ONIX Advisors: In this article, we will give a brief perspective on the strategy individual investors may adopt to benefit from the upsurge in demand for logistics infrastructure and at the same time, compete sustainably with institutional investors.
Investing in warehousing assets is a robust way to build annuity for yield seeking investors. India has witnessed a boom in the logistics sector post implementation of GST. The demand for quality warehousing infrastructure has increased manifolds in almost all major consumption centers across the country, starting from metropolitan to tier-2 cities.
This demand provides a mammoth opportunity for individual investors to get access to high quality rental inflow with smaller investment size. Additionally, warehousing zones, located conveniently from the main residential and commercial areas of cities, are natural hubs for the next phase of growth and thus clear hotspots for long term capital appreciation. In Bangalore, Nelamangala, Hoskote and Attibele are the most prominent warehousing locations.
The demand has led to a massive inflow of institutional capital into the asset class in excess of US $1 billion. As a consequence, the competition from the supply side has gone up significantly. A lot of companies who were earlier tenants of local landlords (individual investors) have negotiated contracts with organized players backed by global real estate funds and are likely to shift operations over the next few months. In view of this, below is a strategy that would help individual investors minimize occupancy risk and generate healthy rental income despite competition.
Individual investors should invest in a standalone warehousing asset with a built up area of 0.5 to 1.25 lac sq ft over a land area of approximately 2.5 to 6 acres within 5-10 kms off a highway connecting two major cities. Investors must make sure that a full-size truck can move freely between the highway and the entrance of the asset. A standalone asset should be demarcated with a clear boundary, and provide a decent parking space. It’s not mandatory to build a Grade A plusasset, but a Grade A- or Grade B asset with sprinklers (if not fire hydrants), and decent quality flooring (if not FM2 standards). With the exception of e-commerce clients, majority of the FMCG, and Pharma companies don’t require Grade A plus specifications. They don’t even require vertical racking units to the height of 12-13 meters. They just need to store their goods, take it out and replenish as and when required. Free movement of vehicles within the premises of the asset is key.
Institutional investors with their large capital base have a minimum ticket size that is best suited for development of logistics parks with several warehousing boxes. A lot of corporate tenants demand independent and private space with a clear demarcated boundary. An independent space, not very large, gives higher security and control over operations, theft, pilferage or any other issue because there are no common areas as there would be in a logistics park. Moreover, institutional capital cannot build Grade A-/B assets demanded by large FMCG and Pharma companies and this gap can be fulfilled by individual investors. To summarize, individual investors should build mid-sized Grade B standalone warehouses with a clear boundary in a warehousing hub but a little away from the main road so as to minimize their land costs.
In order to understand more about a suitable warehousing investment strategy or find warehouses for rent, please reach us on +91-9108447825 or +91-9108447829.
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