Indian warehousing faces stiff challenge due to surging land prices

Increasing land prices and unavailability of suitable land parcels with good connectivity are creating stiff challenges to the Indian warehousing and logistics sector.

The increasing competition for a suitable land parcel with different state-specific land laws is increasing complexities for institutional funds and warehouse developers.

CEO of LOGOS India, Mehul Shah, said that any new institutional entrant would result in a 1% increase in the existing good land. So, if there are three more players, the prices will rise by 3%.

The yields in warehousing assets have dropped to 7.5% from 8.5% in the last two years, as more global players are investing in such assets amid the Covid-19 pandemic.

The Indian warehousing sector has been witnessing increasing interest from institutional investors, with over $5 billion funds committed by private equities and pension funds such as Canada Pension Plan Investment Board (CPPIB), Warburg Pincus and Ivanhoe Cambridge over the past five years.

The demand for the warehousing and logistics sector has stood out in the past few quarters, with an expansion of e-commerce and growth of third-party logistics.

India's Grade-A average rental of $36 per sq m per annum or Rs 21 per sq ft per month is 50-55% lower than the Asia Pacific region's average of $75-80 per sq m per annum.

The warehousing and logistics of the real estate sector, facing challenges due to the Covid-19, is expected to gain momentum and attract more investment in 2022.

The transactions in the warehousing sector are estimated to increase at a compound annual growth rate (CAGR) of 20%, from 31.7 million sq ft in 2020-21 to 45.9 million sq ft in 2022-23.

According to Jones Lang LaSalle (JLL) India, the share of e-commerce entities in transaction volume is projected to increase to 36% from 31% during this period.

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