GST, INFRASTRUCTURE STATUS PUSH DEMAND FOR LEASING ACTIVITY
Leasing was driven by consolidation and expansion moves of e-comm, third-party logistics, retail and engineering & manufacturing cos
Policy initiatives including implementation of the goods and services tax (GST) and grant of infrastructure status led to a 45% increase in leasing activity in logistics and warehousing segment in India’s top seven cities in the first half of 2018 from a year ago to 10 million square feet, showed data from CBRE South Asia. Leasing activity was primarily driven by consolidation and expansion moves of e-commerce, third-party logistics, retail, and engineering and manufacturing companies, which together accounted for more than 75% of the leasing reported during the period. The rise is attributed to policy reforms that the sector has witnessed over the past two years, particularly the implementation of the GST, as more and more companies in the sector consolidate their operations and locate closer to consumption hubs, thereby driving demand for larger warehouses.
The average size of space leased increased to 90,000 sq ft from around 75,000 sq ft in the first half of 2017. “As the sector witnesses the use of technology, coupled with the government’s reform push, corporates across sectors would be driven to opt for large, modern warehouses,” said Anshuman Magazine, chairman, India and Southeast Asia, CBRE. “The entry of various private equity firms and foreign players in the Indian logistics market would boost quality supply, hence propelling demand.” Bengaluru accounted for a fourth of the total leasing demand, followed by Delhi-National Capital Region at 21% and Mumbai at 20%. Chennai and Hyderabad also reported sizeable transaction activity and accounted for about 12% and 10% of the demand respectively. Smaller cities such as Kolkata, Ahmedabad and Pune collectively held a 12% share.
Magazine said that cities such as Mumbai, Pune and Chennai will remain major investment destinations while Delhi-NCR and Bengaluru will also be on the investors’ radar. The logistics sector benefitted from the easing of the short-term pain inflicted by the implementation of the GST, according to a report by CBRE. The unified tax also helped remove inter-state checkpoints and reduce the movement time of cargo, thereby reducing sources of capital, it said. Adding to this, the grant of infrastructure status to the logistics and warehousing sector led to increased investor interest as it helped developers gain access to infrastructure lending at easier terms and with enhanced limits.
Owing to the rise in activity, rentals continued to appreciate in several micro markets. The micro markets of NH-6 in Kolkata and Bhiwandi in Mumbai reported the highest appreciation, ranging between 15% and 24%. Other micro markets such as NH-2 in Kolkata, the Northern Corridor in Hyderabad, the Southern Corridor in Bengaluru, NH-1 in Delhi-NCR and Aslali in Ahmedabad reported a rental appreciation of 3-5%. The increase in rentals could be attributed to sustained occupier interest. Further, rentals across other micro markets in most of the cities remained stable during the review period, except in Chennai’s western belt, which witnessed a 1-3% decline.
The Economic Times, 21st August 2018
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