Why aren’t there multi-tier warehouses in India?

At a GRI Club meeting in Mumbai, the leading investors and developers active in India gathered to discuss where warehousing stands today. 

One of the main headwinds the market was meeting was the scaling of the overall sector. The expected supply to be added for the next 5 years is 375 mn sq ft, however last year only adding 45 mn sq ft and this year is projected to be the same. The main barrier to growth was said to be the availability of land; however lack of talent and investors’ confidence in tier 2 and 3 assets is also stunting growth. 

Having said this, there are also positive trends taking place. Despite the shortage of land, industry stakeholders are able to close these deals faster. The government policies have definitely improved in the last 5 years, with less bureaucracy and overall improvement on the likelihood of getting land approval. 

 

Why aren’t there multi-tier warehouses in India?

In London, there are two/three multi-story warehouses. The logistics developers have outbid the residential developers for space in the residential areas to build multi-tier warehouses. There are a lot of G+ warehouses all across Europe, with Italy sporting some warehouses with 4 levels. If this is so common across Europe, why isn’t it the same for India?

Participants suggested that one reason is likely to be that the multi-tier warehouse would require a lot of fit outs, which is warranted against a longer lease of 15 years. The sizes of trucks and the way in which it is loaded would have to change, as the minimum space requirement for vehicle loading is larger for multi-tier buildings. 

Another is the simple fact that market players in India simply aren’t there yet. The infrastructure expenses to undertake these renovations are high. According to one investor, more maturity in the ecommerce market is needed before multi-tier makes sense for india. Developers reiterate it will definitely happen, the only question is when.

 

Tenant retention metrics

The stickiness factor in warehousing is very important. Taking Amazon for example - their spaces are incredibly tailored for them (spending around 3 times the cost on the build to suit aspects alone), and around half of their fit outs are immovable and permanent. This makes it very difficult for both Amazon to leave and for new tenants to move in afterwards. The other issue of course is that supply in Indian warehouses is few and far between, and there often isn’t enough supply in the local area to just relocate. One thing that landlords noted was that while typical lease tenure ranges from 3 to 5 years for a specialised warehouse, tenants are likely to stay much longer.

 

GRI Warehousing India 2020 will bring together the leading developers, investors, and financiers active in warehousing, logistics and light industrial on the 22 - 23 of April.

Article by Matt Harris