How Warehousing and Logistics Hubs are Impacting Neighbouring Residential Real Estate Markets

Residential projects located close to warehousing and logistics hubs have experienced a spike in demand and prices. Land prices, too, have increased.

Residential real estate markets located close to established warehousing and logistics hubs have something to cheer. Demand-driven warehousing and logistics networks have had a direct impact on neighbouring residential areas, where property prices have firmed or increased.

There are scores of examples. The trend is exemplified by residential areas like Madhavaram and Redhills in Chennai, Hoskote in Bangalore, Chakan – Talegaon and adjoining areas of Pimpri Chinchwad in Pune, Bhiwandi near Thane Creek in Mumbai, Sohna Road in Gurgaon and regions adjoining Jewar in the National Capital Region (NCR) and Medchal in Hyderabad.

Some other examples of residential areas benefiting from warehousing and logistics hubs are Dholera in Gujarat along the Delhi-Mumbai Industrial Corridor (DMIC) and Dankuni in West Bengal on the Eastern Dedicated Freight Corridor.

Warehousing and logistics has been expanding. According to an update from ANAROCK Capital, the stock of Grade A warehousing space has grown impressively and is expected to expand 2.5X in the next five years. It is estimated that the market size is expected to touch approximately 80 million sq ft by 2026, posting a Compound Annual Growth Rate of 19%.

“This growth is primarily driven by the boom in e-commerce and 3PL companies. Together these categories account for over 50% of the total demand,” said Devi Shankar, president –industrial logistics & data centres, ANAROCK Capital.

3PL is short for third-party logistics.

To offer enhanced customer experience, on-demand warehousing has proven to be a flexible business model for retailers and brands, offering operational scalability and supply chain agility, Shankar added.

“These factors are expected to keep the demand for warehousing buoyant in the coming years.”

The impact is so profound that even upcoming warehousing hubs have had an impact on nearby residential markets. Take, for example, the upcoming Jewar International Airport in Noida, on the outskirts of New Delhi.

The airport will help the region to grow as a warehousing and logistic hub. A warehousing and logistics hub is expected to be set up in Tappal Bajna, some 7 km away from the new airport.

As a result, speculators are already betting on land prices in the area, said a study by property consultancy Knight Frank India. The Noida-Greater Noida region has seen an uptick in transactions of plotted developments.

The policy perspective

India aims to transform the logistics and warehousing space. The government’s proposed National Logistics Policy (NLP) is aimed at streamlining and strengthening the logistics sector, promoting seamless movement of goods across the country, and increase the ease of doing business.

With increasing trade competitiveness, the logistics and warehousing segment will not only create more jobs, but will also improve India’s performance globally. As a result, it will drive economic growth and business competitiveness through a sustainable and cost-effective logistics network, leveraging best-in-class technology, processes and skilled workforce.

“Moreover, the government’s push towards manufacturing and incentives, such as the PLI (production-linked incentive) scheme, is promoting the development of industrial hubs of Chennai, Pune, Ahmedabad and Bengaluru,” said Rajesh Jaggi, vice chairman –real estate, Everstone Group.

Impact on housing

“There is an indirect impact on real estate appreciation in some specific assets, especially budget residential and hospitality sectors suitable for industrial/ logistics land use apart from other allied support development with the cities’ expansion along these corridors,” said Chandranath Dey, head – operations, business development, logistics and industrial consulting, ports, airports and global infrastructure, JLL India.

And the trend is not just visible in metros. It is evident in Tier II and III cities as well. “Tier II and III cities such as Vapi, Surat, Lucknow, Patna, Coimbatore, Ludhiana, Guwahati, Siliguri and Bhubaneswar are already witnessing a surge in warehousing demand. These cities are witnessing a transformation in the adjoining localities and micro-markets where other asset classes are gradually emerging owing to the heightened economic activities,” added Shankar of ANAROCK.

Large-scale industrial logistics park developers agree.

“Whenever a logistics project is announced in a new region, it signifies an optimistic view towards the industrial potential of the respective land. However, a new location can typically take a decade before it can be considered established. The region witnesses price growth of anywhere between 20-50% in the short term and even more in the long term. For example, Land price growth in Luhari/Oragadam has been around 100% in the last 10 years,” said Jaggi of Everstone Group.

Everstone Group-backed Indospace has the largest network of grade-A warehousing in India with 44 parks across 49 million square feet and will continue to expand and support infrastructure development for a more robust supply chain in India, Jaggi said.

Tier-II cities

“We also expect to see the share of Tier-II cities growing much rapidly over the coming years as private consumption and e-commerce are the key drivers of the growth in Tier II markets. We already have a presence in Coimbatore and Rajpura and looking to enter emerging Tier II markets such as Lucknow, Guwahati, Surat and Ludhiana,” added Jaggi.

Real estate developers agree with Jaggi and have indicated that demand across cities has propelled growth.

“The shift to GST (Goods and Services Tax) and the Covid-19 pandemic have resulted in warehousing no longer being located largely in areas outside municipal limits because of Octroi,” said Niranjan Hiranandani, vice chairman, of the National Real Estate Development Council and managing director of the Hiranandani Group.

“Demand for in-city warehousing is shooting up in sync with e-commerce adopting quicker delivery options; similarly, demand for grade A warehousing is also shooting up. The outlook for warehousing is promising, with rising consumerism and higher economic activities… If one looks at any warehousing hub, one finds enhanced growth potential in warehousing having a positive effect on price points remaining stable in that micro-market. Specialization results in the formation of the hub; in turn, this positively impacts price points. It also has a similar positive effect on price-points of office spaces as also other forms of commercial real estate in the vicinity – with a matching impact on demand for residential real estate,” Hiranandani added.

Developers are already trying to capitalise on these developments, said experts. Warehousing and logistics hubs come with a huge workforce. As a result, the neighbouring residential projects and those in proximity offer good investment and renting options.

“This has become a good model and there are developers who are capitalizing on the trend,” said Shyam Arumugam, managing director, industrial and logistics services, Colliers India. It will be an area of concern for a majority of these regions and buyers, too.

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Source: www.moneycontrol.com