Willing to invest long term capital
With GST and 100 per cent FDI, the Indian warehousing sector is attracting interest from stakeholders willing to put a long-term capital. Balbirsingh Khalsa, National Director – Industrial, Knight Frank India, gives an insight on the return dynamics in th
The Government of India has defined ‘logistics infrastructure’ to include a multimodal logistics park comprising an Inland Container Depot (ICD) with a minimum investment of `50
Crore and minimum area of 10 acres, cold chain facility with a minimum investment of `15
Crore and minimum area of 20,000 sqft and/or a warehousing facility with a minimum
`25 investment of Crore and minimum area of 100,000 sqft; institutional players will not invest in unorganised and small warehouses. They generally invest or set up large warehouses and professionally run logistics parks. Currently, the new facilities that are being built by institutional players are generally of large sizes, bigger than the minimum requirements as specified above and hence, they would stand to benefit from the infrastructure status.
INCREASING INSTITUTIONAL INVESTOR INTEREST
Investors had started taking cognizance of the opportunities in this sector much before the government could implement the reforms such as implementation of GST and granting infrastructure status to logistics industry including warehousing. Warehousing investment accounted for around 26 per cent of the total private equity (PE) investments into real estate during January 2014–January 2018. Around USD 3.4 billion (`22,100
crore) of institutional capital has flown into this sector during this period. The actual size of capital movement would be higher, as these numbers only cover the major investments by organised players. New developments or greenfield projects accounted for 67 per cent of the total investments followed by 27 per cent for acquisition of complete projects.
EQUITY IRR FOR DEVELOPMENT PROJECTS
Earlier, due to the unorganised nature of the industry the equity IRR for a development project was low. Demand for large warehousing spaces is likely to see steady increase as occupiers are now looking to move out of their smaller warehouses and consolidate their activities in larger facilities, which are presently in short supply compared to the demand. As more and more companies streamline their logistics networks, it would be observed that unorganised players or smaller organised players would consolidate, giving acquisition opportunities to large players. The industry is expected to witness a structural shift over the next 3-5 years. (The views expressed are solely of the author. The publication may or may not subscribe to the same.)
National Director – Industrial Knight Frank India Balbirsingh Khalsa