Improved investment flows into logistics sector envisaged
Improved investment flows into logistics sector envisaged
March 20, 2014
Rentals for warehousing space likely to remain under pressure in short to medium term
New Delhi, March 19, 2014:Investment inflows to the logistics sector improved, following India’s economic impetus in the second half of 2013. At the same time, however, rental values remained under pressure across certain industrial markets, according to CBRE’s latest report, India Logistics Market View – H2 2013.
Demand for logistics and warehousing space was largely driven by the Fast Moving Consumer Goods (FMCG) and third party logistics (3PLs) sectors; while engineering and manufacturing firms adopted a wait-and-watch approach. Leasing and transaction activity declined across most warehousing micro-markets during the second half of 2013. Due to weak leasing sentiments, rental values either remained stable or witnessed a marginal decline across markets. The Northern Corridor of Hyderabad, Bhiwandi near Mumbai, the Southern Corridor of Bangalore, and the Northern Industrial Belt of Chennai were some of the preferred micro-markets among FMCG firms in 2013. Kolkata also witnessed small-to-medium sized transactions along the NH-2 (Grand Trunk Road) and NH-6 stretches, primarily from 3PLs and manufacturing firms.
Commenting on the findings of the report, Mr. Anshuman Magazine, Chairman and Managing Director, CBRE South Asia Pvt. Ltd. said, “The general economic slowdown and weak consumer sentiments also impacted the logistics and warehousing sector. Leasing remained low; and the size of space take-up was limited too, since very few large-sized transactions were recorded during 2H 2013. Going forward, transaction activity is likely to remain subdued, as companies defer their investment decisions till the prevailing uncertainty in the national political situation finds clarity, following the General Elections.”
Delhi observed strong demand for warehousing space; consistent demand levels ensured a 10-11% rental increase across all micro-markets within this region during this period. Gurgaon NH-8 (Haryana) remained the most preferred market and observed demand from automotive and logistics companies for setting up large warehouse developments and distribution centers. The market is expanding geographically with new developments coming up along NH-71A from Kulana to Jhajjar. Locations such as Dungarwa, Raliawas and Rewari (Daruhera) are also emerging locations for warehousing in this region. The deployment of the New Delhi Mumbai Industrial Corridor (DMIC) project and the execution of pending infrastructure projects are likely to further boost the warehousing market in Delhi NCR.
Bhiwandi in Mumbai witnessed steady demand from third party logistics players, FMCG and pharmaceutical majors. Of late, the Mumbai Metropolitan Regional Development Authority (MMRDA) has proposed various infrastructure projects that are likely to push up warehousing demand in the region. Demand for quality warehousing from cash-and-carry retailers keen on expanding their footprint in the Western region is likely to increase in the coming few months. Owing to high land prices in Bhiwandi and Panvel, most firms planning to set up independent warehouses are considering relocating to the Western Suburbs and Nashik on NH-3.
In addition, the Karnataka Government is coming up with a logistics park in close proximity to the Bangalore International Airport to facilitate cargo and container movement, which is expected to boost demand along the Northern Corridor of Doddaballapur, Bagalur, Devanahalli and Bellary Road. Bangalore is likely to attract strong demand for warehouse space from 3PLs, FMCG firms and retail majors in the coming months. BTS facilities will continue to remain the preferred mode of development for warehouses.
“Enquiry for warehousing space is likely to improve, in the wake of recent policy amendments aimed at encouraging Foreign Direct Investment in retail. Measures taken to improve investment flows into logistics infrastructure will also lead to the development of global standards for warehousing in the country. But in the short-to-medium term, new supply addition is likely to remain constrained; and rental values are expected to remain under pressure, especially in locations such as Chennai’s North Industrial Belt, and Panvel in Mumbai,” added Mr. Anshuman Magazine.
Recent government measures to increase the manufacturing sector’s share in GDP included approval of the Modified Industrial Infrastructure Up-gradation Scheme (MIIUS) with an investment outlay of INR 10,300 million. The scheme for an integrated cold chain, value addition and preservation infrastructure with an investment outlay of INR 7,500 million has also been approved. Additionally, to meet the growing requirement of warehousing in the country, the Reserve Bank of India formulated the NABARD Warehousing Scheme 2013–14 (NWS), which envisages extension of loans to public and private sectors for construction of warehouses, silos, cold storages and other cold chain infrastructure. Policy bottlenecks such as delays in project approvals and challenges to infrastructure debt funds are also being addressed. These measures will enable the development of common infrastructure, create additional warehousing capacity and encourage further investment.
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
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