Developers look to cash in on GST boost to logistics sector
The warehousing and logistics sector, which has attracted investments of more than a billion dollars in the first half of 2017, is set to gain significant momentum propelled by the goods and services tax (GST).
Indian and overseas developers and investors are chasing new partnerships to enter the space as India moves towards a new tax regime that is expected to realign the industrial landscape and warehousing needs of industries.
Singapore-based Assetz Property Group, which has residential and commercial office projects in India, is in the last stage to sign a large warehousing platform transaction with a partner, a person directly familiar with the deal said. He did not want to be named.
The Assetz transaction follows a slew of significant warehousing deals that were announced this year. In June, Singapore-based Ascendas-Singbridge Group announced a joint venture (JV) with realty firm Firstspace Realty to enter the industrial logistics and warehousing market to jointly invest as much as $600 million over 5-6 years and develop around 15 million sq. ft of space.
In April, Ascendas-Singbridge Group bought six warehouses with a total space of around 832,000 sq. ft from Mumbai-based logistics firm Arshiya for Rs534 crore.
Canada Pension Plan Investment Board (CPPIB) and Everstone Group’s industrial and logistics real estate development platform, IndoSpace, announced a JV named IndoSpace Core in May to acquire and develop modern logistics facilities in India.
“In terms of warehousing and logistics, there will be a clear trend towards larger and more modern warehouses spread across fewer but better-placed locations such as sea ports or major highways,” said Rajesh Jaggi, managing partner, Everstone Real Estate.
CPPIB has initially committed around $500 million and will own a significant majority stake. The venture also has the option to acquire an existing pipeline worth about $700 million as well as participate in a future development pipeline.
“In particular, IndoSpace sees even more robust growth with GST being rolled out. I expect in the next 5-7 years we will have around 50 million sq. ft of modern, developed and under-development light industrial and warehousing parks from the current 30 million sq. ft,” added Jaggi.
As GST comes into practice, the Indian warehousing sector is poised for structural changes in its operation dynamics.
The current system of interstate taxation results in space take-up being dictated by lower taxes (rather than operational efficiencies) as well as the domination of the warehousing sector by a large number of unorganized players, property advisory CBRE said in a 1 July note.
“Once GST comes into play, the focus of players is likely to be supply-chain efficiencies, which will result in consolidation of warehouses and entry of national-level/credible players,” CBRE said.
An early mover in the warehousing and logistics space, realty firm Embassy Group, and an affiliate of investment firm Warburg Pincus set up Embassy Industrial Parks Pvt. Ltd in 2015 to invest $250 million in building industrial parks with warehousing facilities. The JV has acquired land in Chennai, Gurugram and Chakan and has started leasing out space in a couple of facilities as well.
“GST not only enables ease of doing business but will also help open up bigger and better warehousing facilities for long-term usage. There is a lot of institutional capital chasing this space but there is more than enough space for everyone given the opportunities,” said Anshul Singhal, chief executive, Embassy Industrial Parks.
Later this year, Mumbai-based Hiranandani Communities plans to roll out its industrial park business, and the company is looking at land parcels in Pune, Chennai and Nashik.
“We were expecting to start out earlier but we waited for GST and should be ready by the year-end. The growth potential in this business is high but we see it as a niche opportunity,” said founder Niranjan Hiranandani.