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Warehousing brings cheer to Gurugram’s real estate sector

11 Sep 2018

The warehousing segment may lack the charisma that a posh residential property may boast of but currently it is driving the real estate market in rural Gurugram, creating jobs and bringing in investment from India and abroad.

Amid a general slowdown in the real estate market in Gurugram, warehousing is booming. Large boxes of steel, covering lakhs of square feet of area, are emerging on agricultural land in Pataudi, Dharuhera, Tauru road, Farrukhnagar, Manesar and along the Patli Road. Real estate experts assert that this area, popularly known as NH48 or NH8 corridor, has emerged as one of the largest warehousing hubs across the country.

The warehousing segment may lack the charisma that a posh residential property may boast of but currently it is driving the real estate market in rural Gurugram, creating jobs and bringing in investment from India and abroad.

Nearly 9% of the entire private investment in the real estate since 2017 has been ploughed in this sector, say industry experts. They say that sustained slowdown in residential property and some favourable policy measures by the government have brought in more investors to this sector, who earlier were more interested in selling residential and commercial space.

There are several reasons for the NH8 corridor in Gurugram emerging as a warehousing hub, says Chandranath Dey, senior vice president, Jones Lang LaSalle (JLL), a professional services and investment management company. “Delhi-NCR is one of the biggest consumer areas in the country with a dense population and most companies want to be close to the consumer. Also, the area is strategically located along the NH8 which is the busiest highway of the country with 57% of freight on trucks going through this road,” he says.

The completion of eastern peripheral road and western peripheral road will further give an edge to this corridor as entire north India, including Rajasthan, UP, Punjab, Himachal Pradesh, and Jammu and Kashmir could be served from warehouses located in this area.

It is because of this reason that almost 60% of grade A and grade B warehousing stock of about 38 million square feet in Delhi-NCR has come up in Gurugram’s NH8-corridor. The boom has also been powered by the growth of large e-commerce companies such as Amazon, Flipkart, Myntra, and ShopClues among others. However, industry insiders say that traditional FMCG firms must also get the credit as they fuelled growth in their push to cut on inventory, reduce storage cost, and make distribution more efficient particularly after the introduction of GST.

“E-commerce has played an important part in fuelling warehousing demand, particularly for fulfilment centres as the objective is to satisfy instant demand. In India, this industry is poised to grow as currently only 3% retail is online whereas in the developed countries almost 30% of total retail is digital,” says Sanjeev Saxena, co-founder and director, Ecom, a company dedicated to e-commerce warehousing.

As per industry estimates, India could witness 10% to 12% retail trade going online with electronics, fashion apparel and garments becoming top sellers by 2022. Based on these projections, a number of major players entered the warehousing segment in 2017, pushing substantial increase in grade A supply.

“The implementation of GST has proved to be a game changer as it has allowed companies to decide on optimum strategy to distribute products. As a result, large state or region specific warehouses and fulfilment centres are being preferred and many companies are outsourcing this function to third party logistics. Warehousing will see 20% annual growth over the next few years,” says Saxena.

Industry experts say that implementation of Delhi-Mumbai Industrial Corridor (DMIC) and Dedicated Freight Corridor (DFC), which also pass through Gurugram and Rewari, will give further boost to warehousing sector in and around Gurugram when these projects come up by the end of next decade.

It is because of this reason that Amazon has already secured a strong footprint in this corridor and launched its biggest fulfilment centre in Pachgaon, Manesar, in the first week of August. In September 2017, it had launched a 2.5 lakh sq ft, state of the art fulfilment centre in Jamalpur, Pataudi — a micro-warehousing hub in Gurugram.

“There are now five fulfilment centres in Haryana with a total storage capacity of more than five million cubic feet. We have invested significantly in our fulfilment and logistics capability to enable and empower sellers to serve customers nationally at lower costs. Currently, millions of products are available for immediate shipping through the network of over 50 Amazon’s FCs in India,” says Akhil Saxena, VP, Customer Fulfilment, Amazon India.

Not only the technology companies but large private equity investors are also making big investments in warehousing in Gurugram due to the growth opportunities. Embassy Industrial Parks, a large player, in collaboration with Warburg Pincus, has pledged to invest over Rs 1900 crore to set up industrial parks in the state. A central location in NCR, availability of large pockets of land, cheaper land cost, closeness to large consumption markets, easy connectivity with Golden Quadrilateral, are some of the reasons behind the decision.

“A six lakh square feet industrial park in Bilaspur was sold out before completion and Embassy has now acquired another 110 acres in Farrukhnagar. This new three million square foot industrial park will serve as the second new age warehousing location, which will serve e-commerce, auto, retail and FMCG players,” said Anshul Singhal, CEO, Embassy Industrial Parks.

Singhal, however, cautions that warehousing in India is still maturing, getting organised, and if given the right support will create lot of jobs in core and allied sectors. He also dismissed fears related to job loss caused by automation. “There is no need to be afraid as technology has created more jobs. See the growth in IT sector and the jobs it has brought to Gurugram,” says Singhal.

Another large player in this sector, Ecom Express has set up 5 lakh sq ft fulfilment centre called India-1 in Bilaspur. Large shipment level, and box level sorting machines, hand-held scanners, CCTV cameras, a centralised shipment tracking and control centre is at the heart of its fulfilment centre. The warehouse normally handles 35 to 40,000 items in normal days, and reaches up to one lakh during peak festive season such as on Diwali.

“Technology is the key to ensure that the product or an item is shipped out of the warehouse within 90 minutes. We offer pick-up, quality check, serialisation, real time inventory management and order management. Additionally, the service manages returns, invoicing and payment reconciliation,” says Vikram Rathore, senior manager, who adds that proximity to Gurugram, Delhi and Noida has helped them in serving customers within 12 to 18 hours.

While majority of large players in warehousing are bullish, there are a few sceptics as well. “See what happened in housing and commercial real estate. Anyone who owned land or had money was given a licence to build. The market has come crashing down and likewise the rentals of warehouses have not seen any positive growth in last two years. A large number of small to medium warehouses are coming on agricultural land in Pataudi, Farrkuhnagar and Jamalpur, which could lead to glut,” warns Amit Sharma, who owns a warehouse in Jamalpur.

For the last couple of years, the rentals have hovered between Rs 12 to Rs 22 per sq feet per month. Delhi-NCR has a warehouse stock of 37.6 million square feet out of which 6.27 msf is Grade A whereas rest is grade B. The vacancy in grade A is 10% but in grade B it is 19%.

JLL’s Dey is however more hopeful that rentals will go up in the wake of rising demand for modern warehousing. “The warehousing facilities that are coming up now are larger, built to suit, and tech-friendly and this will help rentals to go up,” he says.

Ecom’s Saxena says that both rentals as well as volumes will play key role in deciding the return on investment and income. “With the onset of GST most of the firms are looking for large warehouses managed by third parties. Due to this large plates are being sought, lock-in periods are increasing and it is easier to do business with organised players. Also, the era of box in box out logistics is over,” he adds.

Most players in the warehousing and logistics are unanimous that apart from GST the decision by union government to grant infrastructure status to the sector has helped in transformation. “Distribution models are changing and firms now more inclined to have hub and spoke warehouses. The end of check points at state border and eway-bills has greatly helped and the focus is now more on efficient movement and storage of goods. But the government needs to rationalise diesel price, which is burning a hole in profits,” says Chander Agarwal, managing director, TCI Express, an express logistics firm with presence across India.

As per experts, the warehousing sector in Gurugram will attain the ‘economy of scale’ as the demand is high, big players in the market and government support. “Consolidation is happening quickly in Gurugram as it is close to consumption centres and also located strategically to serve entire north India. What is needed is more compliant warehousing, better infrastructure and focus on last mile delivery,”says Dey, who strongly believes in the Gurugram warehousing story.

The Haryana government has proposed to create a policy of logistics, warehousing and retail in 2018. Haryana Industry minister Vipul Goyal said that the government has asked for suggestions before formulating the policy so that warehousing can be boosted. “The warehousing sector can create lot of employment and lead economic growth. Fifteen national highways pass through the state and completion of KMP expressway will further give strategic advantage to it that we must harness,” Goyal had said on June 9, during a meeting with key players in warehousing.

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