Friday, June 6, 2008

Top realty players set to enter warehousing

It’s a road less travelled but real estate developers are revving up. After building luxury homes and corporate offices, top-of-the-line property developers such as Akruti City Ltd, Emaar MGF Land Ltd, K Raheja Corp., and Nitesh Estates are planning to build warehouses as organized retail booms and traditional realty market slows.

Organized warehousing, though in its nascent stage, has whipped up a huge demand—nearly 340 million sq. ft is needed by 2015, according to Jones Lang LaSalle Meghraj (JLLM), a property consultancy firm. With international companies coming to India, warehousing is set to change from old-fashioned storage sheds to planned hubs that are designed to serve as inventory management and storage spaces for retail chains.

Retailers ranging from Wal-Mart Stores Inc., the world’s biggest, to domestic firms such as Reliance Retail Ltd, have set aside millions of dollars to pump into the Indian market so they can get in early as organized retail gets set to take off in a country dominated by small stores and street-side selling.

All retailers have said storage, warehousing and logistics is the weakest part of the retail infrastructure in the country that needs development—and realtors see an opportunity. Developer Akruti City, formerly known as Akruti Nirman Ltd, targets building warehouses at 20 locations across the country.

Bangalore-based Nitesh Estates, which is now heading for a national footprint with several residential projects, has announced a Rs2,000 crore plan for warehousing, with space in Chennai, Bangalore and Pune.

Future scope: A ProLogis warehouse in China. The firm is collaborating with an Indian realty group to set up similar warehouses in India.

Future scope: A ProLogis warehouse in China. The firm is collaborating with an Indian realty group to set up similar warehouses in India.

Ours “would typically be areas close to large-sized mandis or markets where there is a huge requirement for storage infrastructure,” said Hemant Shah, chairman of Akruti City, which is investing Rs250 crore in the first lap and is finalizing tie-ups with national and global warehousing firms. And these are not unplanned storage areas that are cropping up. Mahesh Laxman, regional director of south at JLLM, said unused land banks between a metro such as Bangalore and its extended suburbs are ideal places to build warehouses.

With land prices in Indian cities having shot up many times, real estate firms are using their land banks that cannot be currently utilized for residential and commercial development to develop storage spaces. Though analysts said that returns in warehousing may not be immediate, they could be 18-20% on investment if the rentals are around Rs15 per sq. ft, say property consultants.

“Typically, developers with large land banks would get into the business. Not only does the land bring you decent returns, there is a huge demand for storage space with both national and global retail giants expanding their operations in India,” Laxman said.

Developing warehouses needs a bit more work than just building four walls and roof, which was typically how old warehouses were built in the country. “The business is a lot like developing a property but to certain technological specifications,” said R.S. Mani, chief executive officer of Nitesh Estates, which is tying up with an international player for its new venture.

Specifications for warehousing, which could be both technological and design-oriented, incorporate aspects such as flooring, storage space, height and dock-door proportions to move goods in varying sizes. In fact, higher and better the quality of the specifications, higher would be the rentals, said Laxman.

Developers admit that joint ventures and strategic partnerships with global warehousing companies are the best way to go about this new business. This year, the joint venture between Mumbai-based realty group K Raheja Corp. and Colorado, US-based warehousing multinational ProLogis was not only the first partnership of its kind but charted the way for more such tie-ups.

“Warehousing is a specialized, long-term business and real estate developers don’t have the required experience, which is why they would tie up with a warehousing brand like ours,” said Abhijit Malkani, director of India operations at ProLogis.

A brand such as ProLogis, Malkani added, would not only bring the expertise but the huge client base that it has been servicing across the globe. The company, which aims to create 25 million sq. ft of warehousing space globally in the next five years, set its eyes on India after China, both of which are emerging markets for this business.

Mani of Nitesh Estates added that warehousing experts would bring in the latest trends of the business in their projects and would market such projects better.

International experts could customize design elements for every segment, be it automobile or furniture, and most importantly, provide infrastructure to retail and industrial clients to set up such warehousing hubs.

Given the interest shown by several developers and landowners, analysts say that the future of warehousing is being currently written but its long-term success would depend on many factors.

Vivek Dahiya, director of DTZ Holdings Plc., a real estate advisory company, said, “The emergence of professional developers and operators who can create a national-level portfolio, availability of low-cost land near road and rail networks, and continued investments from institutional and private equity investors in this segment would determine the success of this market in India.”


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