CBRE Research has recently unveiled Indian industrial and warehousing report in September 2021. As per the report the Leasing of warehousing spaces is likely to touch nearly 100 million sq ft by 2023 after witnessing a historic peak of 32 million sq ft in 2019, as India is developing as a preferred investment destination for global manufacturers – especially those deploying a ‘China plus One’ strategy for diversifying their supply chains. The report has acknowledged that, India’s prospects as an alternative supply-chain destination seem vastly improved due to continued focus on global standards.
The report further said that when looked at against the backdrop of the pandemic, India’s inherent advantages – our large pool of skilled and relatively low-cost talent, supportive export-oriented policies, and extensive regulatory backing have remained intact. Moreover, the government’s attractive tax sops and policy initiatives launched in the wake of Covid-19 to ease investment norms helped the manufacturing sector recover to a large extent after the first wave of the pandemic, as was evident from an improvement in indicators such as Index of Industrial Production (IIP) and Purchasing Managers Index (PMI).
CBRE Research has identified five pillars that primarily define a country’s potential to contribute to the global manufacturing sector including favourable demographics, exports/imports, global competitiveness index, logistics performance index, and ease of doing business.
India is home to one of the youngest populations in the world, which if channelled correctly, has the potential to achieve significant productivity gains, thereby bolstering economic growth. India’s favourable demographic dividend clearly indicates that it would continue to have one of the lowest ‘aged’ population and the highest ‘working age’ population even in the next 30 years.
According to the report, India’s position as an attractive investment destination has improved over the past few years – out of 141 markets, it was ranked 68th on the World Economic Forum’s (WEF) Global Competitiveness Index, 2019. The country is well ahead of several emerging economies and is even comparable with a few developed ones when it comes to parameters such as market size, innovative capabilities and macroeconomic stability. Also, the implementation of the Goods and Services Tax (GST), upgradation of the power network and increased focus on renewable energy led to an improvement in the transport and power infrastructure parameters.
According to the International Institute for Management Development’s (IMD) India’s World Digital Competitiveness Ranking position has improved from 53 in 2016 to 48 in 2020. It is ranked as 11th among APAC markets. All this is due to improvement in technological knowledge and future readiness parameters. The govt’s digital push through ‘Digital India’ and ‘Industry 4.0 are likely to give further fillip to India’s digital footprint.
Sustained policy reforms, integration of several procedures and amendments to the Insolvency and Bankruptcy Act led to a steady rise in India’s EODB ranking since 2014. This was also reflected in increased global investor interest over the same time period: the manufacturing sector in India alone attracted about $121billion of FDI equity inflows over the past six years.
In order to focus on improving the integrated development of the logistics sector, the government formed a separate logistics division under the Ministry of Commerce in 2017. This division concentrates on policy changes (such as the Draft National Logistics Policy), tech adoption (such as developing a national logistics information portal and creating an online logistics marketplace) and removing regulatory bottlenecks. Due to continued reforms in the logistics sector (such as the passage of GST and grant of infrastructure status) and focus on infrastructure development, India ranked at 44 on the Logistics Performance Index (LPI) among 167 markets in 2018. In a further boost to the sector, during the recent budget speech, the government announced fund infusion for creating dedicated freight and economic corridors, tech to enhance customer interfaces, support to more Indian flagships and commitment towards transitioning to a zerocarbon transport regime.
The government formulated the Foreign Trade Policy (2015- 2020), Rebates on Duties & Taxes on Exported Products (RoDTEP Scheme), Exports Oriented Units Scheme, etc. to provide incentives for merchandise exports. These incentives were framed keeping in mind larger initiatives such as Make in India and Aatmanirbhar Bharat. Further, to offset the adverse impact of the pandemic on exports, the government also announced incentives such as fund infusion / emergency credit line guarantee to the Micro, Small & Medium Enterprises (MSME) sector, custom duty cuts on certain products, labour reforms, skill development programmes, etc. in 2020. These measures resulted in improved stakeholder sentiments, thereby narrowing the trade deficit. Listed below are the top five trading commodities and destinations for India in FY2021:
Warehouse Supply Trends in India
Supply addition over the past five years crossed 75 million sq. ft. in India, with key cities witnessing growing launches of warehouses by global / national developers over the recent years. The share of project completions by prominent global / national developers in the total supply has increased to more than 20 per cent since 2019. This share was lower than 12 per cent until 2018. We are also witnessing a growing interest in diversification of warehousing portfolios among developers by increasing the share of first- and last-mile warehouses. There have even been select instances of developers exploring tier II and III cities as options for their warehouses.
Investments in the I&W Sector in India
The sector underwent a metamorphosis since 2018 in terms of the quality of assets, mode of operations and type of investments in India. Its ongoing evolution has caught the attention of global investors, especially because of the size of the opportunity offered by this sector as quality warehousing supply still vastly lags demand.
Telangana as bright spot in I&W space
The CBRE report has identified Telangana State as bright spot in India’s industrial and warehousing future. It is emerging as an active player on India’s Industrial & Warehousing (I&W) landscape. Some of the key policies that fuelled the state’s rapid industrial growth included Industrial Policy Framework for the State of Telangana, 2014; Telangana State Industrial Project Approval and Self-Certification System (TS-iPASS), 2014; Telangana Life Sciences Policy, 2015; and Telangana Electronics Policy 2016. The Government of Telangana State (GoTS) also recognised 14 sectors as thrust areas, in which investments would be accorded a higher priority over others. As a result of these proactive initiatives, Telangana today is one of the fastest growing states in India, accounting for a share of about 5 per cent in the national GDP.
Warehouse Demand Trends in Hyderabad
Warehouse space take-up in Hyderabad was about 11 million sq. ft. during 2018-H1 2021. The leasing was predominantly concentrated in semi-investment grade properties in the city. However, Western and Southern Corridors witnessed a rise of warehouses launched by national developers post 2019. Occupier preferences thus slowly started to shift towards investment-grade warehouses in recent years
Warehouse Rental Values in Key Micro-Markets of Hyderabad
During H1 2021, rental values increased by about 5 – 14% across micro-markets in Hyderabad, primarily due to increasing demand and development of better-quality warehouses.
Top Three Sectors Leasing Warehouse Space in Hyderabad
Space take-up during H1 2021 was mainly driven by retail players who were seeking expansion opportunities in the Northern Corridor. They were followed by 3PL and e-commerce companies expanding across micro-markets.
The future growth of India, and by extension of Telangana, is likely to be driven by the manufacturing sector – which would hinge upon ‘clustered’ industrial growth. Keeping this in mind, the GoTS has been developing / promoting various industrial clusters across the state – with an objective to further boost industrial production catering to regional and global demand. The Telangana State Industrial Infrastructure Corporation (TSIIC) is the nodal agency for industrial park development and upgrade of existing clusters across the state.
The future prospects of the state are expected to be further driven by growing investments in I&W sector and promotion of cluster developments in and around its capital – Hyderabad. In this report, the following key emerging trends that are likely to accelerate I&W sector’s growth in Telangana revealed.
•Favourable regulatory and infrastructure initiatives: Continued focus on policy reforms viz. TS-iPASS and dedicated sectoral policies, etc.; infrastructure initiatives such as the regional ring road, proposed industrial corridors, etc.
•Expansion of the warehousing sector: Growing warehousing demand due to the state’s rapidly expanding industrial base and increasing footprint of e-commerce and 3PL players in Hyderabad.
•Acquiring a tech edge: Tech enhancement of warehousing spaces / supply chain elements to become more widespread through increased application of automation, AI, IoT, etc
Source: CBRE Research, Q3 2021
