Many global investors such as Panattoni, Ivanhoe Cambridge among others have forayed into Indian warehousing, but many are finding land acquisition issues a big stumbling block for future expansion.
“It took us three years to buy an 80 acre land parcel in one of the cities due to village level issues, resolving illegal occupation of land even after a court order, etc,” said Chanakya Chakravarti, head of indirect strategies- Asia Pacific at Ivanhoe Cambridge.
Once a developer-investor enters the space, it gives more confidence that the portfolio will be valuable if scaled, Chakravarti said. However, limited partners (LPs) need deep pockets, quality origination capabilities and a lot of patience. He should know as Ivanhoe is developing about 11 million square feet under a joint venture with Logos. It also plans to develop 15 to 20 million sq ft of a mix of big box distribution centres and last mile facilities with the Lodhas.
Siddhartha Gupta, founder & managing partner of Alta Capital said land prices have gone up significantly in the last three years without a commensurate increase in rents, so the economics have become less attractive. In some cases it doesn’t even justify the risk profile of development.
“With increase in demand for warehousing and hence for the land, the land owners are being chased by many potential buyers,” Gupta said, adding that there are at least 20 well-capitalised warehouse developers for those limited land parcels in and around the 10 large consumption centres/cities.
Given that these owners are often not that financially savvy and sometimes get stuck on price, there tends to be fewer land transaction closures. Statistically, ony two of the 10 land parcels would go through final rounds either due to renegotiation from sellers, litigations on land and longer execution time, he said. Alta Capital is an investment & asset management firm which forayed into warehousing in mid 20222.
Prices of land parcels have gone up by 20-40% depending on location for warehousing projects , said Rajesh Jaggi, vice chairman, real estate, Everstone Group which has a JV called Indospace Core in warehousing. “It has become challenging to get land parcels with clean titles outside the cities. Unless we get land, how do we business?,” he said.
According to Abeer Garg, India head – land services, logistics & industrial, JLL, as the Delhi-Mumbai Industrial Corridor is nearing completion, land prices have gone through the roof in the National Capital Region. Similarly in Pune, land prices in Talegaon have risen substantially after the missing linkage of Chakan Talegaon road has been completed. In Tamil Nadu, land prices in Hosur have been steadily increasing due to increase in demand and proximity to Bangalore.
“In general, warehousing business works out to be feasible if the land pricing is in the range of Rs 1.5–2 crore /acre. But it is now not uncommon to hear of land trades closing between Rs 2-2.5 crore per acre,” Garg said.
Average Grade A rent in top 8 cities grew from Rs 19 per sq.ft. in 2017 at a five-year CAGR of 3.9% to reach Rs 23 per sq.ft. in 2022.
Abhijit Malkani, CEO, ESR India said land parcels held by farmers across multiple generations give rise to complexities and uncertainties regarding the transfer of rights within family members.” The documentation and clarity of land titles can be questionable, posing challenges during the acquisition process,” he said. The conversion of agricultural lands for non-agricultural purposes also necessitates obtaining clearances from multiple authorities, leading to delays.
He, however, said the process has seen noticeable improvements, with the government working towards streamlining approval procedures, implementing single window clearances, and collaborating directly with developers to allocate large land parcels. Land acquisition in government-approved land parcels, such as MIDCs (Maharashtra Industrial Development Corporation), is notably less complex, he said. Still, the delays have had a substantial impact on costs and profitability.
Shobhit Agarwal , managing director at Anarock Capital, of course has a different take. Investors, he said, have known the land-related issues for long. “That has not deterred them from putting money in warehousing. Every warehousing developer/investor has grown despite challenges, he said.