CWC seeks INR 1,500-2,000 crore investments from private developers for warehouse expansion

The Central Warehousing Corporation anticipates receiving investments ranging from Rs 1,500 to Rs 2,000 crore from private stakeholders for the development, enhancement, and leasing of 54 warehouses offered to them through a tendering process.

CWC- a government-owned warehousing entity, which manages 458 warehouses nationwide, is initiating tenders for these 54 locations, marking its second attempt after a previous unsuccessful effort earlier this year. These warehouses collectively encompass a total area of 7.5-8 million square feet.

One of the issues raised during an investor roadshow in Mumbai was the payout structure. In contrast to the prior tender, which entailed a fixed revenue amount payable to CWC, the current tendering terms allocate 5% of the gross revenue (from lease rentals) or the minimum guaranteed revenue share to CWC, with the remainder going to the developer. However, concerns were raised by investors and warehouse developers regarding the process, where CWC would collect the full amount and then disburse the developer’s 95% share. This was seen as potentially creating uncertainty around the timing of disbursements.

Investors also voiced worries about the 15% escalation clause in lease rent, fearing it could pose challenges during economic or sector downturns. CWC intends to address these concerns and make adjustments to the tender documents within the next week.

CWC’s Managing Director, Amit Kumar Singh, stated that the company is anticipating private developers to invest Rs 1,500 to Rs 2,000 crore. Entrusting the warehouses to private developers is expected to boost revenue streams, as it would lead to better space utilization, an improved client profile, modern storage methods, and cost efficiencies. The goal is to unlock the assets’ value potential.

The tendering process is expected to conclude by the end of December, with private participation in development beginning early next year. Out of the 54 sites available for tendering, 15 are in tier-1 cities, 13 in tier-2 locations, 3 in tier-3, and one in a tier-4 city. All these warehouses are nearly fully leased and operational.

A significant portion of the land under CWC’s control is not optimally utilized, and private participation is anticipated to address this issue. The CWC’s website indicates that despite having an operational storage capacity of 10.4 million tonnes, the average capacity utilization of CWC warehouses is approximately 87%.

Furthermore, there are about 85 more warehouses under consideration for private participation. The warehousing sector in India has garnered substantial interest not only from a real estate perspective but also from private equity and other investment funds.

According to a report by Knight Frank India, CWC’s marketing partner, while warehousing activity declined in the first six months of FY24, rent growth in key cities remained healthy at 1-4%. Pune and Chennai saw the highest growth. Between April and September, warehousing leasing covered 23 million square feet, a 10% decrease compared to the previous year, with the manufacturing sector contributing to half of the volume, while third-party logistics companies accounted for less than a third.

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