In conversation with Sandeep Chadha on Indian Warehousing
Indian warehousing sector is going through a disruption phase post implementation of GST and grant of infrastructure status to the logistics industry. The new reforms in the sector have completely changed the supply chain economics of the companies. With the demand for larger Grade A quality warehouses in India going up, the sector is also offering lucrative investment opportunities for the investors.
Warehouster Capital Advisors is rapidly evolving in the segment and understands the significance of customized Grade A quality facilities. Their nimble-footed team brings decade-plus experience on board and has a successful track record of delivering high-value projects in the past.
Logistics Insider interviewed Sandeep Chadha, Founder and CEO, Warehouster Capital Advisors in an attempt to understand the company’s vision, delivery capabilities, and the unique opportunities which the company is offering to investors and much more. Excerpts:
According to reports, warehousing sector will attract an investment of INR 45,000 crores in the next two years. What are the factors that have been making the sector such an attractive investment area? Also, what are the exit possibilities available for the investors?
It’s a fact that warehouses work as the nerve centre of the supply chain and govern its agility. The exponential boom in India’s e-commerce business has stemmed up the need of Grade A quality warehouses in the country.
The grant of infrastructure status to logistics and introduction of GST has given a further push to the demand for good quality warehouses. Post the implementation of GST, companies are transforming and consolidating their existing smaller facilities primarily which were Grade B into Grade A where they can better utilize the floor space and maximize efficiency by exploiting volume space.
Such a huge spike in displacement from Grade B to Grade A is attracting investment in the warehousing industry. The investment is majorly coming from the institutions, platform level companies, pension funds, endowment funds, PE and large developers in the industry.
Also, we recently had a huge success in terms of commercial Real Estate Investment Trust (REIT) as Blackstone – Embassy has launched its first REIT initial public offering in March. I think the demand for REITs and alternative investment funds will escalate more in future and it will provide various institutional investors who are investing in warehousing with an easy exit route as well.
How has the demand for mother warehouses/large warehouses increased post the implementation of GST? How do you describe the pace at which the warehousing industry is moving towards consolidation from its fragmented nature?
If we consider the data of absorption rate of the period 2014-17, it is seen that during this period we had been absorbing only 14 to 19 million square feet of warehousing space on pan India basis. The absorption rate has spiked to approximately 30 million square feet in the last two years and this year it’s projected to grow up to 45 million square feet. This largely has been due to GST, Infrastructure Status and dedicated freight corridor.
According to a recent report by Colliers, even today the majority of the space is still less than 10,000 sq. ft. If we look at the projected figure of warehousing space absorption, I would say 30% to 40% demand will be the fresh demand and the rest will generate from the consolidation activity.
The major fresh demand that we are generating is from retailers like Amazon, Flipkart, Myntra, Decathlon, Ikea etc. There is also fresh demand from the FMCG companies like Walmart, ITC, Reliance, HUL etc. as well as from the manufacturing and traditional logistics companies. So, exactly pin-pointing would be difficult, but yes we would see this demand to continue for the next 4 to 5 years because of consolidation activity.
In India, Real Estate Investment Trust (REIT) – able area in the warehousing segment stands approximately at 1,127 million square feet. On what criteria Warehouster allocates funds of its clients to ensure a greater return on their investments?
If we dissect the available 1,127 million square feet REIT able area in the warehousing segment, we will find that only about 60-70 million square feet space is occupied by Grade A quality warehouses while the demand for fresh Grade A supply will be in the range of 30-40 million sq. ft.
If we build 15 – 20 million square feet of Grade A warehouses in the span of next three years then we will be in a position to cater 10%-15% need of the market as far as Grade A is concerned.
Any REIT able stock on which investors would be keen on investing will be assets which will have a life of no less than the investment which would be usable in the longer run. If you are making investments with Warehouster, you have an opportunity to enjoy annuity and good returns on your investment due to disruption in the industry.
You will also be investing with an experienced and knowledgeable team who caters to the need of the hour. You can also rest assured about the speed of deployment due to our strong relationships with tenants and land aggregators.
There is dearth in investment options for Grade A warehousing in real estate. Hence, there is an urgent need to get into a development stage for ownership of such assets.
What are the unexplored investment opportunities available in the area of ‘last-mile-warehousing’ considering their increased importance in the era of e-commerce?
To keep up with the increasing level of complexity within the supply chain, companies must be agile and nimble to meet rapidly evolving conditions. The real estate opportunities which are unexplored in the area of last mile warehousing lies in providing infrastructure for storage and handling in the place of pure-play warehousing real estate.
Talking of unexplored opportunities in the real estate sector, some developers may think of selling rack space as against plinth space. The same not only allows flexibility to the client and 3PL operator but also offers speed to market. It better equips them to react to demand patterns.
Therefore, it’s not only the real estate box but also some value-added investments which make for a good choice, for that is an area which is yet to be explored. It can definitely generate bigger returns for clients and investors and at the same time might offer stickiness to end users.
At the same time, it can offer speed to last mile delivery in terms of utilizing the services. Move towards full stack offerings including an end to end fulfilment services from marketing to inventory management, fulfilment and analytics might work in favour of an improved strategy for merchant retention.
The second opportunity lies in the construction of hybrid structure spec plus BTS (built to suit). Today, we are building BTS warehouses which take at least 7-9 months in construction prior to commencement of operations. Construction of Grade A Spec building is considered a win-win situation for clients as well as for investors because such kind of facilities could be put up for sale quickly.
Another unexplored opportunity might be the construction of cold storage warehouses. The value of annual wastage of agricultural produce on a yearly basis in India is $ 14 billion USD. 18% is fruits and vegetables produced in India get wasted due to the insufficient cold chain.
What are some of the USPs of Warehouster that makes the company service offerings distinct from its competitors? Kindly throw some light on the company’s delivery capabilities?
As per my observation, I think in today’s date we do not have much of Grade A properties in terms of warehousing which is the need of the hour. With Warehouster, we aim to change that for the better in due course of time. I believe our team, having decades of experience in logistics and warehousing, is the main highlight of our company.
We have a team that has a lot of experience in terms of delivering Grade A properties in other companies that they have worked with in the past. In a way, we have a team with a unique skill-set that has experience and proven track record of delivering high-value projects.
It is worth mentioning that we are very much nimble-footed and closer to our customer’s needs. This allows us to have a more aggressive approach to delivering our commitments.
There are primarily 3 factors that are working in favour of us and the product that we have on offer. They are: (a) The market is new (b) The industry is also new in terms of the product we are talking about and (c) Having a team with a proven track record and execution capabilities.
So, our USP can be summarized as what we are offering and how we plan on achieving that.
Warehouster is striving to deliver 15 Million square feet of assets in the next 3 years. Which are the key locations that you are targeting? Also, what will be your go-to strategy to achieve such an ambitious target?
We want to grow our presence in both Tier 1 and Tier 2 cities. Primarily, we plan to touch Tier 1 cities (NCR, Bangalore, Chennai, Pune, Mumbai, Ahmadabad and Kolkata) in the 15 million square feet target. Then we will move ahead to touch upon Tier 2 cities like Coimbatore, Lucknow, Jaipur and Guwahati.
We are targeting to build close to 10-11 logistics parks in a 3 years span. To give you a brief idea, in Delhi NCR region, we are almost closing a 100-acre park where we aim to develop 2.5 million square feet of warehouse space. Similarly, we are also taking first bets in Bangalore (Hoskote and Hosur) and Chennai (Oragadam).
A lot of funds have expressed their interest in investing with Warehouster at the platform stage. In the coming months, we aim to develop these parks and are in the process of signing up with major occupiers in the field of e-commerce, FMCG and manufacturing. Presently, we are targeting to acquire land across various locations in India.
We are already at an advanced stage to close acquisition deals in NCR, Bangalore and Hosur. We are expecting to commence construction in these parks by the fourth quarter this year. In next year, around April or May, we should be delivering our first few boxes. We are also exploiting our existing relationships with clients and investors to sign contracts of BTS warehouses with e-commerce, 3PL, FMCG and automobile companies.