India’s warehousing sector set to touch new peak on rising demand

V Nagarajan

The year 2018 saw India’s warehousing sector coming of age, outshining some of the conventional real estate asset classes and attracting global investors. As per a study by JLL India Industrial Services, 2018 witnessed a 22% y-o-y growth in total stock in Grade A & B warehousing space in top eight cities at 169 million sq. ft compared to 138 million sq. ft., a year ago. Interestingly, absorption clocked an unprecedented 63% y-o-y growth to 31.8 million sq. ft. last year from 19.7 million sq.ft. in 2017. The robust growth in absorption reflects demand outstripping supply and vacancies dropping below 10% level for the first time ever.  

According to CBRE survey, while the overall pipeline for the sector is expected to be around 60 million sq.ft. till 2020, at least 22 million sqft of this supply is anticipated to be released by leading players. It is expected that logistics leasing activity will strengthen owing to consolidation/expansion by occupiers.  Leasing of warehousing spaces increased 31% year-on-year in the first half of 2019 to cross 13 million sqft.  

Globally, the warehousing, the newly emerged asset class, had attracted constant flow of investment totalling $530 billion over last 5 years. The sector observes investment from private equity players, institutional investors, equity funds, REITs, cross border investors etc.

India which is considered as an emerging market in this sector, has observed significant momentum in the past two years as global funds, private equity players continue to explore investment opportunities partnering with local developers and logistic players.

Significant interest seen in warehousing and logistics sector from foreign institutional investors. The investment objective comprises diversified models. The viability and risk management shall be the key decision points for exploring investment options. Development financial sustainability for a warehousing project depends on key parameters.

Why PE investment is gaining momentum in warehousing space development project?  GST and E-way Bill removes majority of bottlenecks in cargo storage and transportation. Infrastructure investment in road, rail and waterways escalates potential opportunity in efficiency enhancement. Increasing income level and customer preference increase acceptability of e-commerce/ retail chains and sectors.

In short, all these moves are opening up favourable opportunities in logistics sector for Indian economy. However, the sector is not yet mature and experiencing multiple risk which needs adequate attention and mitigation measures. The scenario will consolidate as investment momentum continues in near future. As a measure to manage financial sustainability for warehousing, the cost of land needs special focus for its recoverability risk considering competitive market environment. The hypothesis considered in this study, indicates cost of land below Rs.15 million could be a sustainable benchmark number for investment.

I have inherited ancestral property from my deceased mother. I have on my own a commercial property. Being the only child my father is willing to gift his portion to me. Can I sell both the properties and invest in a larger unit for family use in India? Does it require two capital gains account? Please guide us. Subhash Rane, Sharjah.

Legally, you are the co-owner of one property with your father besides sole owner of commercial property. You can sell both the properties in order to invest in a larger unit within the time limit prescribed to seek exemption from capital gains tax liability. You will have to observe whether the cost of the new residential property is higher than capital gains on sale of both the units. It is sufficient if you open only one capital gains account to deposit capital gains of both the properties before due date for filing income-tax return.  

I have paid half of the apartment cost to a developer in Mumbai but the project got stuck and it is almost five years now. There is no progress.  As there is no response from the developer, how do we ascertain the status of the project with RERA in place now? Imtiaz Kasmi, Dubai.

You can approach the RERA authorities in Mumbai to ascertain the status of the project and also lodge your grievance through online as well.  Simultaneously you can seek the help of consumer redressal forum for deficiency in service to handover the project at the committed time.  

A few developers are offering guaranteed rental income for their residential projects.  Is it advisable to invest in such apartments and on what basis are they committing such options? Abhayaraj, Dubai.

There is a surge in demand for rental housing in cities now where housing shortage is leading to high attrition levels causing concerns among corporates and MNCs. The location may be such that corporates may have committed bulk leasing option for apartments in the vicinity.  Your developer may have received firm commitment from the corporate for a prescribed lease period. You can scrutinise the documents and take appropriate investment decision.