Smaller cities favoured for upcoming logistic hubs

An acre of land in Oragadam, near Chennai, today costs Rs 2.50 crore, while it used to be around Rs 80 lakh three years ago. With the auto sector turning Oragadam into its hub, not only has the price of land gone up in and around the area, but it has also opened enormous business opportunities for logistics and warehousing operations.

Once the Goods and Service Tax (GST) is implemented there will be a great demand for logistic and warehouse operations, said V.N. Sridharan, Chief Executive Officer, Shri Kailash Logistics, which has a large logistics park in Oragadam. He said goods worth Rs 5,000 crore are manufactured in the zone every month.

The latest findings of C.B. Richard Ellis (CBRE), an international real estate consulting firm, validates Sridharan’s views on the demand for logistics space not only in Oragadam but across the country.

Tier-II catches up
The report India Logistics Market View says that India witnessed increased market activity in the first half of 2012.

Demand for logistic and warehousing spaces was not only limited to leading cities, such as Delhi-NCR, Mumbai and Bangalore, but was spread across tier II cities.

E-tailers are investing heavily in strategically-located assets and are taking up quality warehousing space.

However, availability of large land parcels at low cost, connectivity to multiple markets across states and industrial clusters, has led to the emergence of some tier II and III cities as favoured destinations for the development of logistics parks and warehouses.

Anshuman Magazine, Chairman and Managing Director of CBRE South Asia Pvt Ltd, said, “The rising level of activity in logistics and warehousing space across metros as well as tier II cities is testimony to the growing confidence of domestic and international retailers in India. Factors such as enhanced connectivity, various reforms and completion of major infrastructure projects are expected to further augment the logistics sector.”

Expansion spree
FMCG majors, white goods and consumer electronics firms are on an expansion spree and are increasing their footprint in India. Built-to-suit options have been the preferred mode of expansion for most occupiers, with large transactions of warehousing space of 10,000 –15,000 sq ft being reported in the first half of 2012, he said.

Tax reforms, such as the GST, will replace a host of indirect taxes, Central Excise, Service Tax, and various State-level duties with a single levy. This is expected to bring significant reorganisation into the warehousing industry and network planning by organisations, says the report.

Over the last few months, growth in domestic consumption, coupled with better efficiency in containerised transportation, has led to an increase in demand for high-quality warehouses. A popular trend across key micro markets has been consolidation of multiple facilities in the same region into a single warehouse. Rental values are expected to remain stable in the next two quarters across most micro-markets in the region, says the report.