space required by each manufacturer.
terms of consumption, we have identified that have their manufacturing units Sanand highway, with sectors such 4
The quantum of space required is also
the current warehousing requirement located in this region. Food processing, as pharmaceuticals, automobile, food
dependent on the type of product that is 2
of brick-and-mortar stores and E-tail which includes dairies, rice mills, sugar processing, metals and textiles leading in
manufactured. Hence, each manufacturer
terms of this demand. 0
will have a different requirement for segment. mills, confectionaries, and beverages,
Pharmaceuticals
Food Processing
Metals
Textile
Engineering
Cement
space, depending on these factors. among others, has the second largest
share in the output in Ahmedabad. This
Consumption-led demand, which is an Total werehousing is followed by the metals, textile and
equally important demand driver for space requirement engineering industries.
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
retailer becoming heavily dependent 34 mn sq ft 6 mn sq ft industries, with each requiring company-owned warehouses.
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MARKET REPORT RESEARCH
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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
Warehouses that are closer to all the other allied service operators just-in-time inventory concepts.
Rental value Investor return per annum The Aslali-Kheda
Ahmedabad in locations such as Aslali (`/sq ft/month)
and Jetalpur are currently quoting the
located within this area. Hence, despite
4.6 OUTLOOK
14% 16% 18%
warehousing belt will
the steep escalation in rental values
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
and in certain cases go as high as `20/ locations that are in close proximity to
continue to remain as the preferred
14 16 12 10
as the preferred
sq ft/month, depending on the quality warehousing destination in Ahmedabad
Aslali. This logistics ecosystem that has
of the warehouse and access from the developed in this cluster provides it with
due to the various inherent advantages 16 21 17 13 warehousing
highway. However, there are numerous that it offers compared to the other
reinforced cement concrete (RCC)
a distinctive competitive advantage over
locations. The sharp appreciation in land 18 26 21 18 destination in
the other warehousing clusters within the
prices in Aslali and Jetalpur have led to
structures located in Aslali that offer Ahmedabad region.
the development of locations such as
20 31 26 21 Ahmedabad due to
warehousing space for as low as `11/
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
13 options that are possible to source on this warehousing belt and are upwards of the minimum prevailing land rate, which
the various inherent
type structures with poor amenities belt is its accessibility to all the major over the past ten years. Since land prices
and hence are offered at a significant retail hubs of the city. The excellent in these emerging locations are still
is `6 mn/acre on this belt, have been highlighted in colour.
advantages that it
discount compared to the pre-engineered quality of road infrastructure and minimal below the `15 mn/acre mark, there are Source: Knight Frank Research
building (PEB) type structures. Currently, traffic congestion enables a warehouse sufficient feasible options for warehouse offers compared to
development even at the prevailing Assumptions
a large number of the occupiers are occupier to supply products from the
rentals.
the other locations.
relocating from these RCC structures warehouse to anywhere in the city within 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
Lack of residential development is component of warehousing development,
such as higher floor strength, fire safety Rental escalation per annum 5%
another advantage that this cluster it influences the realisable returns to a
equipment, security, common amenities 50%: First year
scores over other areas. Unlike west, great extent. In order to understand the
and good quality of approach road.
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
matrix. This matrix explains the feasible 100%: Third year onwards
further away from Ahmedabad towards relatively weak due to the presence of
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
expected return in the range of 14%-18% Interest rate 12%
Similarly, land rates are the highest in development and hence restricted the
Aslali and reduce as we move towards growth in land prices compared to the per annum, subject to the achievable Tax rate 30%
Kheda on the highway. other regions of the city. Such a scenario rents. For example, with a returns
Cap rate 10%
inherently works in favour of warehousing expectation of 16% per annum and an
INDICATIVE RENTAL VALUES AND development as the limited potential of achievable rental value of `16/sq ft/
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 alternate land-use not only keeps the month, the feasible land cost amounts to
this belt are feasible for warehousing lower range. However, such land parcels believe this belt will continue to attract
land prices in check but also feasible for `17 mn/acre. In other words, investors
activities at the prevailing land rates, are not available with direct access from both warehouse developers as well as
Location Rent Land rate such activities. can fetch a 16% per annum return only
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 While the Ahmedabad city centre fetch returns of 14% per annum to the warehouse developer, this could push the
of land goes higher, the realisable return
and Vatva industrial areas are quickly investors at the current land prices. cost of development significantly high
Bareja 12 - 14 9 - 14 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
Source: Knight Frank Research out at a minimum rental value of `20/ to earn returns in the range of 14%-
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
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INDIA WAREHOUSING
MARKET REPORT RESEARCH
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 component of warehousing development,
separate warehouse in order to service
the erstwhile industrial hubs of Naroda been building up. are quoting the highest rental values. The it influences the realisable returns to a
the industries located near Sanand. With
and Vatva resulted in a large number of rents in these locations start from `16/sq great extent. In order to understand the
ample availability of land near Bavla
manufacturers setting up their greenfield Select warehouse operators ft/month and in certain cases go as high feasibility of land cost for warehousing
and Sanand for industrial development,
plants in Changodar on the Ahmedabad- SNK Logistics Park as `20/sq ft/month, depending on the activities, we have developed a land
demand for warehousing space will
Rajkot highway. The development of quality of the warehouse and access from cost matrix. This matrix explains the
Crystal Indus & Logistic Park continue to remain strong in this belt
this area as an industrial hub shaped the highway. However, there are a few feasible land cost that an investor
going forward.
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
urbanisation and rising land prices, 5.2 LOCATION AND INFRASTRUCTURE
sq ft/month. These are very old godown- of 14%-16% per annum, subject to the
warehousing development started type structures with poor amenities and The biggest challenge that the achievable rents. For example, with a
The Changodar-Bagodara warehousing
shifting southwards on this highway hence are offered at a significant discount warehousing sector faces in this belt is returns expectation of 16% per annum
belt is located in the south-western part
towards Bavla and Bhayala. Over the last compared to the PEB type structures. the availability of viable land parcels. and an achievable rental value of `16/sq
of the city on the Ahmedabad-Rajkot
few years, this shift has continued further The strong preference of manufacturing ft/month, the feasible land cost amounts
highway and starts from Sarkhej and
south on the highway, with warehousing The rental value reduces as we move units to be located in this belt creates to `17 mn/acre. In other words, investors
stretches till the town of Bagodara. This
development stretching all the way till further away from Changodar towards unwarranted competition for warehouse can fetch a 16% per annum return only
highway is currently a four-lane national
Bagodara. Bhayala on the highway and touches as operators in terms of purchasing land. if they are able to purchase land at or
highway and connects Ahmedabad with
low as ` 11/sq ft/month near Bagodara. Since most manufacturers purchase below `17 mn/acre at present and lease it
Since the demand drivers for all the Rajkot and Kutch. Due to the immense
Similarly, land rates are highest in land for captive use with a time horizon at `16/sq ft/month. As the purchase price
warehouse locations along Ahmedabad- traffic that this highway attracts, the
Changodar and reduce as we move of more than 30 years, their feasibility of land goes higher, the realisable return
Rajkot highway are similar, we have government has already initiated the
towards Bagodara on the highway. for higher cost land increases. This is reduces. Similarly, as the achievable
clubbed these locations into a single process of converting it from a four-lane
in contrast to a warehouse developer rental value increases, the feasibility of
warehousing cluster for the purpose road to a six-lane one. This will provide INDICATIVE RENTAL VALUES AND whose viability to purchase a land parcel higher-cost land also goes up.
of this report and called it as the a major fillip to the already thriving LAND RATES is determined by the maximum rent that
Changodar-Bagodara warehousing warehousing market as newer land
can be fetched from it. This restricts
belt. In the following sections, we have parcels towards Bagodara will become Location Rent Land rate
explained the types of warehouses, feasible for warehousing development in (`/sq ft/ (` mn/
the ability of a warehouse operator to
purchase land at high cost as it could
Warehouses that are
the coming years due to reduced travel
major players, market characteristics,
time.
month) acre) jeopardise his entire business model. closer to Changodar
infrastructure development, prevailing Hence, on the one hand the presence of
rentals and land rates, challenges and the
Changodar 16 - 20 18 - 40
manufacturing units helps in sustaining
are quoting the highest
Bavla 14 - 16 13 - 24
future outlook for this belt.
ROAD DISTANCE AND TRANSIT TIME TO IMPORTANT LOCATIONS FROM demand for warehouses in this belt; rental values. The rents
CHANGODAR-BAGODARA WAREHOUSING BELT Bhayala 12 - 15 7 - 12 it also pushes up the price of land for
5.1 TYPES OF WAREHOUSES AND
warehouse developers. in these locations start
MAJOR PLAYERS Bagodara 11 - 14 4-6
Distance from: Km Travel time in mins
Source: Knight Frank Research 5.6 OUTLOOK
from `16/sq ft/month
Warehouses in locations such as Bavla,
Bhayala and Bagodara are relatively
Ahmedabad city centre 20 - 60 40 - 75
5.4 COMPETITIVE ADVANTAGES
and in certain cases
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 Kheda due to the inherent advantage
ft/month, depending
Naroda industrial area 48 - 86 65 - 100
structures with 24-foot clear height and
basic infrastructure such as security,
its proximity to the largest industrial hub
of Ahmedabad - the Changodar industrial
of being located in close proximity on the quality of the
Changodar industrial belt 0 - 40 0 - 45 to the major industrial clusters of
ample parking space, fire-fighting
Sanand industrial area 30 - 60 40 - 70
area. Over the last twenty years, Changodar and Sanand. However, the warehouse and access
equipment and insulation, among others. Changodar has emerged as the most
Some of the prominent occupiers on Kalol industrial area 45 - 85 60 - 90 preferred industrial area in Ahmedabad,
sharp appreciation in land prices over from the highway.
the previous five years due to strong
this belt are LG, TCI, FedEx and Yazaki.
Source: Knight Frank Research
with all the major pharmaceutical and demand for industrial land is rendering However, there are a
While Changodar still houses some of the engineering companies setting up their
old godown-type structures, majority of production units here. The demand for
certain locations unviable for warehouse
few RCC structures
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
units has helped in establishing a limited scope for further warehousing
warehousing space for
Currently, most of the incremental
demand for warehousing space in
vibrant warehousing market on this belt. development. Nonetheless, the 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
10 6 4 2
ample feasible options
12 11 8 5
for investors looking 14 16 12 10
to earn returns in 16 21 17 13
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.
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
BENGALURU
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.
Certain factors have lent a characteristic
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 manufacturers 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.
demand and consumption-led demand. Bengaluru has precedents like Peenya
another being the consumption/retail leasing a warehouse rather than owning it systems to ensure faster deliveries at
The demand from the manufacturing industrial area yesteryears biggest
segment. The total warehousing space is steadily picking up with the emergence controlled costs.
sector arises predominantly due to the industrial hub in Asia. This speaks
requirement in the Bengaluru market is of third-party logistics players (3PL), it
Of the total warehousing space distance between the manufacturers about the early success of industrial
thus estimated at 77 mn sq ft. At 71% is still at a nascent stage compared to
requirement, the leasable warehousing factories, raw material suppliers and the activity in the region. To assess the
or 55 mn sq ft, the manufacturing sector developed markets like the USA.
market in Bengaluru is estimated consumption markets of the final goods. scope of manufacturing-led demand
accounts for a lions share, followed by
In contrast, the consumption-led at around 60 mn sq ft. The annual The need to store the raw materials for warehousing, we have captured the
the retail sector which accounts for 22
warehouse requirement is close to urban transaction volume for the market is or final goods due to this distance, length and breadth of manufacturing
mn sq ft of the warehousing requirement.
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 important industries are food processing,
Separately, the consumption-led
space requirement engineering, petroleum and chemicals
demand for warehousing is dependent
on population, income level and the and pharmaceutical. In terms of the
77 mn sq ft
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
3 mn sq ft of the retail business and compelled
larger industrial clusters in the city. Over Nelamangala-
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
identified the key manufacturing sector. However, with the population witnesses the
growth of the city, and its neighbourhood
industries in Bengaluru, their current
development as residential market, the
vehicular traffic flow
warehousing requirement, the major
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
where the requirements originate.
In the western region, the Kumbalgodu- and Chennai,
Bidadi belt on Mysore Road is another
Similarly, in terms of consumption, we
have identified the current warehousing
important industrial cluster in the BMR. thereby increasing
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
6 mn sq ft 10 mn sq ft Nandi Infrastructure Corridor Enterprises
for warehousing
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 manufacturers 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
10
industry, on account of the proximity
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/
auto ancillary
Textiles
Food processing
Engineering
and pharma
Auto and
Chemicals
28 29
INDIA WAREHOUSING
MARKET REPORT RESEARCH
years, its share in the consumption-led Select warehouse operators the ecosystem for warehousing has
5 market characteristics, infrastructure
warehousing requirement stands at 15%. developed in terms of services for trucks
development, prevailing rentals and land Vijay Logistics
4 Going forward, we believe that the share and cranes, roofing and garages.
rates, challenges and the future outlook. TVS Logistics
3
of the E-tail sector will increase further in
the total retail spending of consumers. RCPC Supply Chain
2
In terms of the geographical footprint, the TCI
1
6-km Soukya Road belt has emerged as VRL
0
the top warehousing cluster for the retail
Others
and footwear
Daily needs
Electronics
and accessories
Apparel, sportswear
Watches, jewellery
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 1218% 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
warehouse cluster are influenced by The Nelamangala-Dabaspete cluster
of an industrial and warehousing market time. values are much lower 23 km off the example, with a return expectation of
the alternative development options with its inherent strengths scores over
and ample land availability will ensure highway. 14% per annum and an achievable rental
in the neighbouring markets. Moving With the construction of the NICE other smaller warehouse clusters in the
steady supply of warehouses in this value of `12/sq ft/month, the feasible
from the Bengaluru city centre towards Ring Road, this cluster witnesses the city. The availability of land and excellent From the pricing perspective, i.e. the
cluster going forward also. land cost amounts to `11 mn/acre. In
Nelamangala, there is no attraction for vehicular traffic flow between Mumbai quality roads will ensure steady supply of achievable rent or on-going land rates, other words, investors can fetch a 14%
high-rise residential development beyond INDICATIVE RENTAL VALUES AND and Chennai, thereby increasing the warehouses going forward as well. 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 to purchase land at or below `11 mn/
Geographically, we believe that in the
development around Nelamangala and ring road has also provided connectivity determinant of warehouse financial acre at present and lease it at `12/sq ft/
cluster, the T Begur to Dabaspete
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 month. As the purchase price of land
region holds great potential on account
up to two storey residential developments (`/sq ft/ (` mn/ consumption hubs of Bengaluru within a to achieve success in a warehouse goes higher, the realisable return reduces.
of relatively lower land price within
in the village areas. Accordingly, the month) acre) driving time of two hours. development project. In order to Similarly, as the achievable rental value
the cluster, even as good road quality
social infrastructure is also relatively of understand the feasibility of land cost increases, the feasibility of higher-cost
Nelamangala 12 - 16 15 - 35 The availability of manpower is another compensates for the distance travelled
the lower-end segment compared to for warehousing activities, we have land also goes up.
factor that lends competitive strength further away from the city. Further, while
the city centre or even Whitefield and T. Begur 12 - 15 10 - 20 developed a land cost matrix. This matrix
to this cluster. Bengaluru is a densely the cluster itself is an approximately
Electronic City. 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 12 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. consumption hub of Bengaluru. 10 10 6 4 2
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 from a few days to same day and now
Other terms of tenancy may also have a
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,
Hosur Road.
to the most active consumer base of `10 mn/acre on this belt, have been highlighted in colour. holds great potential
rent escalation and lease tenure. The these e-commerce players score over
market practice for the security deposit Warehouse occupiers are sensitive to
the Nelamangala-Dabaspete cluster. For
Source: Knight Frank Research
on account of
is 46 months of rent. The rent escalation instance, Whitefield and Electronic City
clause, which determines the quantum
rentals and thus, warehousing clusters
are the biggest office locations within Assumptions
relatively lower land
that are in a position to offer affordable
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
lease tenure, i.e. the minimum period warehouse rentals in the range of `1016
some e-commerce firms have preferred Ground coverage 57% cluster, even as
Rental escalation per annum 5% good road quality
50%: First year
compensates for the
Occupancy 75%: Second year
32 33
INDIA WAREHOUSING
MARKET REPORT RESEARCH
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 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
1 mn sq ft 2 mn sq ft
Chennais total requirement for by captive space, either in terms of stage compared to developed markets
warehousing space is estimated to be space at the manufacturers 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
mn sq ft
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
The need to store the raw materials In the following sections, we have the output in Chennai. This is followed by 20
or final goods due to this distance, identified the key manufacturing the consumer electronics, engineering,
industries in Chennai, their current 15
determines the amount of space required metals and chemicals & pharmaceuticals
by each manufacturer. The quantum of warehousing requirement, the major industries. 10
space required is also dependent on the manufacturing hubs and the various
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
Metals
Engineering
Consumer Electronics
Food processing
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 manufacturers plant or company-owned warehouses
located within a one hour driving distance facilities in the citys 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 Chennais 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 sectors 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
SHARE IN OUTPUT OF THE VARIOUS MANUFACTURING INDUSTRIES IN
and the GNT Road have experienced
ancillary companies
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
locations such as Sriperumbudur,
the manufacturing
Consumer Electronics
8%
7%
Oragadam, Maraimalai Nagar, output of Chennai
Food processing Gummidipoondi and Periyapalayam
on these roads. These locations have
10% 10% Auto and auto ancillary
become established industrial locations
Petroleum products
today with very good roads and allied
infrastructure. There is also considerable
Chemicals and pharma land available for potential development
34% around the roads connecting these major
Others
highways.
38 39
INDIA WAREHOUSING
MARKET REPORT RESEARCH
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
26% Electronics
requirement at 14 mn sq ft, the E-tail
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 1 2 3
10
by the E-tail segment is largely the
incremental demand for space and not 9
mn sq ft
total retail spending of consumers. This 5
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
and footwear
Daily needs
Electronics
and accessories
Apparel, sportswear
Watches, jewellery
Others
REQUIREMENTS BY E-TAIL AND
BRICK-AND-MORTAR STORES
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 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
due to the various advantages that this on these roads comprises pre-engineered warehousing belt is located in the
Chennai city centre 4050 7590
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 6585 90120
a natural transit stop for goods being such as security, ample parking space, Road. All these roads are good quality industrial area
transported to and from Bengaluru which fire-fighting equipment and insulation, three-lane roads with dividers for the
Ambattur industrial area 2740 4060
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 3547 5575
concentrated presence of the automobile most of these locations, recent years Maraimalai Nagar and Singaperumal Koil
Ennore Port 6070 90120
industry manufacturing units on the GST have seen the entry of integrated logistics to the city. The Chennai International
Airport is also located on this road Maraimalai Nagar 1530 2030
and Bengaluru highway encouraged the parks operators such as Indospace that
development of supporting warehousing represent the next stage in the evolution at Meenambakam. The road has Source: Knight Frank Research
activity in this cluster. Ambattur is the of the Chennai warehousing market. a significant amount of residential
4.3 RENT AND LAND COST OF Oragadam and Sriperumbudur to increase in rental values for warehouses,
other significant industrial hub in the These logistics parks are characterised development up until Vandalur, which
WAREHOUSES locations such as Mappedu and Mannur. a large number of occupiers still prefer to
west and also has a similarly large by state-of-the-art warehouses and are is the southern end of the Chennai
operate from locations that are in close
manufacturing sector presence. fully equipped to handle multi-modal Outer Ring Road. Post that point, the Warehouses that are closest to the GST INDICATIVE RENTAL VALUES AND proximity to these industrial hotspots.
transportation, centralised storage and population thins out and more industrial Road and Bengaluru highway quote the LAND RATES Hence, this logistics ecosystem that
Sriperumbudur, Irungattukotai and distribution and information transaction and warehouse development is visible on highest rental values, purely by virtue has developed in this cluster provides it
Oragadam started to develop as services. Some of the prominent the 30 km stretch further south. 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 citys Sriperumbudur 18 24 35 60
established large manufacturing facilities here at a price of `4050 mn/acre. Another advantage of this warehousing
on the periphery of the GST Road and While the auto and auto components mainland to the industrialised locations
However, there is limited stock available Oragadam 26 28 20 35 belt is its accessibility to all the major
Bengaluru highway. Locations such as sector forms the bulk of the warehousing in the vicinity of Sriperumbudur. It
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
Koil on the GST Road were among demand comes from E-tail and consumer and numerous educational institutions Mannur 16 18 17 25
the highway at Sriperumbudur is priced traffic congestion enables a warehouse
the first locations to benefit from the electronics sector companies that not till Chembarambakkam and hence
up to `60 mn/acre with warehouse rentals Irungattukottai 20 24 40 50 occupier to supply products from the
largesse of the automobile sector only require adequate clear height tends to be congested until that point.
in the vicinity of `1823/sq ft/month. warehouse to anywhere in the city within
and the governments support to that within the warehouse for multi-level Beyond there, the road attracts few Source: Knight Frank Research
60 minutes.
industry in terms of transport and stacking of products, but also look for passenger vehicles and is mostly used Bulk of the warehousing activity is
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
congestion and renders locations such and Bengaluru highway. Oragadam, Land prices have been spiralling up
unit. This has resulted in the majority of the Sriperumbudur, Maraimalai Nagar,
as Sriperumbudur, Mannur and Mappedu which is located between these two over the past decade as demand
new warehouses being constructed to Oragadam and Irungattukotai are
Since the demand drivers for all the accessible form the city centre within arterial roads, is among the well- for residential and commercial
adhere to such standards and move established industrial concentrations
warehouse locations in western Chennai 5075 minutes of travel time. developed industrial and warehousing development steadily moves west.
away from the traditional godown- in Chennai that form regional bases for
are similar, we have clubbed these markets in this cluster where warehouse Even Sriperumbudur that was purely an
type structure. Over the last five years, industry leaders in the auto and auto
locations into a single warehousing The various internal roads that branch out industrial destination has seen interest
a large number of companies have rentals quote as high as `2628/ ancillary, and the consumer electronics
cluster for the purpose of this report from Sriperumbudur towards Oragadam, from residential developers such as Marg
shifted their warehousing space from sq ft/month. These high rentals have industries. This has created a strong
and called it as the Sriperumbudur- Tiruvallur, Sunguvarchatram and the Group which caused a consequent rise
older warehouses in Oragadam and encouraged occupiers to look further demand base for warehouses in the
Oragadam warehouse cluster. In the Thandalam-Perumbakkam-Thakkolam in prices that have rendered warehouse
Sriperumbudur towards the recently west towards locations like Mappedu, immediate vicinity as the automobile
following sections, we have explained Road that connects Mappedu and development unviable. Although, there is
constructed good quality warehouses Mannur and Thirukovilur, where most sector requires its vendors to be within
the types of warehouses, major players, Mannur to the GST Road are all of good enough land available in newer locations
on the Thandalam-Perambakkam- of the good quality warehouses can be a 12 hour driving radius from their
market characteristics, infrastructure quality and with two-lane width at the such as Mannur and Mappedu at more
Thakkolam Road that connects Mannur made available at `1518/sq ft/month, base. This cluster has thus evolved
development, prevailing rentals and land very least. These roads are well suited for rational price levels, it does increase the
and Mappedu to Bengaluru highway. and land rates of land parcels not directly as the dominant warehousing market
rates, challenges and the future outlook truck traffic and can access all industrial time to transport goods and products
abutting the roads are in the range of in Chennai and over the years has
for this belt. destinations including Maraimalai Nagar, required by industries that follow just-in-
Select warehouse operators `1020 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 Casa Grande hours. new international airport being planned
month, as occupiers are aware that they ecosystem with transporters, freight
will be able to avail of similar quality by the government at Sriperumbudur
Most warehouses in locations such Kailash Logistics operators, warehouse operators and all
warehouses at 1530% discounts, if over the next decade will push land
the other allied service operators located
they choose to shift operations from prices up further much the same way it
within this area. Hence, despite the
42 43
INDIA WAREHOUSING
MARKET REPORT RESEARCH
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
However, Madhavaram and Red Hills with time. It is also well connected to the 20 31 26 21
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 16% per annum and an achievable rental
Note: The table presents 15 options of land cost in ` mn/acre at different investor returns and rental value combinations. The
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/ Construction cost (`/sq ft) 1,200
at Cholavaram where rentals are in the population and thus the availability of
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 Rental escalation per annum 5%
Janapanchatram junction post where, a warehousing cluster.
increases, the feasibility of higher-cost
drop is observed in ware house rentals on 50%: First year
5.5 CHALLENGES land also goes up.
the highway and on Periyapalayam road
where it is possible to lease good quality Occupancy 75%: Second year
The biggest challenge that the
warehouse space in the range of `14 - 100%: Third year onwards
warehousing sector faces on this belt
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
LAND RATES available for development, the incidence Interest rate 12% the Periyapalayam
of land titling issues is much higher in
North Chennai compared to the southern
Tax rate 30%
Road does have the
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 1518 2030 toll post, it is just a matter of time before this belt are feasible for warehousing might have to be constructed by the
Redhills 1518 5070 alternative land uses push industrial and activities at the prevailing land rates, warehouse developer, which will have an returns of over 16%
warehousing development further north. subject to a minimum achievable rental impact on the eventual return. Similarly,
Madhavaram 2022 90100 value of `14/sq ft/month. Locations such Cholavaram that is located just before the
for investors and
The FMCG companies like Hindustan
Puzhal 1820 3060
Unilever Ltd. and Procter and Gamble
as Madhavaram, Red Hills and Puzhal beginning of the Periyapalayam road, can that this belt will
will find it difficult to support warehouse support returns of up to 14% with rentals
Karanodai 1518 2025 Ltd. among others, have large facilities development due to the higher land at `1518 and land available at a price continue to attract
Periyapalayam 1416 1215 set up in this cluster due to the proximity costs. While it is unfeasible to develop range of `2030 mn/acre.
Source: Knight Frank Research
to the dense consumption markets in warehouses in Madhavaram and Redhills, both warehouse
the city. However, the presence of the developers in Puzhal will find it difficult We believe that the Periyapalayam Road
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 developers as well
support returns of over 16% for investors
The biggest competitive advantage of
toll costs and traffic congestion and this
scenario will only exacerbate in future as
scenario.
and that this belt will continue to attract
as occupiers on
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
has been relatively less impacted by the
The Periyapalayam cluster has emerged
prevailing rentals at `1416 can support competitive rental
as a promising warehousing corridor
increasing demand for residential and
commercial development compared to
in Chennai with warehouse operators
returns of 16%, as land is available at a
values.
price range of `1215 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
HYDERABAD
the citys economic landscape, and prominent, in terms of the growth of the Yellampet on the NH-44 and Turkapally
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. Reddys 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 1015 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 0.71.2 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
61 mn sq ft
42 mn sq ft 19 mn sq ft
4 mn sq ft 2 mn sq ft 2 mn sq ft
11 mn sq ft 9 mn sq ft
2. TOTAL REQUIREMENT FOR WAREHOUSING SPACE 6 mn sq ft 2 mn sq ft
Hyderabads 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 manufacturers 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
2 mn sq ft 2 mn sq ft
business stance, acquiring land to set common warehousing facility, to multiple requirements and focus on their core
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
Mn sq ft
from their customer. be concentrated primarily along these
includes dairies, rice mills, sugar mills, 8
hub in India and Consumption-led demand, which is an confectionaries, and beverages, among manufacturing clusters with sectors
others, has the largest share in the output 6 such as chemicals and pharmaceuticals,
equally important demand driver for
accounts for the warehousing space, is largely dependent in Hyderabad at 25%. These are followed food processing, metals and engineering
4
by the metals, engineering and textiles leading in terms of this demand.
manufacturing of a on population, income level and the
industries.
propensity to spend. The changing 2
third of Indias bulk dynamics of the retail industry has
In terms of the requirement for -
resulted in the business model of a
drugs and close to a warehousing space, the chemicals
Food Processing
Metals
Cement
52 53
INDIA WAREHOUSING
MARKET REPORT RESEARCH
3.00 FIGURE 5
WAREHOUSING SPACE
2.00 REQUIREMENTS BY E-TAIL AND
BRICK-AND-MORTAR STORES
1.00
Electronics
Daily needs
Others
Home and lifestyle
Watches, jewellery
and accessories
Apparel, sportswear
and footwear
9%
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
The Hyderabad metropolitan area has Source: Knight Frank Research
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
56 57
INDIA WAREHOUSING
MARKET REPORT RESEARCH
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.
Assumptions
58 59
INDIA WAREHOUSING
MARKET REPORT RESEARCH
60 61
INDIA WAREHOUSING
MARKET REPORT RESEARCH
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 2 mn sq ft
terms of space at the manufacturers plant or company-owned warehouses
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
mn sq ft
requirement, of the total manufacturing-
retailers to focus on this segment. 50
led requirement, chemicals and
pharmaceutical contributes the largest 40
In the following sections, we have
identified the key manufacturing at 51 mn sq ft, followed by the auto and 30
Chemicals and
pharma
Engineering
Metals
Textiles
auto ancillary
Food processing
Auto and
where the requirements originate.
Similarly, in terms of consumption, we
have identified the current warehousing
requirement of brick-and-mortar stores
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 manufacturers plant or
company-owned warehouses
64 65
INDIA WAREHOUSING
MARKET REPORT RESEARCH
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
in the consumption led warehousing (B2C) oriented industries like retail,
8 players. Most warehouses on the Old warehouse here. Bhiwandi is connected
requirement stands at 7%. Going pharmaceutical, FMCG, textile and
Agra Road (Kalher, Kasheli, Purna) and with Thane and Mumbai through the Old
6 forward, we believe that the share of the electronics have a presence in Bhiwandi.
Dapode Road are old developments with Agra Road and NH-3. It is connected
E-tail sector will increase further in the The need for reducing delivery time
4
G+1 RCC structures that provide just with Navi Mumbai through NH-4 and the
total retail spending of consumers. to consumer makes it a preferred
2 1214 ft of vertical space for storage. Thane-Belapur Road. JNPT, the countrys
warehouse location in the MMR.
In terms of the geographical footprint, These are primarily dominated by largest container port, and Mumbai Port
0
the Bhiwandi warehousing cluster occupiers from textiles, pharmaceuticals The other prominent use of this hub are at a maximum distance of 70 km from
Others
and footwear
Daily needs
Electronics
and accessories
Apparel, sportswear
Watches, jewellery
has emerged as the top warehousing and consumer durables. Occupiers from the production/manufacturing side the Bhiwandi warehouse hub.
cluster for the retail facing companies from industries like consumer durables has been by the textile industry. With a
The Bhiwandi warehousing cluster has
like Raymond, Croma, Future Group, and electronics that carry high-value significantly large number of power looms
come up as an unplanned development
Shoppers Stop, and HyperCITY. Even the fragile cargo and do not require large in the country, Bhiwandi has long been
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.
firms, which are witnessing shrinking Nariman Point 50 - 70 90 - 120
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
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
Agra Road is a four-lane road and has are higher in case of not employing the land holdings have built warehouses in for warehousing activities, we have
Mankoli 10 - 13 30 - 50
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 have return expectations as low as
movement on the route. The supply their own staff to ensure uninterrupted matrix explains the feasible land cost
The Bhiwandi warehouse market has 812% for warehouse development
of power, with a private enterprise Padgha 12 - 16 10 - 20 and efficient performance of such that an investor should ideally pay in this
its fair share of challenges that make projects. The reasons for underwriting
Torrent Power, has witnessed a marked activities. cluster in order to achieve the expected
Source: Knight Frank Research it probably the most difficult market projects at such a low internal rate of
improvement in recent years. returns in the range of 1218% 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.
The NH-3 (Mumbai-Nashik Highway) warehousing cluster spread across or mathadi charges range between cost of capital to non-compliance with
4.4 COMPETITIVE ADVANTAGES For example, with a return expectation
stretch has witnessed ample several densely populated villages, the `0.502.00/sq ft/month calculated on the statutory construction norms and poor of 14% per annum and an achievable
development of modern warehouse The biggest competitive advantage of the complexities of developing and operating space leased by a warehouse occupier. It construction quality. However, as a rental value of `12/sq ft/month, the
parks over the last five years. The 20 km Bhiwandi warehouse hub is its proximity a warehouse have also increased. 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 520% 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 FEASIBLE LAND COST MATRIX IN THE BHIWANDI WAREHOUSING CLUSTER
Warehouse occupiers are very sensitive warehouse development is minimum 30
connected with the NH-8 (Mumbai- (` MN/ACRE)
to rentals and thus warehousing clusters acres. On account of tiny and scattered
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
advantage over the others. With parcel of the relevant size for warehouse
(`/sq ft/month)
12% 14% 16% 18% Being an unplanned
WAREHOUSES
warehouse rentals in the range of `1016/ development is a challenge. 10 10 6 4 2 warehousing cluster
As indicated in the adjoining table, the sq ft/month, Bhiwandi fares well. The
rent across the warehouse facilities in rentals in Bhiwandi are significantly
The other critical issue is that the land 12 14 11 8 5 spread across
this cluster is in the range of `1016/ use is changing in favour of residential
attractive in comparison to competing 14 20 16 12 10
sq ft/month depending on the location warehousing hubs like Panvel, that
development. With rising population several densely
within the cluster and quality of facility. in the MMR, housing has received the 16 25 21 17 13
commands higher rentals of `1725/
Specifications beyond the generally sq ft/month. A significant size of the
top most priority for land development. Note: The table presents 16 options of land cost in ` mn/acre at different investor returns and rental value combinations.
populated villages,
While warehouse developments in
prevalent terms in the market command warehouse market, coupled with a large
this hub command `1,5002,500/sq
The 11 options which are possible to source in this warehousing cluster and are upward of the minimum prevailing land rate,
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
land cost dynamics in this warehouse rentals will continue to remain affordable
ft, residential prices are significantly Source: Knight Frank Research of developing
cluster are also influenced by the higher in comparison to warehouse
for a considerable time.
alternative development options. developments. In the neighbouring Thane Assumptions 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 `7,00015,000/sq ft. Residential prices warehouse have
bearing on warehouse rents, specifically in the adjoining Kalyan hover at `5,000 Ground coverage 57%
clauses related to the security deposit,
to the Bhiwandi warehouse hub. The
7,000/sq ft. Even in dense warehousing
also increased in
MMR is a densely populated urban 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 `3,0004,000/
is 46 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 countrys largest
bound to honour the occupancy, varies container port, the Jawaharlal Nehru Another challenge in Bhiwandi arises on Tax rate 30%
largely on a case-to-case basis, usually in Port Trust (JNPT), as well as the Mumbai account of the warai charges that have
Cap rate 10%
Port Trust. At a maximum distance of to be borne by warehouse occupiers.
68 69
INDIA WAREHOUSING
MARKET REPORT RESEARCH
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
Occupiers prefer modern logistics and development will stifle on this stretch. which is the suburban train network in cross each other. This causes frequent are mostly located in Kalamboli and
Singh & Chedda Logistics
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 Taloja-Kalamboli cluster. These are
infrastructure to ensure hassle free and emerge as a hub for new warehouse at a considerable premium to that of maintenance cost.
uninterrupted warehouse operations. development would be the 15 km. warehouses, land rates become unviable CCI Logistics Park characterised by G+1 RCC or PEB
This change in characteristic will gain stretch extending from Rajnoli (junction for warehouse developments. The There is adequate power supply in this structures that might not have basic
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 recent years as the Maharashtra State or security. Consequently these are used
Padgha until the toll point. The reasons implies that warehouse developments will
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
warehouses are mainly concentrated on 5.2 LOCATION AND INFRASTRUCTURE now sources enough power to fulfil the metals and textile industry.
promising alternative are varied. Besides developments to secure land on this
the Old Agra Road and NH-3 locations land availability, through NH-3 (Mumbai- stretch. needs of industries and warehouses
The Panvel warehouse cluster is located The highest priced warehouse products
falling between Thane city municipal in the Panvel hub. Water supply and
close to JNPT and a bulk of its logistics on offer in the Panvel cluster are located
sewerage are also significantly better
and warehousing facilities are geared to in the areas within a 5 km. radius of
compared to the Bhiwandi hub as ground
5. PANVEL WAREHOUSING CLUSTER service container traffic and break bulk
cargo. The container freight stations are
water is extensively used. Palaspe Phata and locations on the
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 of-the-art construction quality with PEB
Distance Km Travel
part of the Virar-Alibaug corridor and in structures having high ceilings (30-35
from: time in
locations such as Kalambusare, Koproli ft.), climate control, sewage treatment
mins
and Kacherpada just south of the JNPT. plants, adequate security and internal
The JNPT Road is a 25 km. stretch that Nariman Point 50 - 60 90 - 120
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
originating from or destined for Mumbai Port 50 - 55 70 - 90
progressively reduce as one moves
Maharashtra, Madhya Pradesh, Gujarat, Trust
further south on the highway in locations
Karnataka, as well as most of North like Shedung, Bhokarpada and Khalapur.
JNPT Port 5 - 25 15 - 30
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
countrys 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 Indias container 5.3 RENT AND LAND COST OF
Andhra Pradesh and Tamil Nadu. While than those on the Mumbai Pune Highway
of this warehouse cluster. The cluster traffic was being handled by this port. WAREHOUSES
5.1 TYPES OF WAREHOUSES AND these highways directly connect JNPT due to their proximity to the JNPT, the
comprises of locations branching out Its dominance as the most viable port
MAJOR PLAYERS and the Panvel cluster with the southern dearth of warehousing products on offer
of Palaspe along the Mumbai Pune and Navi Mumbais 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 Besides freight driven activity that of the Karnala Bird Sanctuary beyond
cluster for the purpose of this report The Panvel warehousing hub is very residential market dictates land prices
activity in the Panvel cluster gained demands logistics and warehousing that boundary. Warehouse facilities are
and named it the Panvel warehousing well served by the national highways that see a declining trend going south of
prominence with the growth of container facilities of a higher quality, the Panvel thus priced higher on the 4 km. stretch
cluster. In the sections below, we have around which logistics and warehousing Palaspe Phata as this location forms the
traffic passing through the JNPT that hub also contains warehouses that are
explained the primary demand drivers
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 CIDCOs 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
LAND RATES Ground coverage 57%
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 Debt funding 80% of construction cost
local labour issues like the payment of a same pace due to a lull in the market.
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 hubs
5.5 CHALLENGES 5.6 OUTLOOK The Panvel warehousing hub represents up in a 5 km. radius from Palaspe Phata
growth is its proximity to the JNPT.
The fact that more than half of indias the higher end of logistics and but it is unlikely that further warehouse
In spite of the fundamental factors From the pricing perspective, i.e. the
container traffic is routed through this warehousing facilities in the Mumbai development will come up in this area as
that support the growth of a thriving achievable rent or on-going land rates,
port virtually cements its position as market and is continuously evolving as land owners here will favour residential
warehouse hub, the Panvel cluster this hub offers a range of options.
the one of the strongest warehousing a greater number of logistics parks bring development due to the more lucrative
has its fair share of challenges. The With land rate as the most important
hubs in India as nearly all containerised about consolidation of warehousing proposition that it represents. The
announcement of the Special Economic determinant of warehouse financial
exim cargo requires CFS or warehouse activities. As occupiers increasingly enhanced Sion Panvel Highway, planned
Zone in 2002 and the upcoming Navi feasibility, it is crucial to get it right
facilities. This also enables it to command prefer outsourcing their logistics introduction of fast trains on the harbour
Mumbai airport, led to Panvel and its to achieve success in a warehouse
significantly higher rental and occupancy and warehousing operations to third line and increasing the frequency of train
surrounding locations being touted as development project. In order to
levels than Mumbais only other major party experts and demand seamless services on the Diva-Panvel-Somatane
the next big residential hub. Unavailability understand the feasibility of land cost
warehouse cluster of Bhiwandi. Efficient operations, the market will continue to route are among the infrastructure
of viable land for warehousing and its for warehousing activities, we have
access to most container traffic see growth in terms of sheer volume and developments that will vastly reduce
spiralling prices due to a burgeoning developed a land cost matrix. This matrix
destinations via the national highway improved operations. The anticipated travel time to Mumbais business districts
network (Mumbai Pune Expressway, Old
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
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 1218% per annum,
this markets growth. Prices in residential projects within a subject to the achievable rents. For
activities in the Panvel cluster. development further south towards the to Palaspe will
3 km. radius of Palaspe Phata have periphery of the Mumbai Goa Highway
example, with a return expectation of
A large portion of the Panvel warehousing crossed INR. 5,000/ sq.ft. while nearby 14% per annum and an achievable rental
The land-use is largely favourable for where land prices are still feasible enough push warehouse
hub has always been under the industrial and warehouse development to support a business case for this
residential markets like Kharghar
jurisdiction of CIDCO and has aided and Kamothe are priced even higher.
value of `18/sq ft/month, the feasible in the Panvel hub. The 25 km. stretch on property type. development further
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
facilities and as land rates have gone
FEASIBLE LAND COST MATRIX IN THE PANVEL WAREHOUSING CLUSTER
per annum return only if they are able
to purchase land at or below `26 mn/ up, there is comparatively less scope for
the periphery of
(` 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
18 31 26 21 18
land also goes up.
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.
72 73
INDIA WAREHOUSING
MARKET REPORT RESEARCH
Western Dedicated
Freight Corridor
Eastern Dedicated
Freight Corridor
Proposed National
Expressway
Railway Line
KMP Expressway-
Under Construction
KMP Expressway-
Operational
74 75
INDIA WAREHOUSING
MARKET REPORT RESEARCH
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 NCRs 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 NCRs 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
76 77
INDIA WAREHOUSING
MARKET REPORT RESEARCH
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. NCRs total output, its warehousing space requirement of the region.
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 manufacturers 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
34 33 21 15 9 25 42 8
50
40
mn sq ft 30
20
10
Currently, NCRs
total requirement for
Food processing
Metals
Textile
Engineering
Cement
Consumer electronics
warehousing space is
estimated to be
223 mn sq ft, of which
more than 80%, or 187
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 manufacturers plant or company-owned warehouses.
Source: Knight Frank Research
of the warehousing
requirement of the Manufacturing activities are concentrated manufacturing units, their share in NCRs
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
is fulfilled by captive
Freight Corridor
NH-2 clusters in the southern region Eastern Dedicated
The factors clearly indicate that
space, either in and the NH-24, NH-91 and NH-58
the demand for manufacturing-led
Freight Corridor
Proposed National
clusters in the north-eastern region
terms of space at the together account for 85% of the total
warehousing space in NCR will be Expressway
80 81
INDIA WAREHOUSING
MARKET REPORT RESEARCH
Share in output of each manufacturing cluster within NCR CATEGORY-WISE SPLIT OF RETAIL SPENDING IN NCR
Department store
Daily needs
Electronics
Others
The E-tail sector
has emerged as Source: Knight Frank Research
Delhi NH-8 & NH-2 NH-1 & NH-10 NH-24, NH-91 & NH-58
a major driver for
Source: Annual Survey of Industries (ASI) and Knight Frank Research
the incremental
warehousing space 4.2 Consumption-led demand currently accounts for 14% of the total
requirement in recent In terms of retail spending, NCR is the
space requirement of the consumption-led
demand. While brick-and-mortar stores
years and currently largest market in India with Delhi, Gurgaon still lead in terms of space requirement, at
WAREHOUSING SPACE REQUIREMENTS FOR THE MAJOR RETAIL CATEGORIES IN NCR
consumption-led through the e-commerce medium. Hence, While the boom in the E-tail sector may 16
have eaten into the market share of
demand. While brick- any type of consumer goods consumed
the brick-and-mortar stores to a great 12
mn sq ft
within NCR, whether offline or online, is
and-mortar stores categorised in the retail spending. extent, our analysis indicates that the
8
advent of this segment has expanded
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 consumers propensity to spend. Hence,
at 31 mn sq ft, total retail spending in NCR. Thus, even in the warehousing space requirement by the
the E-tail segment
Apparels, sporstwear
& footwear
Daily needs
Electronics
Watches, jewellery
& accessories
Others
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
contributes upto sq ft or 38%. Other prominent product replacement of the demand for space by
5 mn sq ft. However, categories include food and beverages, brick-and-mortar stores.
department stores and daily needs. The
we estimate space daily needs category includes all the FMCG Going forward, we believe that the share
requirement from products, grocery and other such daily of the E-tail sector will increase further in
the total retail spending of consumers. This
retail products that are consumed on a
the E-tail segment to regular basis. Just the top four categories will invariably lead to a higher demand for
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
increase by 60%, to account for more than 80% of the total warehousing space from this segment in
the coming years. As per our estimates,
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. such daily retail products that are consumed on a regular basis.
more than the warehousing space requirement from
Source: Knight Frank Research
The E-tail sector has emerged as a major
8 mn sq ft by 2020. driver for the incremental warehousing
the E-tail segment will increase by 60%,
from the current 5 mn sq ft to more than 8
space requirement in recent years and mn sq ft by 2020.
82 83
INDIA WAREHOUSING
MARKET REPORT RESEARCH
Western Dedicated
CLUSTER-WISE POPULATION SPLIT IN NCR SHARE OF EACH CONSUMPTION Freight Corridor
KMP Expressway-
Operational
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
demand accounts for the lions share due located within this cluster. Among the manufacturing industries that are power backup, ample parking space, flyovers and service lanes at all the major
CLUSTER
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
The demand drivers of warehousing the auto and auto ancillary sector among others. Some of the prominent warehouses are located on the internal
activity along these routes. Within the metals, textile and engineering sectors
space in this cluster can be broadly accounting for the largest share in occupiers are Lifestyle Home Centre, roads of NH-8, the travel time from these
manufacturing segment, the auto and constitute a major portion of the output,
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
Currently, the estimated requirement of parts of NH-8 are old godown-type between the various warehousing
SHARE IN OUTPUT OF VARIOUS MANUFACTURING INDUSTRIES IN THE NH-8 CLUSTER
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
Metals companies that not only require adequate
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 Faridabad to central and eastern India,
Engineering
warehousing space from the retail sector. backup, fire-fighting equipment and is a relatively narrower four-lane highway
Food processing The retail sector primarily includes all enhanced security. This has resulted in
and witnesses frequent traffic congestion.
the consumption-led products, such the majority of the new warehouses being
The presence of various manufacturing
Chemicals & pharma as grocery, FMCG products, apparel, constructed to adhere to such standards
units along the highway makes it difficult
consumer durables and furniture, among and move away from the traditional
Cement for a smooth flow of traffic. However,
others, which are consumed by end godown-type structure.
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 Value Logistics
30
mn sq ft
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
upto 86% of NCRs 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
cluster on NH-8. As per our estimates, The NH-8 warehousing cluster can be
the major industrial hubs located close
the total requirement of warehousing divided further into two sub-markets
to NH-8 and NH-2 can be accessed
10 space originating from consumption-led based on their access from the two major
within two hours. However, servicing
demand in this cluster is 30.6 mn sq ft, roads: NH-8 and NH-2. NH-8 is a six-lane
the industrial hubs of Ghaziabad,
including 4.4 mn sq ft from the E-tail national highway starting from Delhi and
Bahadurgarh, Bawana, Sonipat and
segment. passing through the most industrialised
Rohtak from this cluster may exceed two
regions of country Gurgaon, Jaipur,
5.2 TYPES OF WAREHOUSES AND hours and could extend upto three hours
Ahmedabad, Vadodara, Surat and Vapi.
Auto & auto
ancillary
Metals
Textile
Engineering
Food
processing
Chemicals
& pharma
Cement
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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
Dharuhera 12 17 25 40
Palwal industrial area 5 - 80 10 - 90
NH-2, Palwal 15 18 30 40
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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
urbanisation that this region has the development of the Delhi-Mumbai
the rental expectations of land owners even subject to a minimum achievable rental NH-8 warehousing cluster where the 14% per annum,
value of `14/sq ft/month. However, rental
witnessed over the last ten years. This Industrial Corridor (DMIC) along this route. further.
values below this level may not even
land acquisition cost is minimal, and is
investors will have
Additionally, the presence of various well connected to the national highway
has inherently led to an exponential rise
automobile majors will continue to attract
Since land cost is the most critical fetch returns of 10% per annum to the
through a good quality 40-60 foot road. to consider new
in land rates, thereby making most of investors at the current land prices.
component of warehousing development,
the locations unviable for warehousing auto ancillary and engineering sector Locations that fit these criteria will be locations within the
companies. With rising land rates and it influences the realisable returns to a great
able to attract occupiers. We believe that
business. This is primarily because
unaffordable rentals, warehouses are extent. In order to understand the feasibility
For investors to achieve returns upwards
of 14% per annum, it is imperative that the NH-71 stretch between Rewari and
NH-8 warehousing
the appreciation in rental values has
significantly lagged the increase in
expected to gradually move towards the of land cost for warehousing activities, we 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
periphery of the highway. matrix explains the feasible land cost that
`26 mn/acre and that it can be leased future development. Although this stretch land acquisition cost
previously purchased land at low rates out at a minimum rental value of `18/ is located further away from NH-8, the
are able to survive, any new development an investor should ideally pay in this cluster sq ft/month. Considering the current driving time to most of the manufacturing
is minimal, and is
Warehouse rents on locations such as
at the current costs seems unviable. NH-8, NH-2 near Palwal, and Jamalpur-
in order to achieve the expected return in market scenario, only certain locations,
hubs located near the highway is less well connected to
the range of 10%-16% per annum, subject such as NH-8, Jamalpur-Panchgaon
Going forward, If the current pace of
Panchgaon Road within the NH-8
to the achievable rents. For example, with Road, Bilaspur-Tauru Road and NH-2
than 90 minutes due to the good quality the national highway
warehousing cluster have already moved 2x2 roads on this stretch. Additionally, the
residential and commercial development
beyond `15/sq ft/month and are quoting a returns expectation of 14% per annum near Palwal are able to command a
Delhi city centre can be reached within
through a good
continues, we believe that even the rental value upwards of `18/sq ft/
existing warehousing players may convert
as high as `21/sq ft/month in certain and an achievable rental value of
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, rendered warehousing activity for certain amounts to `26 mn/acre. In other words,
price of land in these locations is higher these factors, we believe that the NH-
road. Locations that
such as residential or commercial. This than `30 mn/acre, thereby rendering 71 stretch between Rewari and Jhajjar
could push the future development of
manufacturing industries unviable, and investors can fetch a 14% per annum
them unfeasible for the 14% per annum will witness considerable warehousing
fit these criteria will
any further rise in rents could push the
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
highways or deeper into the interiors land at or below `26 mn/acre at present
of Haryana. The downside of such a
cheaper locations. Going forward, the rapid
and lease it at `18/sq ft/month. As the occupiers. We
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 realisable return reduces. Similarly, as
segment due to the poor quality of roads
feasibility of warehouse operations in
the achievable rental value increases, the
NH-71 stretch
certain locations of this cluster, such as
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
Rental value Investor return per annum
development.
Rental escalation per annum 5%
(`/sq ft/month)
10% 12% 14% 16% 18%
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
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Others
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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
Reddys and Safexpress, have warehouse
20 to the manufacturing and consumption The NH-24 HapurGhaziabad 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
mn sq ft
Metals
Textiles
Consumer electronics
Engineering
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
town area is managed with a 3x3 well- old residential developments along away.
maintained stretch of NH-91. Going the highway. The warehousing market
forward, the warehousing activities will here benefits on account of the ample
ROAD DISTANCE AND TRANSIT TIME TO IMPORTANT LOCATIONS FROM THE GHAZIABAD WAREHOUSING CLUSTER
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 manufacturers plant or company-owned warehouses.
Source: Knight Frank Research
Ghaziabad industrial belt 535 1550
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) 2565 60120
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 4070 90130
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 5590 100140
apparel, food and beverages (F&B), consumption centres that can be
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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
The industrial setups WAREHOUSES bearing on warehouse rents, specifically
The Ghaziabad warehouse cluster has
case of the Ghaziabad warehouse cluster.
clauses related to the security deposit, Such industrial activity implies that the
in the Ghaziabad The rental values in the cluster are
rent escalation and lease tenure. The
its share of challenges. Being an old demand for automobile space in the
industrial town, the industrial setups in
cluster are within the almost similar on the highways, with the
market practice for the security deposit this cluster are within the urban area,
competing NH-8 cluster is 25 mn sq ft or
Dadri region commanding marginally four times that of the Ghaziabad cluster,
urban area, unlike the higher rentals in the cluster. The rentals
is 46 months of rent. The rent escalation unlike the NH-8 cluster, where industrial 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.
industrial activity The rents displayed in the adjoining usually 5% p.a. The market practice for
and industrial activity together has led demand on account of the
impacted the vehicular traffic movement. vibrant Gurgaon residential and office
is well beyond the table reflect the facilities with standard lease tenure, i.e. the minimum period
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
bound to honour the occupancy, varies
the quality of roads, which are generally The consumption markets of Delhi and
higher if there are specific requirements 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
compared to the national highways. This logistics firms such as Future Supply
has impacted restricts the opening up of new land Chain, Fedex, TCI and Safexpress, have
Quoted rent Quoted land rate
the vehicular Location
(`/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
warehouse developers highlight another
Additionally, quality GhaziabadDadri, NH-91 1620 3040
difficulty regarding the regulatory
compared to the Ghaziabad cluster. cluster will be
The completion of the ManesarPalwal
of internal roads environment. Due to the ambiguity of stretch of the upcoming KundliManesar dominated by the
land laws, the conversion of land use
is starkly inferior GhaziabadHapur, NH-24 1519 2035
from agriculture to industrial takes
Palwal (KMP) expressway has added food processing
sheen to this warehouse cluster.
compared to the much longer in the Ghaziabad cluster industry, and
compared to the NH-8 cluster in Haryana.
national highways. GhaziabadMeerut, NH-58 1419 2035 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
activities. will continue to remain affordable for a
in warehouse localities near Ghaziabad
feasible costs that
The biggest competitive advantage of the city. While the rents continue to remain
Ghaziabad warehouse hub is its proximity
considerable amount of time.
at an affordable level, land has become is in sync with the
to the densely populated consumption The Dadri node of the cluster is on the
expensive, mainly for land parcels
abutting the highways.
quoted rents implies
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
consumption market from their warehouses
of the country. This will increase the which offers a relatively superior occupier the cluster. Hence,
warehousing requirement in the Ghaziabad profile at a similar occupancy cost. This
in this cluster. The next advantage is its
cluster. is the case for both, the manufacturing- we believe that no
proximity to the manufacturing hubs of led and consumption-led demand, which new markets will
Ghaziabad, Faridabad and Sonipat. The availability of manpower is another includes e-commerce. The manufacturing
factor that lends competitive strength to base of NH-8 is much stronger on emerge in this cluster
Warehouse occupiers are sensitive to
rentals and thus, warehousing clusters that this cluster. NCR is a densely populated account of the strong presence of the in the near future.
automobile industry, which pays relatively
are in a position to offer affordable space urban agglomeration, and the presence
higher rentals because of its just in time
would enjoy a competitive advantage of residential catchments for all income
inventory model. The auto and auto
over the others. With warehouse rentals groups in and around Ghaziabad ensures
ancillary sector contributes 29% of the
in the range of `1420 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.
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PUNE
manufacturing activities. Chakan, in North exodus of warehouses towards the
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 For the purpose of this report, we have
manufacturing base in these locations.
of contiguous land within the above classified the various warehousing
While companies like Volkswagen,
mentioned clusters have led to the markets into two major clusters:
Bajaj Auto, Mahindra & Mahindra and
emergence of Shirwal in South Pune Chakan-Talegaon belt and Wagholi-
Bridgestone, among others, are located
as an alternate manufacturing hub and Ranjangaon belt, based on factors such
in Chakan, Ranjangaon is host to the
many companies have already shifted as geographical location, proximity to
manufacturing facilities of FIAT, Whirpool,
their base here. Although this cluster the national highway, access to the
LG Electronics and Haier Appliances,
is not developed by the MIDC, leading city centre and distance from the major
among others. With vacant land slowly
manufacturing companies such as Godrej manufacturing hubs. These two clusters
getting exhausted here, the MIDC
& Boyce, Alfa Laval and Finolex, among collectively account for the majority of the
developed an alternate industrial area
others, have shifted here. warehousing space demand in the Pune
in Talegaon situated in North-west Pune
that has companies such as General market.
The development of these manufacturing
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Total warehousing
space 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 manufacturers 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
102 103
INDIA WAREHOUSING
MARKET REPORT RESEARCH
mn sq ft
the warehousing industry to the forefront
such as Chakan, of the retail business and compelled
10
6
and Ranjangaon. In the following sections, we have
4
identified the key manufacturing
The other big industries in Pune, their current 2
warehousing requirement, the major
demand drivers manufacturing hubs and the various
0
auto ancillary
Engineering
Food processing
Chemicals
and pharma
Metals
Electronics
Auto and
Consumer
regions within Pune from where the
for warehousing requirements originate. Similarly, in terms
space in Pune are of consumption, we have identified
the major product categories and their Source: Knight Frank Research
the chemicals and current warehousing requirements.
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INDIA WAREHOUSING
MARKET REPORT RESEARCH
mn sq ft
space by brick-and-mortar stores. Going
5
forward, we believe that the share of the
E-tail sector will increase further in the 4
and footwear
Daily needs
Electronics
and accessories
FIGURE 5
Apparel, sportswear
Watches, jewellery
WAREHOUSING SPACE
REQUIREMENTS BY E-TAIL AND
BRICK-AND-MORTAR STORES
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
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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
to deliver at a very short notice. A short poor infrastructure. Chakan is connected with the old
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
height within the warehouse for multi- to the national highways, multiple exit 4.3 RENT AND LAND COST OF 4.4 COMPETITIVE ADVANTAGES already shot up drastically during the last
production unit nearby or the amount
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 mn/acre, the viability of warehousing
Another type of warehousing that is enhanced security. This has resulted in number of warehouses are located on the
(PEB) structures with a load-bearing MIDC and Talegaon MIDC. Additionally, activity within this cluster is questionable.
prominent in the Chakan belt is service the majority of the new warehouses being Pune-Nashik Highway, which is a four-
capacity of 5 tonnes/sq m and height it is also very well connected with the Scarcity of land has paved the way for
parts distribution centre of capital goods constructed to adhere to such standards lane road with a divider. Internal roads in
ranging from 9-10 metres. The rental Ranjangaon MIDC and Sanaswadi innovative deals between the land owners
companies. These are the companies and move away from the traditional non-MIDC areas within this cluster are in
values vary from `16 30/sq ft/month industrial area, which are at a distance of and warehouse operator/occupier. The
that supply heavy machinery to other godown-type structure. a relatively poor condition.
depending on the location and quality of 50 km and 40 km respectively. Hence, a warehouse operator/occupier pays
manufacturing companies that use
The upcoming Pune Ring Road on the warehouse. While highway-touching warehouse in Chakan is within an hours 18-20 months rent in advance to the
them for further production. As any Select warehouse operators
the periphery of Pune city will provide warehouses command higher rent, those drive from four major manufacturing hubs land owner who uses this money for
breakdown in such heavy machinery Indospace
a major boost to the heavy vehicles, located on internal roads are available at of western India. Apart from this, JNPT constructing the warehouse. This helps
due to the normal wear and tear can
TCI as it will bypass the city traffic once a relatively lower cost. Additionally, the and three major cities of Maharashtra, both the parties as the operator/occupier
disrupt the production schedule, it
constructed. The ring road will connect technical aspects such as floor strength, namely Mumbai, Nashik and Ahmednagar is able to keep his balance sheet light
becomes essential for these capital TVS Logistics Services
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 infrastructure is according to global Chikhali of North Pune has ensured Another challenge is the gradual
Since the demand drivers for all the road. However, the project is still at
activities around Chakan has led to standards. This results in higher cost of availability of skilled and semi-skilled expansion of Punes urban area. Although
warehouse locations along the Chakan- the conceptualisation stage and will
the development of this region as a construction for such warehouses, thus labour. Chakan is around 30 km north of Pune
Talegaon road including Kuruli and take another 4-5 years to become fully
warehousing hub. The Talegaon-Chakan pushing the rentals further high. Also, city centre, the rapid urbanisation being
Chimbali are similar, we have clubbed operational. 4.5 CHALLENGES
road that is connected with the old rental value of built-to-suit warehouses witnessed around Chakan, Talegaon and
these locations into a single warehousing
Mumbai-Pune Highway on the west could go further high depending on the Moshi could tilt the preference of land
cluster for the purpose of this report Land availability is the biggest challenge
and the Pune-Nashik Highway on the requirement of the occupier. owners towards residential development
and called it as the Chakan-Talegaon in Chakan as the real estate cost has
east, has witnessed the development
warehousing belt. In the following
of numerous warehouses. Additionally, INDICATIVE RENTAL VALUES AND LAND RATES
sections, we have explained the primary
the stretch from Moshi to Chakan on the
demand drivers of the warehousing Location Rent (`/sq ft/month) Land rate (` mn/acre)
Pune-Nashik Highway has also attracted
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 Chimbali 16 - 22 20 - 30
planning authority, units within the MIDC
MAJOR PLAYERS
area have access to the infrastructure Source: Knight Frank Research
108 109
INDIA WAREHOUSING
MARKET REPORT RESEARCH
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%
further due to better remuneration from of the state government to locate the For investors to achieve returns upwards
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 coming years. `31 mn/acre and that it can be leased out
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
a manufacturing hub with the MIDC Interest rate 12%
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
are expected to gradually move towards expected return in the range of 14%-22% Historically, warehousing activities in distribution centres. 5.2 LOCATION AND INFRASTRUCTURE
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
have already moved beyond `22/sq ft/ mushrooming here post 1995. These MAJOR PLAYERS belt is located in the north-eastern part
expectation of 16% per annum and an
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 rental value increases, the feasibility of substantially during the last five years
retail distribution segment, warehouses Unlike Chakan, the Wagholi-Ranjangaon
of warehouse operations in the area. higher-cost land also goes up. with the ongoing quoted rate hovering
in Lonikand, Chakan-Shikrapur road, belt has not been developed by the MIDC
around `4,200 5,500/sq ft, making
Going forward, construction of the Sananswadi and Ranjangaon are and the manufacturing units located here
Currently, most of the locations on this it much more remunerative for land
Pune International Airport near Chakan relatively larger in size, primarily catering have been primarily developed on private
belt are feasible for warehousing activities owners to opt for residential development
could pose as a serious threat to to the industrial segment. land, except for those located within
at the prevailing land rates, subject to a instead of warehousing. Such a trend
warehousing activity in this region. the Ranjangaon MIDC. This has led to
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
Rental value Investor return per annum Ranjangaon. on the stretch between Shikrapur and connecting to Ranjangaon in the east and
(`/sq ft/month) Ranjangaon MIDC. Most of these Chakan in the north-west via the Chakan-
14% 16% 18% 20% 22% Sanaswadi and Ranjangaon are home
warehouses are PEB structures with Shikrapur road. It is also connected with
to a large number of engineering
16 21 17 13 11 8 modern amenities such as power the Pune-Nashik Highway through the
and auto ancillary companies and
backup, fire-fighting equipment and Alandi-Markal Road, which is a two-lane
20 31 26 21 18 15 these markets are slowly emerging
enhanced security. road passing through Phulgaon and
as alternate warehousing clusters to
24 40 34 29 25 21 Alandi. Although the quality of this road is
Wagholi. Lower land prices, absence of
Select warehouse operators relatively poor as compared to the Pune-
28 50 43 37 32 28 residential development and presence of
manufacturing majors like John Deere, Phoenix Warehousing Ahmednagar Highway, it is a shorter
30 55 47 41 36 31
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
mix of industrial warehouses and retail Global Group residential projects here.
Source: Knight Frank Research
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 locations closer to Mumbai. With rentals occupiers will begin scouting for alternate of land goes higher, the realisable return
connectivity of this hub with all the major Chakan-Shikrapur road, Sanaswadi and
warehousing belt is its proximity to the in Bhiwandi quoting much lower rates cheaper locations. Unlike Chakan, reduces. Similarly, as the achievable
highways on the periphery of Pune. The Ranjangaon are dominated by industrial
city centre. Wagholi is located barely than the Wagholi-Ranjangaon belt, where there is a designated government rental value increases, the feasibility of
ring road will connect Wagholi with the warehouses. Additionally, the quality of
16-18 km from the Pune railway station it would make more sense for retail planning authority (MIDC) that restricts higher-cost land also goes up.
Pune-Nashik Highway, Mumbai-Pune warehouses in Wagholi is comparatively
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 this belt are feasible for warehousing
here. Additionally, the sheer size of the belt has primarily taken place on private
an easy access to cities like Nashik, in the area took place before 2005. Many the various parts of the city is less than activities at the prevailing land rates,
Mumbai retail market skews the need land. This could tilt the preference of land
Mumbai, Solapur and Kolhapur. As the of these structures resemble the erstwhile an hours drive from Wagholi, thereby for locating a regional distribution centre subject to a minimum achievable rental
owners towards residential development,
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
distance of five minutes, 30 minutes warehousing belt. For investors to achieve returns upwards
take another 4-5 years to become fully new PEB structures with higher load- 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
ROAD DISTANCE AND TRANSIT Road in another 4-5 years, travel time to demand for industrial warehousing `15 mn/acre and that it can be leased out
terms of connectivity and could emerge
the Pune-Solapur Highway and Pune- is expected to remain strong in this at a minimum rental value of `22/sq ft/
TIME TO IMPORTANT LOCATIONS The rental value is highest in Wagholi as an alternate warehousing hub in the
Bengaluru Highway will also reduce cluster as manufacturing companies month. Considering the current market
FROM THE WAGHOLI-RANJANGAON and decreases gradually as one moves 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 a rental value upwards of `20/sq ft/
warehousing activity in this cluster, as all here. Additionally, the accessibility to component of warehousing development,
Distance Km Travel time in Wagholi. However, due to the relatively month. Since the prevailing market price
the major manufacturing hubs are easily Ranjangaon MIDC and Chakan MIDC it influences the realisable returns to a
from: in mins better quality of construction in the accessible from here. will work in favour of this belt due to its of land on this belt ranges from `8-45
great extent. In order to understand the
remaining locations of this belt, the rental central location. The proposed Pune Ring feasibility of land cost for warehousing mn/acre, a warehouse developer can
Pune city 20 - 50 40 - 80
value of a large chunk of warehouses is 5.5 CHALLENGES Road will further boost the attractiveness activities, we have developed a land cost fetch annual returns upward of 24% if he
centre
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.
Nearest port 150 - 180 - 220 some of the old godown-type structures Rapid urbanisation and expansion of
Solapur Highway and Pune-Bengaluru land cost that an investor should ideally
(JNPT) 180 residential areas beyond Wagholi could Land parcels in locations such as
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 infrastructure. Hence, depending on the centres. expectation of 18% per annum and an
Municipal Corporation (PMC) could lower range in these areas and lease it at
location and quality of construction, the achievable rental value of `20/sq ft/
Ranjangaon 5 - 40 10 - 50 restrict the zoning of this cluster to The rapid urbanisation of this belt a rental value of `20-22/sq ft/month, can
rental value in this cluster ranges from month, the feasible land cost amounts to
MIDC residential development, thereby forcing could put further pressure on land rates aim to generate returns in excess of 22%
`14 22/sq ft/month. However, rent for `21 mn/acre. In other words, investors
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
industrial if they are able to purchase land at or
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
LAND RATES Rental value Investor return per annum
Khed City 40 - 45 60 - 70 these areas will witness a similar type of
urbanisation, leading to further exodus of (`/sq ft/month)
industrial area 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
Chakan- 14 - 22 16 - 26 transportation cost. As India prepares 22 25 21 18 15
WAREHOUSES
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
KEY CONTACTS
ADVISORY, RETAIL & HOSPITALITY CAPITAL MARKETS OFFICE AGENCY
GULAM ZIA RAJEEV BAIRATHI VIRAL DESAI
Executive Director - Advisory, Executive Director National Director
Retail & Hospitality rajeev.bairathi@in.knightfrank.com viral.desai@in.knightfrank.com
gulam.zia@in.knightfrank.com
FACILITY MANAGEMENT PROJECT MANAGEMENT
SAURABH MEHROTRA NELLIE SAMUEL DEBEN MOZA
National Director - Advisory Executive Director - Knight Frank Property Executive Director - Knight Frank Property
saurabh.mehrotra@in.knightfrank.com Services Private Limited* Services Private Limited*
nellie.samuel@in.knightfrank.com deben.moza@in.knightfrank.com
ADITYA SACHDEVA
Director - Retail
INDUSTRIAL & ASSET SERVICES RESEARCH
aditya.sachdeva@in.knightfrank.com BALBIRSINGH KHALSA
DR. SAMANTAK DAS
National Director
Chief Economist and National Director
balbirsingh.khalsa@in.knightfrank.com
samantak.das@in.knightfrank.com
BENGALURU HYDERABAD
Satish BN Vasudevan Iyer
Executive Director-South Director
satish.bn@in.knightfrank.com vasudevan.iyer@in.knightfrank.com
*Facility Management and Project Management services are offered by Knight Frank Property Services Private Limited which is a wholly owned subsidary of Knight Frank ( India ) Private Limited.
114 115
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RESEARCH
Dr. Samantak Das
Chief Economist and
National Director, Research
samantak.das@in.knightfrank.com
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Director
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PRESS OFFICE
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Director Marketing & Communications
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Knight Frank India research provides development and strategic advisory to a wide range of
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