Meet India’s Largest Warehousing Landlord
Meet India’s Largest Warehousing Landlord
Luhari, a town situated in the Pataudi tehsil just outside of Delhi, lacks the Nawabi elegance of its past as Pataudi was once a princely state ruled by the nawabs, including the renowned cricketer Mansoor Ali Khan, and is currently headed by his actor son, Saif Ali Khan. Instead, the town is a dusty and bustling area filled with numerous trucks and local men hurrying towards massive warehouse buildings, some of which are among India’s largest.
In this area, you can find warehouses and logistics parks belonging to various companies such as Adani Logistics Park, which has a railway line specifically for transporting automobiles directly to the Mundra Port, SafeExpress, DB Schenker, TVS Supply Chain Logistics, and Chetak Logistics. Additionally, IndoSpace, the largest warehousing developer in India, has a grade ‘A’ facility covering 38 acres here, which is leased to logistics company Delhivery, as well as Mi Phones and Adidas.
Until a few years ago, most warehouses in India were small cemented godowns with inadequate lighting and ventilation. However, the introduction of the goods and services tax (GST) in 2017 has brought about a significant change in the industry. Developers have shifted from setting up small regional warehouses for tax benefits to constructing larger warehouses in strategic hubs. The Luhari industrial area, for instance, is situated in a prime location with convenient access to major consumption markets in Delhi and Gurugram. Furthermore, its close proximity to NH-48, also known as the Delhi-Mumbai highway, provides additional connectivity to the western part of the country.
Grade ‘A’ warehouses and logistics parks are the most advanced—they are bigger and taller; have superior construction quality; efficient material handling space; safety and security systems.
Across 10 cities in India, IndoSpace logistics parks, a collaboration between private equity firm Everstone Group, logistics and real estate investment company GLP based in Singapore, and industrial real estate company Realterm, has 50 high-quality parks. These parks are categorized as grade ‘A’ and cover a total of 57 million square feet.
The introduction of GST accelerated the growth of the warehousing industry, but IndoSpace logistics parks have been an established player in the market for over 15 years. As one of the first organized warehousing developers when it entered the market in 2007, it has played a significant role in shaping the industry over the past decade. According to JLL, a property advisory firm, India’s warehousing stock of grade A and B facilities has increased from 140 million sq ft in 2017 to 330 million sq ft today, largely due to the contributions of developers like IndoSpace.
“Warehousing development was much tougher when IndoSpace had started. There was hardly any precedent in India,” said Chandranath Dey, India head of operations, business development, industrial consulting and integrated logistics at JLL. “The first-mover advantage apart, what differentiated them was that they never compromised on quality even when the market wanted to be at a lesser rental. They picked the right locations and created demand centers,” he added.
Turns out, there were a few other things that the company got right as it progressed towards building India’s largest footprint of warehouses.
“We got the partnership right. There was a lot of exchange on how to build grade A warehouses, the way it was done in the US, for instance. That made the learning curve faster. We tapped the right capital. We also had a clear focus from the start. We wanted a pan-India strategy and a multi-city footprint,” said Rajesh Jaggi, vice chairman (real estate) at Everstone Group.
The US added 333.8 million sq ft of new warehousing space in 2022 alone—that’s higher than India’s overall warehousing stock as of now.
LAND IS EVERYTHING
Land is the foundation of any real estate project, and the biggest challenges faced by developers are obtaining approvals and acquiring suitable land. However, many warehousing developers currently lack significant land banks, which can create additional obstacles in their operations.
As competition intensifies in the warehousing industry, IndoSpace warehouses and logistics parks face significant competition from competitors such as ESR India, the Blackstone Group, which has launched a $900 million warehousing platform called Horizon Industrial Parks, and mid-sized players like Welspun One. IndoSpace’s expertise in land acquisition is considered a crucial factor in distinguishing itself from its rivals.
When IndoSpace built its first warehousing facility, of about 1.7 million sq ft, in the Chakan industrial area near Pune, it took its time. The company onboarded a local partner to do the groundwork and research before it finalized the land.
“When we are buying land, we have a robust process of assessing risk. It is not theoretical and we have learnt the hard way, from our mistakes. We can do it because of our early experience. Also, because we execute fast and have delivered so much, customers think of us first; so do landowners when they want to sell,” Jaggi said.
“After constructing 5 million sq ft annually in the last two years, this year, we are increasing throughput to 8 million sq ft. We have the land bank to construct 25 million sq ft. No one has that kind of land,” Jaggi stressed.
During the covid-19 pandemic, the company bought 300-400 acres and what it leased out was greater than pre-covid times.
The company leases out the warehouses it develops to third-party logistics, e-commerce, auto, engineering, electronics and retail firms. Amazon India and Reliance Retail are two of its biggest clients.
“During and after the covid pandemic, we saw rampant demand in warehousing as well as industrial sectors. Warehousing demand increased because of increased online and e-commerce play. The National Logistics Policy and Gati Shakti initiatives have given a huge boost to the warehousing sector,” Jaggi said.
The PM GatiShakti National Master Plan, which was launched more than a year ago, is often cited as India’s most significant administrative reform measure. This tool is comparable to Google Maps for infrastructure planning and provides a dashboard that offers a comprehensive view of bridges, roads, tunnels, pipelines, power transmission cables, forests, water bodies, and airports in any part of the country. This planning tool has the potential to significantly reduce delays in crucial projects.
SHOW THE MONEY
According to analysts, IndoSpace has managed to maintain a competitive edge for two reasons. Firstly, the company’s capability to consistently raise capital for expansion, and secondly, its ability to expand its operations while meeting construction and delivery targets annually.
IndoSpace has invested close to $3 billion, a mix of equity and debt, in assets under management across its investment vehicles.
IndoSpace is also a fund manager; it manages three funds. The first, IndoSpace Logistics Parks I (ILP I), raised $240 million and was launched in 2007. Subsequently, it raised ILP II ($340 million) and ILP III ($580 million). The company is currently raising ILP IV with a target fund size of $600 million. Canada’s biggest pension fund, CPPIB, has invested $205 million in the new fund this year. All this capital gives IndoSpace enough firepower to ramp up further.
Nonetheless, IndoSpace is not the only company investing big dollars. India’s logistics sector, overall, has seen a sharp increase in private equity investments. In 2022, warehousing investments totalled $1.9 billion, up from $1.3 billion in 2021, Knight Frank India, another real estate advisory firm, stated.
SMALL IS BIG
The major consumption hubs constitute the majority of India’s grade A and B warehousing footprint. Currently, more than half of India’s warehousing capacity is concentrated in the top eight cities, namely Delhi – NCR, Mumbai, Bengaluru, Chennai, Kolkata, Pune, Ahmedabad, and Hyderabad.
A new narrative is that of smaller cities. Data from Knight Frank shows that the secondary markets, or those that are outside the main metros, have recorded good volume growth.
Balbir Singh Khalsa, executive director (industrial & logistics) of Knight Frank India stated that while 51.8 million sq ft of warehousing space was leased in 2021-22 in the eight primary markets, through grade A and B warehousing, another 15 million sq ft was leased across India’s 13-15 secondary markets.
Industry experts point out that IndoSpace has latched onto this trend early. JLL’s Dey, for instance, said that the company has the maximum warehousing footprint beyond the metros. “IndoSpace did a lot of innovative thinking to expand to tier II cities. Whether it’s Sri City in Andhra Pradesh or Coimbatore, they chose the locations after research and preempted where future demand would come from,” Dey said.
In 2017, IndoSpace logistics parks identified Coimbatore, the second largest city in Tamil Nadu, as a potential location for their warehousing operations. Coimbatore was chosen due to its well-established road network, which provided convenient access to the large consumption markets of Bengaluru and Chennai, as well as the Kochi port. The city also had a thriving business ecosystem, ranging from heavy pump manufacturing to textiles. Accordingly, IndoSpace selected a 24-acre site for its warehouse facility in Coimbatore.
Over the next few years, IndoSpace expanded to locations in Anantapur (in Andra Pradesh) and Rajpura (Punjab).
Jaggi said that IndoSpace, and all other large warehouse developers, have historically focused on tier I because they are deeper markets and offer continuous growth. But due to covid-19 and the consequent change in shopping trends, demand is being generated from outside the metros.
“We closely follow trends in e-commerce and consumer preferences. Currently, we are studying tier II and tier III demand. In tier III, smaller cities in Uttar Pradesh, Himachal, Jammu & Kashmir are on our radar,” he said.
Apart from demand, tier II locations are cheaper. Sunil Nair, wholetime director of Snowman Logistics, a cold-chain logistics company, said that large warehousing is moving because the developers need large land parcels at lowest possible prices. “Also, tier II locations score better in terms of cost of operations and availability of manpower, compared to the bigger cities. E-commerce companies (which account for a large share of warehousing business) also prefer tier II locations,” he said.
WORRIES OF THE FUTURE
Acquiring land at competitive prices remains a challenging task, despite IndoSpace’s success in this area. The process is complicated by the fragmented nature of land holdings across states, as well as the varying laws on land acquisition that developers must navigate.
The rise in raw material costs post the Covid-19 pandemic is a second challenge faced by the company. This has made the construction of warehousing facilities expensive, and as a result, IndoSpace has had to reassess and redesign its buildings.
The warehousing industry is facing several challenges, including the tapering off of e-commerce demand in the last six to eight months. E-commerce demand had surged during the pandemic, leading some experts to believe that e-commerce companies may have overcommitted themselves. However, IndoSpace is still seeing strong demand from third-party logistics companies and industrial customers, which may help offset any decline in e-commerce demand. Additionally, competition in the warehousing sector is growing. Despite these challenges, IndoSpace is growing and expanding its presence.
“Competition keeps you on your toes. We are happy that there are more grade A developers now. So, there’s a level-playing field. But if the market gets crowded, there’s always a fallout. There could be consolidation or someone will pack up and leave,” Jaggi said.
As in other sectors that require significant capital to stay in business and flourish, in warehousing, too, the big fish is likely to feast on the small.