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August 2015
Indian logistics - Taking giant leaps forward
Indian logistics - Taking giant leaps forward 3Indian logistics - Taking giant leaps forward2
IntroductionThe Indian Logistics Sector has in recent times been in a transformation mode. Against the backdrop of expansion in the economy, the logistics industry has assumed a pivotal role in reducing costs by improving efficiency and increasing competitiveness. The interplay of infrastructure, technological advancements and newer types of services associated with this industry is likely to define how it is going to help the customers in reducing costs with the provision of efficient services.
Interestingly, likely change in government taxation policies and regulation of service providers would be the most important factors in the process of development of the industry. That apart, growth of overall logistics network from the perspective of trade would be essential in assisting Government of India’s ‘Make in India’ strategy.
In this paper, we tried to establish our views on the overall logistics sector dynamics, location and cluster level analysis across top Indian cities while estimating the impact of e-commerce on the industrial real estate sector and effect of future Government taxation changes on the sector. Subsequently, we have treated logistics related properties as a separate and individual asset class within the industrial real estate sector.
Indian logistics - Taking giant leaps forward4
1. Evolution of warehousing in India
The integration of the fragmented components of the logistics sector (such as services, transportation, packaging, tracking, etc.) and the move from the use of traditional “godowns” to functional warehouses has, indeed, made the logistics sector much more efficient.
Evolution of Warehousing in India - From Godown to Distribution Centre
Note: There is no defined specification for the type of warehouses in India. JLL through its varied experience in the field and undertaking studies on the best in the market has listed out specifications for the Grade A,B & C warehouses. Specifications are not universal for warehouses and may change from location to locationDisclaimer: While every effort has been taken to provide authentic data and analysis, the consultant or any of its employees are not responsible for any loss, major or minor incurred on the basis of the information and analyses provided or are liable to any damages in any form or shape.
Figure 1: Growth of Indian logistics sector
PARAMETERS GODOWNS (Grade C) WAREHOUSES (Grade B) DISTRIBUTION CENTER (Grade A)Clear Height 10 - 12 ft | 3 - 4 m 20 - 24 ft | 7 - 8 m 37 - 42 ft | 9 - 13.5 mFlooring Indian Patent Stone (IPS) VDF with Steel and M20 Concrete FM Global II Compliance Laser Creed FloorsFloor Load 2 - 3 Tons / sqm 5 - 7 Tons / sqm 8 - 10 Tons / sqmType of Structure RCC & fabricated steel structure Steel structure or pre-engineered structure Pre-engineered structure
Equipment Manual operation Loading platform, fork lifts, dock levellers etc.
Dock levellers, mechanized loading, conveyors, cranes etc.
Docking N/ALess than 1.2 m plinth height, limited set back on docking side, Canopy only if required.
1.2 m above Ground level, Docking platforms with 5 to 6.5 m Canopy, 25 to 30 m set back on docking side
Fire Fighting None With or without fire hydrant with required DG’s and Water storage system.
Sprinklers, fire hydrants with required DG & Water Storage system.
Sky lighting < 4% of roof area 4 - 5% of roof area 4 - 5% of roof area
Air Circulation N/A 5 to 6 Air Changes with Ridge & Turbo Ventilators
5 to 6 Air changes with Ridge Monitor, Louvers and Forced Ventilation Mechanism
Infrastructure Septic Tanks Septic Tanks, Asphalting STP, Insulation, D.G., Drainage Systems, Concretised Roads and setbacks
Layout 90% or above ground coverage
70 - 80% ground coverage with limited setbacks and parking facilities
50 - 60% ground coverage with sufficient all around set backs and parking facilities
USD 200 billion
2020E
Source: CII Institute of Logistics, India, and extrapolated by JLL
USD 110 billion
2014
RCC: Reinforced Cement ConcreteMS: Mild SteelSTP: Sewage Treatment PlantVDF: Vacuum Dewatered Floor
Indian logistics - Taking giant leaps forward 5
Logistics Performance Index (LPI), 20141 Score: 3.08 (rank: 54/160) Score: 3.92 (rank: 9/160) Score: 3.53 (rank: 28/160)
Logistic cost as % of GDP 13% 8.5% 18%
Different sectors’ share of the logistic cost
29%
8%
63%22%
3%
67% 45%
18%
52%TransportWarehousingOthers
Major industries driving the logistics sector
Auto components, PharmaceuticalsCement, Textiles
Food processing and beveragese-commerce
Metals, Electronics, CementTextiles
● Inadequate road network● Loss during transportation
● High employee cost ● High toll charges● Shortage of trained manpowerMajor challenges
2. Scenario in Indian logistics
Sources: Multiple sources (World Bank database, JLL Research, etc.)
1The LPI is an interactive benchmarking tool created to help countries identify the challenges and opportunities they face in their performance in trade logistics and what they can do to improve their performance. It is measured by the following parameters: customs, infrastructure, international shipments, logistics quality and competence, tracking and tracing, and timeliness (World Bank). As per World Bank report, 2014, India, ranks 54 out of 160 countries on LPI
Indian logistics sector has come a long way to its current growth state. We have tried to compare the same with one developed economy (United States) and a similar developing economy (like China) to understand where does it stand.
PARAMETERS CHINAUNITED STATESINDIA
Although it has come a long way, India’s logistics sector still has a lot more to achieve in order to stand out in the global market. This can be done primarily by the gradual improvement of two major aspects, e.g., transportation as well as warehousing and storage.
GROWTH OF INDIAN lOGISTICS
IMPROVEMENT OF TRANSPORTATION
IMPROVEMENT OF WAREHOUSING & STORAGE
Indian logistics - Taking giant leaps forward6
2.1. Transport infrastructure as backbone
2Source: Building India: Transforming the nation’s logistics infrastructure, McKinsey
Transportation, the largest stakeholder in the logistics pie in India, is primarily by roadways, with nearly 57 percent of the goods transported by volume via road2. Thus, India depends on the costliest mode of travel (road) for majority of its domestic freight transfers. Although India has the 2nd largest road network (4.68 million kms as per CIA, World FactBook) in the world after USA, in terms of quality of road, its lags significantly behind others.
However, a lot is proposed in India for infrastructure development, which is clear from the planning commission documents and proposals.
Figure 2: Cost efficiency for different modes of transport
Source: Multiple sources (NITI Aayog, Govt. of India, JLL Research and REIS, etc.)
120
100
80
60
40
20
0
25
Road
80
Rail
Cost
efficie
ncy i
n ton
ne-km
pe
r litre
of fu
el
2.2. Robust infrastructure in making
Note: *Total investment number includes all the sectors apart from the ones highlighted. Other sectors are telecommunications, irrigation, storage, and oil and gas pipelines.Source: 12th five-year plan (2012–2017), Planning Commission, Govt. of India (now known as NITI Aayog). Exchange rate assumption: USD 1 = INR 62.5
ROADWAyS SEA PORTS AIRPORT POWERRAIlWAyS
Inv - USD 146 Bn Inv - USD 102.9 Bn Inv - USD 14 BnInv - USD 31.6 Bn Inv - USD 291.2 Bn
12th Plan target- 1,000 km of
expressway; 10,000 km of NH; 19,200 km of road
up gradation
Investment of about INR 9.14
trillion is proposed during the 12th Five
Year Plan
New schemes for roads in Rural &
North East areas
Daily carrying 30 Mn passengers
in over 19,000 trains
Increase port cargo handling Capacity to 3200 MT by 2020
AAI targets to bring 250
operational Metro airport till 2020
6th largest in the world in Power
Generation
Energy generation capacity (Sept, 2013)
- 228.7 GW
Further planned to add 88.5 GW by
2017
Investment of INR 18.2 trillion
declared during 12th Five Year Plan
USD 81 Bn investment to
upgrade non-metro airports
Investment of INR 877 billion during 12th Five Year Plan
100% FDI for greenfield airport
Capital Dredging of 14 m by end of
12th Plan
Investment of INR 1.97 trillion during 12th Five Year Plan
100% FDI in construction &
maintenance of ports & harbours
Increase Rail freight share
by 2% till end of 12th Plan
Attracted FDI worth INR 349.4
billion till May, 2014
Investment of INR 6.43 trillion during 12th Five Year Plan
Total Investment Proposed in 12th Five year Plan - USD 892 Bn*
Inland Water
105
Indian logistics - Taking giant leaps forward 7
3. Storage and warehousing
Storage and warehousing is the second most important component in India’s logistics sector. With the modernisation of the logistics supply chain, warehousing has become a critical function, and today, warehouses not only provide safe custody for goods, but also offer value-added services, such as sorting, packing, blending and processing. Based on the type of goods stored, storage and warehousing can be categorised under five major heads.
INDUSTRy/ RETAIl
WAREHOUSING
FedEx, DHL, Kuehne+Nagel, Safexpress, Continental Warehousing, Indo Arya, Allcargo, Nippon Express
Driven by high retail demand and consumer appetite. Currently on most promising growth trajectory
lIqUID STORAGE
IMC Ltd., Vopak India, Indian Oil Tanking, Kesar Terminal, Ganesh Benzoplast, Aegis Logistics, Sealord.
Mainly refers to the storage of liquid bulk such as crude, petroleum products, chemical and edible oil
COlD STORAGE
Gati Kausar, Snowman, Cold Star, ColdEx, Kelvin Cold Chain, RadhaKrishna Foodland, MJ Logistics, Dev Bhumi Cold Chain
Storage of perishable goods. High potential of growth targeting un-broken cold chain
CONTAINER STORAGE
Container Corporation of India (CONCOR), APM Terminals, Arshiya, AllCargo
Primarily targeting export-import led container handling
AGRI-WAREHOUSING
FCI, CWC, SWC and other government agencies apart from private players like Adani Agri Logistics, Star Agriwarehousing, Shree Shubham Logistics, Ruchi Infrastructure, Guru Warehousing, Paras
Targeted to store agricultural goods with larger shelf life
Indian logistics - Taking giant leaps forward8
4. Major demand drivers for logistics
MANUFACTURING-lED DEMAND• Indian manufacturing GDP is approximately 15% of the total and stood at INR 8.6 trillion in 2013–14• The manufacturing sector is growing at a compound annual growth rate (CAGR) of 7.3% since the past nine years• The "Make in India" initiative is expected to boost the manufacturing sector to 10% growth• The manufacturing sector spends 2-20% of its revenue on logistics
CONSUMPTION-lED DEMAND• Per capita income - Growth of 10.4% in 2013-14• Boomimg e-commerce industry• E-commerce industry to reach USD 20 billion to USD 25 billion by 2017• The fast-moving consumer goods (FMCG) market is also gaining traction
AGRICUlTURE-BASED DEMAND• India is the second largest producer of vegetables and fruits after China• Because of the lack of infrastructure and broken cold chain, more than 30% of agri-produce is lost in fields post harvesting • According to a report by KPMG and the Associated Chambers of Commerce and Industry of India (ASSOCHAM), there is a shortage of more than 10 million tonnes of cold storage for agri-produce in India
EXIM-BASED DEMAND• In 2013-14, all major and non-major Indian Ports in India, as listed by Indian Ports Association (IPA) handled about 972 Million Metric Tonnes (MMT) cargo.• EXIM cargo is expected to increase to 2,800 MMT by 2020• Containers handling is growing at about 11% CAGR
In India, export/import (EXIM) cargo, agriculture and manufacturing (textiles, auto and auto ancillary) have been identified as the traditional growth drivers to the demand for warehouse space. Meanwhile, new growth drivers such as organised retail, information technology (IT), telecommunications and healthcare can be considered as high potential sectors. The growth these drivers bring, coupled with the advent of technological advancements, is likely to soar the demand for organised and automated warehouses going forward. The following are the major demand drivers in the warehousing sector:
Indian logistics - Taking giant leaps forward 9
5. Primary warehouse locations
We have tried to identify the top/primary warehousing hubs in India based on three major factors:
Notably, eight top cities including Ahmedabad, Bangalore, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune together contribute close to 42 percent of the country’s total GDP3. And as a result, they can be considered as the country’s primary warehousing hubs. The Indian warehousing sector is gradually shifting from unorganised to organised mode, and more high-quality warehouse spaces are being developed. These high-quality warehouses, typically coined as Grades A and B warehouses, require automation and safety in operations and would be equipped with vertical racking, reach trucks, automated conveyor systems, and fire sprinkler and hydrant systems, among others.
Consumption-led locations: Primary locations are able to cater to about 60% of Indian demand within 12-hour drive time.
Seaport-led locations: The locations are strategic being
in proximity to sea ports which can cater to the Export-Import (EXIM) trade generated through
the major seaports in India.
Facilitator-led locations: These locations have high-level requirement of skilled manpower, support from government policies, infrastructure availability and presence of warehouse stock.
3Source: NITI Aayog, Government of India
CONSUMPTION lED
SEA PORT lED
FACIlITATORS lED
AhmedabadPune MumbaiBangalorelOCATION ChennaiHyderabadKolkataDelhi NCR
Indian logistics - Taking giant leaps forward10
Source: JLL, India. Note: The figures are cumulative warehouse supply in million square feet and are only for Grades A and B organised warehouse spaces.
Primary Warehousing Hubs Figure 3: Top warehousing hubs in India
Figure 4: Cum. Grade A & B Warehouse space in 8 Primary locations
120.0
100.0
80.0
60.0
Grad
e A &
B W
areh
ousin
g Spa
ce in
Mn s
qft
40.0
20.0
4553
63
79
97
37
0.020142010 2011 2012 2013 2015E 2016E
116
AHMEDABAD
DElHI NCR
KOlKATA
HyDERABAD
MUMBAI
PUNE
BANGAlORE
CHENNAI
Source: JLL, India
Golden Quadrilateral
North-South Corridor
East-West Corridor
Western DFC Line
Eastern DFC Line
International Airport
Domestic Airport
Major Sea Port
These eight city hubs put together have a cumulative supply of organised Grades A and B warehouses to the tune of 97 million square feet in 2015, recording a remarkable 21% Compounded Annual Growth Rate (CAGR) between from 2010 - 15. The growth thrust in the e-retail business and major companies realigning their supply chain network to get “goods and services tax (GST)-ready” is expected to drag the growth northward in 2016 to around 116 million sft.
Indian logistics - Taking giant leaps forward 11
Kheda
Naroda
Sour
ce: J
LL
MAjOR GROWTH CORRIDORS
• Ahmedabad is home to several manufacturing sectors, including pharmaceutical and automobile (and its components).
• A moderately large consumer market and a growing manufacturing base have made Ahmedabad one of the warehousing hubs in India.
• Ahmedabad’s connectivity to Mumbai and Delhi and its location in the Delhi Mumbai Industrial Corridor (DMIC) has given an impetus to the warehousing sector.
• Historically, warehouses were developed along National Highway 8 (NH 8) (Aslali and Kheda), which connects Ahmedabad to Mumbai, where almost all major FMCG players have their warehouses.
• However, more recently, locations such as Changodar and Bavla along NH 8A (connecting Rajkot) have emerged as preferred locations, with FMCG and e-commerce players taking up Grades A and B warehouses in this corridor.
4Census of India, 2011
WAREHOUSING CORRIDORS - AHMEDABAD
Major locations
Land values (INR crore/
acre)
Monthly rents (INR per sq ft per
month)
12-month outlook
Changodar 3-4.5 15-18
Bavla 1-1.2 12-14
Aslali 1.1-1.3 10-15
Kheda 0.9-1 10-12
Naroda 4.3-6 12-24
Sanand 0.9-1.2 15-17
Kadi-Kalol 1.4-1.75 12-15Note: Rental ranges are indicative only. Actual rentals vary as per the specifications provided in a specific property.
Source: JLLStrong/ marginal decrease Stable Marginal/strong increase
Changodar
Bavla
Aslali
Kalol
Sanand
MAjOR TRANSACTIONSLocation Tenant Size (sq ft) Rent (INR/sq ft/month)
Changodar e-commerce 1,20,000 15Changodar e-commerce 55,000 15Changodar e-commerce 53,000 18Changodar 3PL 40,000 15.5Aslali Telecom 28,000 10
A H M E D A B A D
Population in 2011 (Ahmedabad Metropolitan Region)4
million
*Vacancy, 2015
million sq ft
*Total WH supply, 2015
million sq ft
AHMEDABAD - WAREHOUSING MAP
*Considers Grades A and B supply of warehousing space only
Indian logistics - Taking giant leaps forward12
MAjOR GROWTH CORRIDORS• Bengaluru, considered as the “Gateway to South India,” stands out as a major warehousing hub in India. • Quality warehouse supply is available at reasonable costs and relative proximity to high-demand centres (such as Hyderabad, Chennai,
Cochin and Mangalore), helping the warehousing industry in the city to grow. • Most of the warehousing demand is expected to come from the eastern and north-eastern quadrants of Bengaluru, namely Old Madras Road
(OMR) and areas in its vicinity such as Soukya Road, Siddhalghatta Road and Chintamani Road. • Proximity to the airport, NH 207 and presence of an inland container depot (ICD) makes OMR a hot warehousing destination in Bengaluru. • Prominent occupiers include Decathlon, Kuehne + Nagel, Safexpress, DHL and Lifestyle Group.
B A N G A l O R E
WAREHOUSING CORRIDORS - BANGAlOREMajor locations Land values (INR crore/acre) Monthly rents (INR per sq ft per month) 12-month outlookTumkur Road 1-2.5 10-18
Hosur Road 3-5 18-22
Mysore Road 1.5-3 17-20
OMR 1.5-2.5 16-20
Sour
ce: J
LL
MAjOR TRANSACTIONSLocation Tenant Size (sq ft) Rent (INR/sq ft/month)
T. Begur, Tumkur Road 3PL 2,95,000 17.5Soukya Road e-commerce 2,00,000 17Bommasandra, Hosur Road e-commerce 175,000 19Siddhalghatta Road e-commerce 147,000 17.5Bidadi, Mysore Road Furniture Co. 60,000 15
million
Population in 2011 (Bangalore Metropolitan Area)4
Tumkur
Hoskote
Dabaspet
Narsapura
BommasandraAttibeleBidadi
Peenya
BANGAlORE - WAREHOUSING MAP
*Considers Grades A and B supply of warehousing space only
4Census of India, 2011
Note: Rental ranges are indicative only. Actual rentals vary as per the specifications provided in a specific property.
Source: JLL
Strong/ marginal decrease
Marginal/strong increase
Stable
million sq ft
*Total WH supply, 2015
million sq ft
*Vacancy, 2015
Indian logistics - Taking giant leaps forward 13
MAjOR GROWTH CORRIDORS
• The warehousing industry in Chennai is driven by its large manufacturing base, huge consumer base and presence of major ports, e.g., Chennai and Ennore ports.
• Places such as Sriperumbudur and Oragadam have warehouses primarily for the auto and ancillary manufacturing units. Low availability/supply of warehouses in these locations has pushed the rentals high in these corridors.
• One of the most promising warehousing corridors in Chennai is along the Periyapalayam Road in the Red Hills and Puzhal areas, with presence of large box warehouses, including one of the largest in India at 0.55 million square feet (single-box warehouse).
• Periyapalayam Road has registered the largest supply of Grades A and B warehousing supply in the city, with Periyapalayam Road in presence of major players across FMCG, e-retail and logistics 3PL, such as Hindustan Unilever and Future Supply Chain.
4Census of India, 2011
Note: Rental ranges are indicative only. Actual rentals vary as per the specifications provided in a specific property.
Source: JLL
WAREHOUSING CORRIDORS - CHENNAI
Major locations Land values (INR crore/acre)
Monthly rents (INR per sq ft per month) 12-month outlook
Irungattukottai 3-4 20-26
Sriperumbudur 2.25-3 22-25
Oragadam 2-2.25 23-28
Marai Malai Nagar 4.5-6 24-29
Cholavaram-Red Hills 2.5-3.6 18-22
Periyapalayam Road 2-2.50 16-18
Tada, Andhra Pradesh (AP) 0.60-0.80 18-22
Strong/ marginal decrease
Marginal/strong increase
Stable
Oragadam
Irrungattokotai
Sriperumbudur
Cholavaram
Periyapalayam
Marai Malai Nagar
C H E N N A I
CHENNAI - WAREHOUSING MAP
Population in 2011 (Chennai Metropolitan Region)4
million
*Vacancy, 2015
million sq ft
*Total WH supply, 2015
million sq ft
MAjOR TRANSACTIONSLocation Tenant Size (sq ft) Rent (INR/sq ft/months)
Periyapalayam Road 3PL 1,92,000 16Durainallur Soft Drink Co. 1,60,000 12.5Oragadam Engineering Co. 1,00,000 27
Maraimalainagar Document Management Co. 70,000 26
Periyapalayam Road e-commerce 60,000 16 Sour
ce: J
LL
*Considers Grades A and B supply of warehousing space only
Indian logistics - Taking giant leaps forward14
4Census of India, 2011
D E l H I N C R
MAjOR GROWTH CORRIDORS• Huge consumer base is the biggest advantage of Delhi NCR
for being one of the largest warehousing nodes in India.• Apart from this, Delhi’s position as a huge manufacturing
location and hinterland, including the entire North India, also helps in the development of the warehousing locations.
• Almost all major warehousing national-level developers are present in Delhi NCR, including IndoSpace, NDR Warehousing, AS Cargo, Acorn and Arshiya.
• Good-quality Grade A warehouses are being built by most of these developers in locations such as Pataudi, Dharuhera along NH 8, the busiest national highway in India.
• Large-scale Grade A warehouses are also being developed in the Farukh Nagar-Patli Road area near Manesar, where e-retail players have leased in the recent past.
• Being close to manufacturing hubs such as Manesar and Neemrana, the Farukh Nagar-Patli Road area also houses some large ICDs that have provisions for railway siding, thus connecting to ports like Jawaharlal Nehru Port Trust (JNPT) and Mundra.
Note: Rental ranges are indicative only. Actual rentals vary as per the specifications provided in a specific property.
WAREHOUSING CORRIDORS - DElHI NCR
Major locations
Land values (INR crore/
acre)
Monthly rents (INR per sq ft per
month)
12-month outlook
Pataudi 3-4 13-18
Dharuhera 3-4 13-18
Neemrana 2.75-4 14-20
Bahadurgarh 3.5-5.5 13-18
Rohtak 2.5-4.5 14-17
Sonipat 3.5-5.5 13-18
Panipat 3.75-5 17-20
Ghaziabad 3-4 17-20
Palwal 4-5 15-18
Source: JLL
Sour
ce: J
LL
MAjOR TRANSACTIONSLocation Tenant Size (sq ft) Rent (INR/sq ft/month)
Rewari e-commerce 1,52,000 14Mewat 3PL 1,15,000 12Mewat 3PL 1,00,000 14Pataudi 3PL 1,00,000 12Farukh Nagar e-commerce 1,00,000 13
million
Population in 2011 (National Capital Region)4
million sq ft
*Total WH supply, 2015
million sq ft
*Vacancy, 2015
Neemrana
Dharuhera
Bahadurgarh
Pataudi
Manesar
Palwal
Ghaziabad
Sonipat
Panipat
Rohtak
DElHI NCR - WAREHOUSING MAP
Strong/ marginal decrease Stable Marginal/strong increase
*Considers Grades A and B supply of warehousing space only
Indian logistics - Taking giant leaps forward 15
H y D E R A B A D
MAjOR GROWTH CORRIDORS
• The formation of the new state (Telangana) and the stable political climate in the city of Hyderabad have helped in improving investment sentiments in the city.
• The Shamshabad and Mahabubnagar areas have emerged as major warehousing corridors in the city.
• Proximity to the airport, lower rentals and availability of land parcels have led to large, organised warehousing development in the Mahabubnagar area.
• Medchal, which is located in the northern part of the city, is another established warehousing destination.
• These areas have the presence of almost all major FMCG and e-retail players.
WAREHOUSING CORRIDORS - HyDERABAD
Major locations Land values (INR crore/acre)
Monthly rents (INR per sq ft per month)
12-month outlook
Kompally/Medchal 1.5-2.5 11-14
Shamshabad/ Mahabubnagar 1.2-2.2 12-14
Cherlapally 2-3.5 11-14
Uppal/Nagole 4-9 14-17
Patancheru 1.7-3 10-13
Balanagar 4-6 14-16
Sour
ce: J
LL
MAjOR TRANSACTIONSLocation Tenant Size (sq ft) Rent (INR/sq ft/month)
Mahabubnagar e-commerce 3,60,000 15Medchal e-commerce 2,00,000 13.5Kompally FMCG 60,000 10Kompally Tyre Co. 60,000 10Kompally 3PL 60,000 10
million
Population in 2011 (Hyderabad Metropolitan Area)4
million sq ft
*Total WH supply, 2015
million sq ft
*Vacancy, 2015
Medchal
PatancheruCherlapally
Secunderabad
Shamshabad
Balanagar
Uppal
HyDERABAD - WAREHOUSING MAP
*Considers Grades A and B supply of warehousing space only
4Census of India, 2011
Note: Rental ranges are indicative only. Actual rentals vary as per the specifications provided in a specific property.
Source: JLLStable Marginal/strong increaseStrong/ marginal decrease
Indian logistics - Taking giant leaps forward16
K O l K A T A
Sour
ce: J
LL
MAjOR TRANSACTIONSLocation Tenant Size (sq ft) Rent (INR/sq ft/month)
Old Delhi Road Confidential 1,30,000 17Sankrail Retailer 70,000 14Dhulagarh 3PL 60,000 14Dhulagarh Electrical 50,000 14Maheshtala Steel 45,000 18
million
Population in 2011 (Kolkata Metropolitan Area)4
million sq ft
*Total WH supply, 2015
million sq ft
*Vacancy, 2015
*Considers Grades A and B supply of warehousing space only
MAjOR GROWTH CORRIDORS
• Kolkata’s strategic location as a gateway to North-east India and its proximity to the Kolkata port has made the city a major warehousing location in India.
• Locations along NH 06 like Dhulagari and Uluberia and along NH 02 like Dankuni are established warehousing corridors in Kolkata.
• Dankunj (on NH 06) and Old Delhi Road (on NH 02) are preferred locations because of their proximity to industrial areas and good connections to North-east India and the city of Kolkata.
• Other warehousing corridors in Kolkata include Kalyani along Belghoria Expressway, Sirakol and upcoming locations in Bantala.
KOlKATA - WAREHOUSING MAP
WAREHOUSING CORRIDORS - KOlKATA
Major locations
Land values
(INR crore/acre)
Monthly rents
(INR per sq ft per month)
12 month outlook
Dankuni 1-1.5 18-22
Old Delhi Road 0.9-1.4 16-22
Dhulagarh 1.5-2.2 14-18
Alampur 1.5-2.2 14-18
Uluberia 0.7-1.1 10-14
Sirakol 0.9-1.2 9-12
Kalyani 0.9-1.4 9-12
4Census of India, 2011
Note: Rental ranges are indicative only. Actual rentals vary as per the specifications provided in a specific property.
Source: JLL
Strong/ marginal decrease
Marginal/strong increase
Stable
Kalyani
Dankuni
Uluberia
Sirakol
Dhulagari, Alampur
Indian logistics - Taking giant leaps forward 17
M U M B A I
Sour
ce: J
LL
MAjOR TRANSACTIONSLocation Tenant Size (sq ft) Rent (INR/sq ft/month)
Bhiwandi e-commerce 2,50,000 18Bhiwandi e-commerce 1,40,000 18Padgha Paper Co. 1,31,500 15Palaspe Phata Tyre Co. 1,10,000 18Kalambasure Engineering Co. 60,000 16
million
Population in 2011 (Mumbai Metropolitan Area)4
million sq ft
*Total WH supply, 2015
million sq ft
*Vacancy, 2015
Padgha
Bhiwandi
Palaspe
Mankoli
Uran
jNPT
MUMBAI - WAREHOUSING MAP
*Considers Grades A and B supply of warehousing space only
WAREHOUSING CORRIDORS - MUMBAI
Major locations
Land values (INR crore/
acre)
Monthly rents (INR per sq ft per month)
12-month outlook
JNPT and Uran 1.5-2.2 18-22
Palaspe Panvel 2.5-3 22-26
Mankoli Bhiwandi 3-5.5 10-12
Vadpe Bhiwandi 2-3 10-12
Padgha Bhiwandi 1-1.5 11-16
4Census of India, 2011
Note: Rental ranges are indicative only. Actual rentals vary as per the specifications provided in a specific property.
Source: JLL
Strong/ marginal decrease
Marginal/strong increaseStable
MAjOR GROWTH CORRIDORS• The two busiest ports of India, JNPT and Mumbai
ports, are major demand generators. • The Panvel/JNPT area has evolved as a major
warehousing location in Mumbai because of its proximity to the port and availability of large expanse of land. Multiple ICDs and free trade warehousing zones (FTWZs) are present here.
• Extended areas in Palaspe have become locations for warehouses such as that of Apollo Tyres. However, very expensive land parcels result in difficulty in the development of new warehouses here.
• Warehousing locations in Bhiwandi, Mankoli and Padgha along NH 3 and State Highway 35 (SH 35) can be considered as the most vibrant and largest warehousing areas in Mumbai.
• Major supply of Grade A warehouses are available in this area, with the presence of FMCG and e-commerce companies. However, high costs of land and restriction in land usage (mostly in green zone) have restricted the development of warehouses.
Indian logistics - Taking giant leaps forward18
P U N E
MAjOR GROWTH CORRIDORS
• The large consumer bases in Mumbai and Pune, huge manufacturing base and affordable prices have helped Pune become a major warehousing location.
• The Chakan-Talegaon area can be considered as the most vibrant warehousing location in the city. Proximity to large-scale manufacturing units and easy connectivity with Mumbai, as well as the presence of large-scale organised warehousing parks has helped positioned Chakan-Talegaon as the prime warehousing area of the city.
• Pune has the presence of players such as Mahindra Logistics, Nippon, Bosch, and Safe Express.
• Nagar Road and Shirwal are the two other warehousing corridors in Pune, with the presence of major occupiers in FMCG, engineering, auto accessories, white goods etc.
WAREHOUSING CORRIDORS - PUNE
Major locations Land values (INR crore/acre)
Monthly rents (INR per sq ft per month)
12-month outlook
Chakan 2-3.5 24-30
Talegaon 1.8-2.5 23-27
Nagar Road 1.2-2.2 20-25
Ranjangaon 1.4-2 24-26
Shirwal 1-1.6 18-25
Hinjewadi 6.5-8 31-38
PCMC 7.3-9 30-35
Jejuri 0.6-0.8 18-20
Sour
ce: J
LL
MAjOR TRANSACTIONSLocation Tenant Size (sq ft) Rent (INR/sq ft/month)
Nagar Road Consumer Goods Co. 1,00,000 12Chakan Engineering Co. 70,000 27Chakan e-commerce 65,000 24Nagar Road FMCG 60,000 11Pirangut Soft Drink Co. 55,000 18
million
Population in 2011 (Pune Metropolitan Area)4
million sq ft
*Total WH supply, 2015
million sq ft
*Vacancy, 2015
ChakanRanjangaon
Nagar Road
Talegaon
Hinjewadi
Shirwal
jejuri
PCMC
PUNE - WAREHOUSING MAP
*Considers Grades A and B supply of warehousing space only
4Census of India, 2011
Note: Rental ranges are indicative only. Actual rentals vary as per the specifications provided in a specific property.
Source: JLLStable Marginal/strong increaseStrong/ marginal decrease
Indian logistics - Taking giant leaps forward 19
6. Movers and shakers of the Indian warehousing sector
The Indian warehousing sector is going through a transformational phase with some major “movers and shakers” in the market that are expected to take it to the next level.
E-RETAIl CATAlySTWarehousing sector to catch up with the e-retail boom in India
GETTING GST-READyHarmonisation of warehousing space for an optimal and efficient supply chain planning
COlD STORAGE POTENTIAlHuge demand for temperature-controlled warehouses/cold storages
Indian logistics - Taking giant leaps forward20
6.1. The e-retail catalyst
Interestingly, books, electronics, and apparels and accessories provide the biggest e-tailing demand and account for more than 75 percent of the total as per ASSOCHAM report. Other popular goods are healthcare products, furniture, beauty and baby products, as observed in the following graph.
Source: ASSOCHAM
E-commerce, more specifically, e-retail, is playing a major role in increasing the demand for warehousing in India, especially retail warehousing. As more customers rely on online portals for buying goods, the demand shifts from traditional retail space to warehouse. It increases warehousing space demand, as the products are delivered to the customers’ doorstep directly from the warehouses. The e-tailing market has grown at a CAGR of 57 percent from 2009 until 2014. As per a PricewaterhouseCoopers (PwC) report, India’s Internet penetration stands at only 19 percent of household in 2014 as compared to 87 percent in the United States and 46 percent in China. The future growth potential in the e-commerce sector in India is going to be exponential, as India is all geared up to catch on the Internet penetration levels.
4032
49
77
117
189
2009 2010 2011 2012 2013 2014
57% CAGR
Figure 5: Value of Indian e-retailing market (INR billion)
Source: IBEF, JLL India
Figure 6: Share of different categories in e-retail
30%
34%
15%
10%6%
3%
2%
Healthcare
Home & Furnishing
Beauty and Personal
Baby Products
Books
Electronics
Apparels & Accessories
Indian logistics - Taking giant leaps forward 21
• Industry is expected to spend USD 1 billion to USD 2 billion on warehousing and logistics functions in the next two to three years to reduce distribution cost, faster delivery and increase market coverage.
• In 2014, almost 25 percent of the total new Grades A and B supply were absorbed by e-commerce players.
• Additional 8 million to 10 million square feet is expected to be absorbed by e-commerce players in the next two to three years.
• It is expected that gradually, e-retail players would be evaluating and taking up good ready-built warehouse space as compared to the current built-to-suit warehouses.
Cash on deliveryTypical Indian customer wants to inspect the product before payingBrings in confidence in e-commerce
Free deliveryTo compete with retailers, free and quick delivery is a mustNeed for optimised logistics cost
Return/exchangeConsumers expect an easy return/exchange processDemands strong reverse logistics process
Insurance coverProducts stored in the warehouse are insuredDemands higher and safer specification of warehouses
Existing concernsIncreasing order returns, fake address issues and increased costs for cash on delivery services
Major e-retail market trends that require efficient logistics
Indian logistics - Taking giant leaps forward22
SERVICE TAX
CVD
CST
lUXURy TAX
EXCISE TAX
lOTTERy TAX
ENTRy TAX
lEVIES
SAD VAT
ADC
Subsume multiple existing indirect taxes (both central & state level)
6.2. Getting GST-ready
Understanding GST and its impact
Goods and Services Tax (GST) is a multi-stage tax on domestic consumption charged on all taxable supplies of goods and services in India except those that are specifically exempted.
How is it going to do it?
• Dual GST model is proposed: central GST (CGST) to be governed by the central authority and state GST (SGST) by state-level authorities.
• Integrated GST (IGST) will be levied by the Centre on all interstate transactions, which will be CGST + SGST.
• Cross-utilisation of tax credit will not be allowed between CGST and SGST except in interstate transactions where IGST is applicable.
Abbreviations and assumptions: VAT = Value-added tax (4%); CST = Central sales tax (4%); GST = Goods and services tax (4%); ITC = Input tax credit; SP = Selling price; FP = Final price; C = Cost (INR 90); P = Profit (INR 10) | Note: The cases shown above use the same VAT and CST tax percentage across different states in order to explain the concept. Taxes vary across different Indian states. Application of the type of taxes at different levels of sale is shown at each level. The current Indian taxation system does not allow tax collected under CST to be adjusted against subsequent tax collected under VAT, as taxes under CST go to the central account and taxes collected under VAT go to the states’ accounts.
BEFORE GST IMPlEMENTATION AFTER GST IMPlEMENTATIONManufacturer in State X (SP = C + P = 100)
+ GST
Direct Sale
State X+ VAT + VAT
State Y+ CST
+ VAT + VAT
+ VAT + VAT
y1 Z1
y2 Z2
SP = 104 + P - ITC = 110 SP = 104 + P - ITC = 110
SP = 104 + P - ITC = 110 SP = 104 + P - ITC = 110
FP = 124.8 FP = 124.8
y Z
+ VAT+ VAT + VAT
+ VAT+ VAT + VAT
y1X1 Z1
y2X2 Z2
SP = 104 + P = 114SP = 104 + P - ITC = 110 SP = 104 + P - ITC = 110
SP = 118.56+P-ITC = 124SP = 114.4 +P-ITC = 120 SP = 114.4 +P-ITC = 120
FP = 128.96FP = 124.8 FP = 124.8
yX Z
Sale Through Small owned WH in State Z
A B C
Sale to Multiple States through Single Big Regional Warehouse D
DISTRIBUTORS
RETAIlER
CONSUMER
Manufacturer in State X (SP = C + P = 100)
Above Flow chart shows 3 supply chain scenarios. A: Sale to distributor in the same state as of manufacturing | B: Sale to distributor in state other than state of manufacturing & C: Sale to distributor in state other than state of manufacturing but via Manufacturer’s small warehouse in the distributor’s state.FP to the consumer is maximum in Case B due to application of CST. In order to reduce FP, manufacturer sells the product through owned small warehouses in the state of sale which will result into multiple small warehouses across country.
After implementation of GST, warehousing structure is expected to Restructure. Case D shows sale of the product to multiple states through a single Big Regional Warehouse without increasing FP to the consumer.This will eliminate presence of multiple state warehouses which will further optimize operational cost by implementing state of the art technologies and modern equipments in WH
The anticipated implementation of the GST from April 1, 2016 is also expected to bring in harmonisation of warehousing space in India. In the current taxation environment (central sales tax or CST and value-added tax or VAT regime), companies that sell their products across India are subject to both central and state taxes. As a result, these companies are forced to design their supply chain networks around the existing tax frameworks rather than operational efficiencies. JLL analyses the pre- and post-GST scenario with a sample case as follows:
GST
What is it going to do?
Indian logistics - Taking giant leaps forward 23
GST to restructure Indian warehousing
• Theoretically, post the GST implementation, if any manufacturer has uniform sales distribution/consumer market across the country and wants to have a single distribution centre (DC) to cater the entire country, the DC would be typically located near the country’s geometrical centre of gravity (CG) (i.e., equidistant from all parts of the country).
• However, the consumer demand and market size of each product type are very different and complex. The larger the market size, the greater is the pull force of the CG toward it.
• Consumer demand typically is skewed more toward the northern, western and southern regions of the country, thus pulling the CG toward it and thereby shifting from the geometric centre to demand attraction locations along the lines shown in red.
• With the onset of GST, once the physical state boundaries lose their significance from the taxation point of view, supply chain dynamics would rule supreme for warehouse location selection.
• JLL undertakes an empirical derivation of emerging warehousing hubs in India apart from the existing eight major hubs.
Note: This is JLL’s empirical derivation of emerging warehousing locations post GST implementation.
GST, once implemented, will look at re-engineering the supply chain architecture with fewer and larger strategically placed DCs along with smaller warehouses for daily milk runs. Apart from harmonisation of warehousing space, companies are also taking this opportunity to give high importance to operational efficiencies and safety standards in the new warehouses with the use of vertical racking, reach trucks, automated conveyor systems, fire sprinklers, hydrant systems, etc. Thus, GST is expected not only to optimise the supply chain networks, but also to bring in high-quality international standard warehouses in the Indian market.
AhmedabadBangaloreChennaiHyderabad
KolkataMumbaiNCR - DelhiPune
Existing Hubs (Pre- GST)
BelgaumBhubaneshwarCoimbatoreGoa
Emerging Hubs (Post GST)GuwahatiIndoreJaipurKolhapur
Lucknow / KanpurLudhianaNagpurPatna
RaipurRanchiVapiVijayawada
South25% - 30%
Consumer Market
West25% - 30%
Consumer Market
East5% - 20%
Consumer Market
North30% - 35%
Consumer Market
Geometric CG
Indian logistics - Taking giant leaps forward24
6.3. Cold storage potential
• The sector is highly fragmented (more than one-third of the total cold storages have a capacity of less than 1,000 million metric tonnes or MMT) and unevenly distributed (almost two-thirds of the cold storages are located in the states of Uttar Pradesh and West Bengal).
• Organised players share 8-10 percent of the cold chain market size.
Government has made a Plan allocation of INR 786 Crore in the 12th five-year plan for implementation of Scheme of Cold Chain, Value Addition and Preservation Infrastructure.
(Source: Response to Lok Sabha Question# 352 dated 25th Nov, 2014)
NEEDS ANAlySIS
• Less than 11 percent of the total produce that needs cold storage can be stored within the current capacity.
• Out of 127 MMT of produced milk in 2011-12, only 70,000-80,000 Tonnes are being stored in cold storages.
• Out of 105 MMT of perishable produce transferred across India, only 4 MMT are being transferred through reefer vehicles.
• Almost 30-40 percent of the total perishable goods are wasted before consumption because of the broken cold supply chain infrastructure.
CHAllENGES
• Majority of the cost for cold supply chain is loaded on the storage component mostly because of the high energy costs and increasing real estate prices.
• Unavailability of quality vehicles (especially with facility) is a concern.
• Unavailability of skilled manpower is a concern. Skilled workforce to manage cold storages will mitigate risks of high inventory levels and poor service offerings.
Figure 7: India cold chain market size
Source: National Summit on Cold Chain; Associated Chambers of Commerce and Industry of India (ASSOCHAM) & Tech Sci Research
Capacity (MMT)Value (INR Billion)
350
2010 2011 2012 2013 2014
35
300 30
250 25
200 20
150 15
100 10
50 5
0 0
Value
in IN
R Bi
llion
Capa
city i
n MMT
228
29
175
26
115
20
134
23
298
33
Cold Storage Temperature Scale
Cold Storage Market Distribution
Vegetables Pharmaceuticals Vaccines
15°C 0°C -15°C -30°C
PHARMA & FROZEN
FOOD
75% - 80% by volume 20% - 25% by revenue
20% - 25% by volume75% - 80% by revenue
India needs to evolved significantly on the sub-zero / cold category storage space
Ice cream
Chemicals
Fruits
Dairy & Milk
Meat
Fish
AGRO & FMCG
Indian logistics - Taking giant leaps forward 25
Warburg Pincus to invest in Ecom Express
Warburg Pincus to invest in Embassy group
INR 813 Crores INR 625 Crores 2015Disclaimer: Information provided above is collated by JLL from various sources. JLL has not verified the investments proposed herein and do not take any responsibility on its authenticity.
7. Foreign and private equity investments in the sector
The growth story of the Indian warehousing and logistics sector has indeed lured foreign investors and private equity firms in recent times. Further, conducive policy environment-such as allowance of 100 percent foreign direct investment (FDI) in warehouses and food storage
Warburg Pincus invested in Continental Warehousing Corporation (Nhava Seva) Limited
Standard Chartered Private Equity invested in Redington India
Fidelity Growth Partners invested in Transpole Logistic
Infrastructure India Holdings Fund llC invested in Aegis Logistics
INR 625 Crores INR 365 Crores INR 81 Crores INR 68 CroresTara India Fund III invested in JICS Logistic
INR 40 Crores2011
OPIC invested in IndoSpace Logistics Parks Ltd
Everstone Capital invested in AS Cargo
KKR invested in TVS Logistics Services
New Silk Route (NSR) invested in VRL Logistics
INR 625 Crores INR 277 Crores INR 242 Crores INR 206 Crores 2012
Everstone Capital invested in Transpole Logistics
INR 220 Crores2013
facilities under automatic routes and tax-free zones such as free trade warehousing zones (FTWZs)-has attracted many foreign and private equity investments in the sector in the last few years.
Indian logistics - Taking giant leaps forward26
8. Leaps ahead
Like in a hurdle race, Indian logistics is in a path of overcoming hurdles. While it has left certain hurdles behind, some still lies ahead.
Disclaimer: In most cases, Jones Lang LaSalle Property Consultants (India) Pvt. Ltd. has relied on market information, whether from public or private sources, and has ensured to the best of its ability the correctness and the validity of the same, by cross checking from various sources. Whilst every effort has been taken to provide authentic data and analysis, Jones Lang LaSalle Property Consultants (India) Private Ltd. or any of its employees are not responsible for any loss, major or minor incurred on the basis of the information and analyses provided or are liable to any damages in any form or shape.
With the economy transforming itself, mega infrastructural projects, modifications in regulatory regime, the Indian Logistics sector is definitely taking giant leaps ahead in its endeavour to become future-ready and globally competitive.
REGUlATORy IMPROVEMENTS: Indian government’s urge to improve the regulatory and taxation regime for a globally competitive environment.
• Rolling out of much anticipated and debated Goods and Service Tax (GST) in India.• ‘Single Window’ along with easy and simple clearance procedures
MANUFACTURING THRUST: Current thrust in manufacturing to strengthen and re-configure Indian logistics sector all the more to live up to global standards.• ‘Make in India’ initiative to strengthen the manufacturing base in India• Delhi Mumbai Industrial Corridor (DMIC) - infrastructure driven industrial investment corridor. • Country specific investment regions and industrial parks on Public Private Partnership (PPP)
model - (Eg. Japan to invest USD 35 billion - Nimrana, Bechraji, Supa; China to invest USD 20 Billion in next 5 years; UK - Belgaum)
CONNECTIVITy PUSH: Large scale investments in infrastructure sector is deemed to improve connectivity to nook and corner of the country. • Road: Develop a total of 66,117 km of roads i.e. building 30 km of road a day from 2016.• Rail: Heavy duty, high speed, extra-wide, doubly stacked Dedicated Freight Corridors (DFC) in west
and east India• Seaports: Target capacity of over 3,130 MT by 2020 with over 50% anticipated to be generated at
privatized non-major ports.• Airports: Plans to develop 200 low-cost airports in Tier II and Tier III towns.
Indian logistics - Taking giant leaps forward 27
Chandranath Dey Associate Director & Head - Industrial Consulting [email protected] +91 90999 71598 / 079 4015 0021
Chandranath Dey joined JLL in May 2006. Based out of Ahmedabad, Chandranath currently leads industrial & logistics consulting business in India. His key experiences include formulation of business
plan, entry strategy formulation, business location advisory and site selection studies for some of the largest Fortune 500 companies of the world across multiple industrial sectors. Chandranath with more than 10 years of consulting experience holds a bachelor’s degree in architecture, master’s degree in City Planning from Indian Institute of Technology, Kharagpur and certification on Applied Finance from IIM, Calcutta.
Sujash Bera Manager, Research & REIS [email protected] +91 033 3343 6125/ +91 98305 43922
Sujash Bera joined JLL in 2012 and contributes to topical white papers, property market deliverables on the commercial, retail, residential and industrial real estate as well as Real Estate Intelligence Service (REIS) offerings. He is the editor of ‘Pulse’, the monthly property market digest of JLL, India. Sujash holds a Master’s degree in City Planning from Indian Institute of Technology, Kharagpur besides being an architect. He has five years of experience in the industry.
Authors Profile
Ashutosh limaye Head, Research and REIS [email protected] +91 98211 07054
For more information about Research
Acknowledgments:We would like to acknowledge the invaluable support from Nirav Kothary, Rishabh Shah & liju Mathew in putting this project together.
Strategic Inputs:N. Srinivas, National Director, Industrial Transactions
Nirav Kothary National DirectorIndustrial Services [email protected]+91 79 4015 0015
N Srinivas National DirectorIndustrial [email protected]+91 98454 45495
For more information about Industrial Services, contact
Jones Lang LaSalle Property Consultants (India) Pvt Ltd © 2015. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
About jll
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.7 billion and gross revenue of $5.4 billion, JLL has more than 230 corporate offices, operates in 80 countries and has a global workforce of approximately 58,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.4 billion square feet, or 316 million square meters, and completed $118 billion in sales, acquisitions and finance transactions in 2014. Its investment management business, LaSalle Investment Management, has $56.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.com
JLL has over 50 years of experience in Asia Pacific, with 31,100 employees operating in 81 offices in 16 countries across the region. The firm was named ‘Best Property Consultancy’ in seven Asia Pacific countries at the International Property Awards Asia Pacific 2014, and won nine Asia
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About jll India
JLL is India’s premier and largest professional services firm specializing in real estate. With an extensive geographic footprint across 11 cities (Ahmedabad, Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and a staff strength of over 8000, the firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services including research, analytics, consultancy, transactions, project and development services, integrated facility management, property and asset management, sustainability, industrial, capital markets, residential, hotels, health care, senior living, education and retail advisory. The firm was named the Best Property Consultancy in India at the International Property Awards Asia Pacific 2014-15.
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