Indian Warehousing - China+1: Opportunity India

Indian Warehousing - China+1: Opportunity India

COVID-19 accelerates global supply chain rebalancing, India well positioned to gain market share

The industrial and warehousing sector in India has attracted significant investor interest since 2017 owing to the reforms introduced by the government. These reforms include implementation of the Goods and Services Tax (GST) regime, accordance of infrastructure status to the sector, the creation of a logistics park policy and the development of multimodal
infrastructure, among others. The warehousing sector that was characterized by fragmented sheds and godowns in the past is now becoming more organized, buoyed by the government policies. To capitalize on the growth potential of the reorganized segment, the sector has attracted significant investor interest. Per Colliers International, since 2017, the sector has attracted interest from multiple large institutional investors, with investment inflows of INR278 billion (USD3.7 billion). Between 2017 and H1 2020, the sector garnered a considerable 17% share of total private equity real estate investment.

This segment’s share of total private equity real estate investment in the India has been increasing year-on-year since 2017, signifying the increasing attractiveness. During 2019 through H1 2020, the industrial and warehousing segment garnered the third highest share of private equity investments after office and retail.

Further, this investment capital came from foreign investors such as the Abu Dhabi Investment Authority, Canada Pension Plan Investment Board (CPPIB), Ivanhoe Cambridge, Ascendas, Blackstone, and Mapletree, to name a few. Investment activity may be muted for the next one year due to slower decision-making by investors because of the ongoing pandemic. However, we expect the inflow from both foreign and domestic funds to grow over the next 2-3 years as existing participants expand their portfolio and new players enter the market. Owing to robust demand from e-commerce and other consumer-led occupiers, we expect the segment to bounce back quicker than other segments of real estate.

COVID-19 accelerates global supply chain rebalancing, India well positioned to gain market share

COIVD-19 has fast tracked the global supply chain rebalancing which was triggered by the US-China trade war. Globally, manufacturing companies are actively evaluating a China+1 supply chain strategy, wherein they establish an incremental supply base outside China Colliers expect India, with its large labour force and domestic consumer market, to be in a good position to increase its global supply chain market share in the next 3-5 years. Our interaction with key developers in the industry suggests that automotive and electronics and are expressing interest in setting up facilities in Bengaluru and Coimbatore, and that some of these companies may shift some manufacturing from China to India over the next
two years.

The Indian government is also proactively providing regulatory and fiscal support to incentivise global companies to establish their manufacturing base in India. For instance, the Ministry of Electronics and Information Technology has announced incentives worth INR480 billion (USD6.4 billion) for electronics manufacturers and is likely to ease norms for plant evaluation to ease the shifting of manufacturing bases by electronics companies. Government initiatives are already bearing fruit as India continues to attract major corporates from across the US and European region. Apple is looking to shift nearly one-fifth of its contract manufacturing to India in anticipation of producing INR3.0 trillion (USD40 billion) worth of smartphones in next five years.19 Also, Foxconn plans to invest up to INR75 billion (USD1.0 billion) to expand a factory in southern India where the Taiwanese contract manufacturer assembles Apple iPhones.20 Further, a German footwear brand Von Wellx plans to shift its entire production from China to India, bringing an initial investment of INR1.1 billion (USD15 million). Anecdotally, a large chemicals manufacturer suggests that they are planning to indigenize their supply chain. The manufacturing facility in India is scheduled to become operational by early 2021, which should replace their current supply source from East Asia.

We recommend manufacturers utilize government incentives and scout for suitable manufacturing facilities. We recommend electronics and pharmaceuticals companies focus on Bengaluru and Hyderabad, while the automotive segment should focus on Pune and Chennai. The entry of global manufacturing multinationals into India should provide a boost to the country’s exports along with generating increased demand for warehousing facilities.

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