Know About Industrial Parks and Warehouses in India

The concept of industrial parks is alluring. It argues that for industrial firms to be competitive, governments must provide public goods, especially infrastructure; co-located firms create economies of agglomeration, and so public goods should be focused on areas of colocation. If the businesses are not there yet, it would somehow be caused by the provision of infrastructure. If the region is demarcated and the general economic climate is tough, it is possible to make exemptions that would help attract businesses and generate competition. Industrial parks are typically funded by the SIDC or some other government entity or legislative authority. Projects are designed, approved, developed, operated, and controlled by a government entity with limited involvement by the private sector.

Know About Industrial Parks and Warehouses in India

The warehousing property segment has emerged as a lucrative investment opportunity for institutional investors at a time when the Indian real estate industry has been facing headwinds because of a challenging residential market. As the introduction of GST, the ongoing government emphasis on building industrial corridors, the 'Make in India' focus on development, and the prospect of the Indian demand market has stirred up investors, the industry has moved onto a different trajectory.

Long before the government started introducing reforms, such as GST, and granting infrastructure status to the logistics industry, including warehousing, investors had begun to become aware of the opportunities in the warehousing sector. The sector has seen significant involvement from both institutional investors and developers, who have collectively invested more than USD 6.8 billion since 2015, with an average per deal investment of USD 282 million.

In the last three years, a big chunk of the USD 6.8 billion investment has come in. Some of the world's renowned and largest pension funds, sovereign funds, and private equity funds are actively investing in this field. Many Indian developers, who were earlier focused on residential, office, or retail projects, now realize the ability of the sector to provide an additional stream of annuity revenues.

In contrast to residential, office, and retail properties, warehousing assets have a comparatively shorter construction period (around 12-18 months) after land acquisition. Therefore, the most involved in this room is private equity (PE) funds, which have a pre-determined fund life cycle (usually 8-10 years). PE funds had a 43 percent share of the overall warehousing industry investments. The lease tenures are shorter for traditional warehousing storage operations, normally less than 3–5 years.

However, as the Indian warehousing industry is evolving and occupiers are consolidating their operations in larger warehouses, a significant amount of capital is being invested by occupants for automation, architecture, robotics, new technology, inventory management equipment, light manufacturing, etc. inside the warehouse facility. Since occupiers would prefer to amortize high-capital-intensive investments, long-term leases are signed, which, in many cases, normally run to nine years or more.

This guarantees annuity revenue stability for investors seeking to build a 'REIT-able' portfolio. In addition, only long-term holders, such as Sovereign and Pension funds, favor assets that guarantee long-term income from annuities. This is expressed in the share of Sovereign and Pension funds, which accounted for 33% or the second-largest share of investments in warehousing as an investor segment. The remaining 25 percent was spent by real estate and warehouse developers. 

In India, the warehousing industry has largely been fragmented within the unorganized domain and there have not been many large organized Pan-India players whose scale of development could have a major effect on the scale of funding for institutional investors. Furthermore, to encourage major investments in ready assets, investment-grade properties have been extremely limited. As a result, the largest share of the USD 6.8 bn investment in the warehousing segment (83 percent) went into new growth. The 10% went into the acquisition of ready assets and the remaining 7% into a mixture of ready and under-construction assets.

Including Growth Centre, Export Processing Zone, Free Trade Zone, Export Promotion Industrial Park, Software Technology Park, Electronics Hardware Technology Park, there are numerous schemes in which industrial parks could be promoted. In particular, the government and its agencies have supported industrial parks with limited participation from the private sector (PSP).

In India, the PSP in industrial parks was partially successful and was also primarily limited to IT parks. The approaches to the development, administration, regulation, etc. of industrial parks also vary depending on the political and developmental constraints faced by individual States. The status of the industrial parks sector varies from state to state, with countries such as Maharashtra, Gujarat, AP, Tamil Nadu, etc. making significant progress in the promotion of industrial parks.

A few examples of a private initiative in the construction of industrial parks are Initially, Mahindra City in Chennai was designed as an auto park. The idea was altered over a period of time, however, and the park began to concentrate on IT and ITeS. Perhaps the boom in the IT sector may have led to the growth and success of IT parks.

Sometimes, the decision to create an industrial park represents the government's political and social priorities. With parks generally under a single entity in the State, normally the SIDC, the proceeds from parks at industrial forward locations are used to cross-subsidize the backward area’s parks. Industrial parks in India are mostly poorly managed and lack competent management.