Introduction and Industry Overview

Indian logistics industry cost to GDP ratio is 13-17% which is ~ double (6-9%) the logistics cost to GDP
ratio in developed countries such as the US, Hong Kong and France1. Indian warehouse industry (across
various commodities and modes) comprises of INR 560 B excluding carrying cost and is growing over
10% annually.2

Warehouse formulate a crucial link in overall logistics value chain and accounts for 5% of Indian logistics
market. Warehouse industry in India has moved from pure play logistics to 3 party. Types of warehouses
include - 1) Public, 2) Private, 3) Bonded, 4) Government, 5) Co-operative, 6) CFS/ICDs, 7) Cold Chain.
Overall industry has huge potential but is currently facing a key problem of 92% market is dominated by
unorganized players, wherein 70-75% organized one is dominated by PSU such as Central Warehousing
Corporation (CWC), the Food Corporation of India (FCI) and State Warehousing Corporations (SWCs).
Such organized sector controlled by corporates, cooperative and private sectors comprises of 106.95 MT
capacity of which private sector has 18 MT3. Multiple reasons promoted concept of many private players
not entering as owners in the
space key being the cost savings by partnering with local players due to different taxes levied by
different states. The trend in the industry is changing due to multitude of factors:
 Change in industry perspective - such as compliance requirement, quality requirement by
clients/regulators, economies of scale-larger warehouses, security of goods, operational efficiency,
faster turnarounds, efficient warehousing designs and user’s willingness to pay extra to occupy space
in compliance industry
1Knight Frank Research, 2018
2http://www.ey.com/Publication/vwLUAssets/The-Indian-Warehousing-Industry-An-Overview/$FILE/EY-The-Indian-Warehousing-

Industry-An-Overview.pdf
3https://www.pwc.in/assets/pdfs/publications-2011/building-warehousing-competitiveness-india.pdf

CBRE Report, India Industrial and Logistics MarketView H1 2017

 GST reducing the need of warehouse owners to open small warehouses in each state, now owners can
lease state of the art warehouses in the states they wish as per their business model
 Make in India and Golden Quadrilateral Industrial Corridors will promote manufacturing and
distribution industry which in turn will fuel requirement of organized warehouses
 REITs market in India is developing which will safeguard warehouse investors exists by registering the
property under the act, thus promoting investor confidence in industry

Recent Past Trends in Warehouse Space

The Government of India has projected a growth rate of 6.5% for the Indian economy in the period
2017-18, riding on the back of a good monsoon & a healthy growth clocked by the Indian Manufacturing
Sector along with several systemic economic reform interventions by the government in the form of
demonetization, the Goods and Services Tax (GST), ease of doing business initiatives & the Bank
Insolvency code.
While these legislations had a considerable impact on all sectors of the economy including real estate,
the GST had a large scale impact on the real estate sector and particularly the industrial leasing &
warehousing sub-sector. GST fundamentally altered the prevailing structure within the warehousing sub
sector since prior to the advent of GST, FMCG, ecommerce, pharmaceutical and other major industries
retained smaller warehouses in every state with larger warehouses stationed at the metropolitan or
major cities. The ownership of these warehouses was largely fragmented with majority of the holding in
the unorganized sector, thus leaving the major bargaining power in the hands of firms which were
looking for renting industrial spaces and warehouses. Now with a unified taxation system, there is no
need to maintain smaller warehouses and therefore the sector is witnessing asset reengineering and
consolidation, resulting in bigger warehouses, shifting the bargaining power to the owners of
warehousing spaces. This will also raise the entry barriers as the market will become largely organized
and move towards bigger warehouses thus raising land acquisition and development costs. Further, this
has facilitated the entry of contract driven third party logistics providers as operational efficiencies
become critical for consumer oriented goods delivery. This, coupled with other government initiatives
such as granting of infrastructure status to the logistics sector, make in India initiative to boost the
domestic manufacturing industry and developing supporting infrastructure such as dedicated freight
corridors and strengthening the logistics through the “Sagarmala” project are attempts to further
proliferate the growth of logistics sector in India.
Certain emerging trends in the context of the above information are discussed below:

 Consolidation of Warehouses and reduction in lead times: Owing to the disruption in supply
chain models due to the developments explained above, the bigger warehouses also enable the
firms to maintain higher inventory levels while lowering inventory holding costs, which also
helps in minimizing stock out risks & improving the top line profitability. This is an indicator that
in the long term, there is a business opportunity for providing larger industrial warehousing
space. This phenomenon has led to the need for value added warehouse management services
yielding automated warehouses equipped with IT/ERP infrastructure.
 Infrastructure status to the industry: The government had granted infrastructure status to the
logistics industry including the warehousing space either covering an area equal to or more than
20,000 square feet or envisaging an investment of more than 25 crores. This will ease the flow
of funding to the sector, with access to longer term debt funding from banks and other
institutional lenders.
 Attracting Investments & participation: The warehousing sub-sector has witnessed massive
investments by private equity firms in the period between 2014-2018, as it accounted for 26% of
the private equity investment in India in the said period. The investments are primarily focused
on greenfield projects. Going forward, if the projection1 of the economic progress is deemed
right, with the increase consumption demands, specifically in the e-commerce and FMCG
industry the investments can be expected to improve further. As such, the southern Indian
states have seen more investments as compared to northern India, with Bangalore and Chennai
leading the investment bandwagon which may be attributable to relatively lower land costs,
lesser fragmentation and supportive legislation. These cities offer attractive IRR of 15% and 22%
respectively2

Issues within the Warehousing Sector

Value creation and competitiveness in warehouse industry is driven by not only service
provider’s ability to offer returns to the shareholder against cost of capital but also perform
effective utilization of space round the year. A few key issues include: (3,4)

1,2 Knight Frank Research, 2018

3https://www.pwc.in/assets/pdfs/publications-2011/building-warehousing-competitiveness-india.pdf
4.https://realty.economictimes.indiatimes.com/etanalytics/reports/commercial/india-industrial-and-logistics-

marketview-h2-2017/553
1. Warehouse industry in India is fairly unorganized in private sector, these assets range from basic
godown to full-fledged automatic temperature controlled space. Thus, acquiring such space and
modernization of same as per requirement new customer will require more time thus investors
will prefer to have green field assets developed [apparent in current investment trends]

2. Current warehouse industry function more on landlord space lease mode as compared to
integration of the space as per customer logistics chain. Change in industry requirement from
more space based to value based pricing of a given space in warehouse industry will require
significant refurbishment of existing structures in terms of quality which may not be possible
due to basic skeleton of structure

3. Capacity planning vs cargo flow in major warehouses located as hub or major areas is a
challenge, since such warehouses need to have automation for all major critical paths, such that
delays and stacking of cargo can be avoided. Such warehouse will offer investor great value
unlocking opportunity in existing infrastructure

4. Effectiveness of space utilization in the industry is one of the major problem. Low capital
availability due to earlier lack of investment exit opportunities and lack of regulations in the area
resulted in lack of focus by investors to unlock value from such investment and operate such
structures in BOT format

5. Existing infrastructure of warehouses have limited capacity to handle multimodal interfaces,

which needs to targeted by green field investments in this field

6. Warehouse industry is currently very fragmented, thus for a single investor to invest in existing
landscape may require more involvement as compared to normal situation- Strata Problem

7. Warehouse industry is currently going through transition phase, where in lack of adequate
facilities such technology integration, data analytics, internet of things, RFID tracking of
shipment, etc. result in generation of inefficiencies in the system. Lack of smart infrastructure
and automation is another major challenge that industry.
 8. Logistics cost measure in customer industry is inappropriate which translates to inappropriate
revenue conversions for the industry

9. Limited value addition to user industry, as lease happens as per space availability or landlord’s
wishes rather than customer requirement

10. Industrial corridors and Make in India promoting development of manufacturing and
ecommerce sector in India, will result in rapid growth in the warehouse industry demand. Also
with digitization of industry at rapid pace, warehouse providers will need to catch up and
implement advance technology solutions in the industry. Thus achieving the same with current
ownership and structure of industry will be difficult. Hence, major investment in the creating
new warehouse spaces and incorporating technological changes in existing ones at rapid stage is
required along with expertise of private players to execute such plan

Exploring different models in warehouses in India

Logistics cost in India is c.13-17%1 of the GDP vis-à-vis 6-9%2 in developed countries like US, HK, and
France. Absence of efficient intermodal and multimodal transport systems and disintegrated
warehouses are the primary reasons for this difference. More efficiency in the sector can be achieved
via consolidation of warehouses and auxiliary logistics models on top of the consolidated warehouses.

We have outlined the key models that can be used to achieve this below. The migration from
disintegrated, small warehouses to integrated, large modern warehouses with higher productivities will
be driven by improved road connectivity, Make in India initiative, the GST reforms, and the inflow of
institutional capital. We shall discuss the impact of each of these below and why the shift to integrated
model makes much more sense in today’s context in India. This shall also explain why developed
countries have been so efficient in keeping the costs low as a result of this model.

Large integrated warehouses are common in the developed world

India is in a phase where internet penetration is on the rise, fueled by the smartphone penetration and
cheap access to mobile data (given that India is a price sensitive market). As a result of this, more and
more users are expected to shop online in the years to come. This means increased pressure on e-
commerce players to serve their customers in an efficient way. An efficient service mandates a quicker

1,2 Knight Frank Research, 2018

lead time, better inventory management and efficient logistics systems. Logistics is so important to e-
commerce that it is touted as one of the biggest barriers to entry in this industry. Flipkart has, in fact,
developed its own logistics chain by graduating from 3PLs like Delhivery, etc. to achieve faster time to
consumers. With the burgeoning digital penetration, the demand for good logistic and warehousing
facilities will increase. As discussed, this is not possible without efficient logistics infrastructure. This
efficiency shall be achieved with large, integrated warehouses. Development of these warehouses will
be driven by inflow of institutional capital and their management expertise in running such spaces.
There will be a huge demand and supply mismatch in the absence of quality logistic spaces if we are
caught between fragmented logistics ecosystem on one end of the spectrum and increasing demand for
good spaces on the other. Hence, India needs to emulate the developed world model, albeit with some
changes.

Disintegrated warehouses

Source: Knight Frank Research

Earlier, the warehouses were located close to the consumption centers. As a result, the number of
warehouses was large and economies of scale couldn’t be achieved because of the smaller area of these
warehouses where per unit economics couldn’t be optimized beyond a point. Also, technology
integration was not economically feasible at such a small scale, and this in turn led to lower rentals as
the warehouses weren’t modern enough to serve the end needs of the consumers efficiently. Thus, it
became like a chicken-and-egg problem, where lower area didn’t justify setting up of modern
infrastructure, and poor or “lower strata” warehouses couldn’t command a premium in rentals to in
turn justify the higher costs of setting up the modern infrastructural facilities within these warehouses.

Integrated warehouses

Source: Knight Frank Research

With the integrated warehouses, there will be one large warehouse and multiple distribution centers in
various states. This is more efficient from a cost point of view as a large facilities benefit from
institutional capital, “industry” status, experience of global logistics players in efficient warehouse
management, add-on facilities like Internet of Things, Artificial Intelligence, the use of Radio Frequency
Identification (RFID), advanced technologies like automated storage, robotics, big data, cloud logistics,
temperature control, and digital supply chain integration.

GST reforms

Prior to GST reforms, each state had its own taxes (OCTROI, etc.) and own set of compliance procedures
that had to be adhered to before getting a clearance to transport goods. This led to loss in delivery time
and increased cost burdens.

As a result, companies opted for multiple smaller warehouses in each state to avoid wastage of time on
inter-state transfer of goods and work around inter-state goods transfer taxes, which added to the cost
burden. However, post GST, the government ruled out different taxes in favor on “one country, one tax”
regime. This led to a huge savings in the costs and lead times getting reduced because of the elimination
of various check points within the states.

In the pre-GST era, the commute time between Delhi – Chennai was around 5-6 days1. The commute
time has now come down by c.50%2. According to a survey conducted by Knight Frank, the average cost
saving as a result of the GST reforms has been in the range of 3-7%3. This cost saving also depends on
the type of industry using the logistic service due to idiosyncratic factors. The cost savings can be broken
down in following buckets:

 Increase in turnaround time ensuring that fewer trucks are required to carry the same amount
of operations. This has led to companies employing fewer trucks, thus, resulting in savings in the
cost of trucks to be bought
 Savings in interstate taxes, as discussed above
 Savings in fuel due to reduction in travel time and stoppages at various check points – better
mileage leading to rupee savings
 Savings in real estate costs, because of consolidation in warehouses (Warehouses can now be
moved to locations chosen on the basis of the land costs and proximity to catchment areas post
analyzing for overall optimization in the network)
 Savings in inventory carrying costs, due to faster movement of goods, thereby reducing the need
for companies to carry high inventory levels

Large warehouses lead to improved supply chain productivity and more efficient capital utilization

1,2,3 Knight Frank Research, 2018

One of the most significant indicators of supply chain productivity is the inventory carrying cost. The
amount of capital that is lying idle in inventory could have been utilized elsewhere if the capital were
deployed for more productive uses. Thus, lower inventory holding costs automatically translate to more
efficient capital utilization.

Source: Operations Management course slides from term 3, taken by Prof. Ravi Subramanian

R: demand rate

L: Lead time

Stocking out of inventory has severe consequences for the business because it can lead to loss of
customers on account of non-fulfillment of their demands. Hence, it is crucial to manage stock-outs. This
concept is called “safety inventory” and is denoted by Is

The reorder point is the inventory level at which the orders are triggered, and safety stock is the hedge
against variability in the demand.
Source: Operations Management course slides from term 3, taken by Prof. Ravi Subramanian

The reorder point needs to take into account the desired service level; else there can be a risk of stock
out as seen from the illustration above.

Source: Operations Management course slides from term 3, taken by Prof. Ravi Subramanian

As we can see from the analysis above, the safety stock is dependent on the service level (SL), demand
variability or the forecast error (σ), and delivery lead time (L).

With the consolidation of warehouses, the variability in demand and lead times in the individual
warehouses shall be averaged out. With the reduced variability and hence lower σ, inventory levels
required would be smaller. The waiting time in a queue is given by the following formula:

Source: Operations Management course slides from term 3, taken by Prof. Ravi Subramanian
Take a situation where 2 warehouses are consolidated. In this case, the input flow rate will be twice
each individual warehouse. Thus, with c=1 instead of 2, and R= 2x the R for the individual warehouses,
the wait time actually reduces. This in turn flows into reduced lead times and lower inventory holding
costs.

This analysis makes a strong case for consolidation in the warehouse space from a technical stand
point.

Consolidation of warehouses has seen c. 30% reduction in the inventory levels leading to c.40% increase
in inventory turnover, ultimately increasing the IRRs for the investors1.

From a financial standpoint, the government of India has accorded “infrastructure” status to logistic
parks with a warehousing facility with minimum investment of ₹25 crores, and minimum area of
100,000 sq.ft. Institutional investors would look at these assets in their portfolio and with their
management expertise; they look at IRRs north of 16-18% in this space.

Multi-storey warehouses

These are effective when the land costs are very high. Typically have been very successful in HongKong
and Singapore due to paucity of space. Such models might not be relevant in an Indian perspective
because of the relatively low rentals.

On top of integrated warehouses, one can also look at these trends in the logistics space:

Super grid logistics: Cost and time efficiency by integrating multiple supply chains. e.g. Amazon

Share space logistics: Favorable compared to Built-to-Suit to increase utilization and optimize costs.
Interest fueled by AirBnB model, and shared warehousing models of PepsiCo and Nestle

Omni-channel logistics: Integrating virtual and offline shopping experiences of customers. IKEA does this
to ensure that customers can have the brick and mortar as well as online experience

Relay trucking: Simultaneous commencement of trucks from two opposite directions so that drivers
exchange trucks midway and don’t stay away from their homes for long. e.g. Rivigo

Hyperlocal: On-demand delivery so as to reduce lead times by sourcing inventory from local retailers
within an area e.g. Several startups in India including BigBasket

1
Knight Frank research
Batch-size 1: Speed factories replacing offshore factories by utilizing 3D printing e.g. Adidas

Temperature controlled logistics: Transportation, storage, and delivery logistics (end-to-end) are
temperature controlled. Innovation with temperature, humidity control at packaging or container level
will allow integration with standard delivery networks and cost savings. e.g. DHL

Smart warehousing: Simultaneous operation of multiple tasks using sensors, IoT, cloud computing, big
data (Integrating Wipro tools such as “Insta Intelligence”), Robotics (e.g. Sawyer), digital supply chain
(e.g. Samsung did this) and automation allowing for an integrated ecosystem. Amazon is pioneering this
space with its drone technology

Augmented reality: Better work environment for workers by integrating virtual information. Smart
glasses are a classic application. DHL has seen 25% uptick in operating efficiency1

Cloud logistics: Helps solve the problem of documenting records at an individual carton level

Self-driving vehicles: They integrate sensors to navigate and are seen in driverless trucks and automated
fork lifts. e.g. Starship Technologies launched a self-driving robot to deliver multiple parcels within a
5km radius in a Pilot program with Dominoz2

Drones: Very efficient for express deliveries in remote and congested areas (traffic problems). e.g. DHL
parcelcopter used for urgent pharma deliveries in Germany in 2013

1,2
Knight Frank research
 Factors guiding upcoming investment in warehouses
On a broad level, the warehousing space in India is dominated by 8 major cities and the satellite towns
surrounding them.

Warehousing vacancy pattern in Q3 2017 and future projections1

The growth of warehousing space in India is being driven by the implementation of the GST tax regime
and the logistic space being granted infrastructure status under the Indian business laws. The major
drivers of this growth from a GST perspective include2:
 Hub and Spoke model: There is an ongoing transition from the traditional carrying and
forwarding distributor model to a larger hub/regional distribution center and a smaller spoke
warehouse model.
 Focus on efficiency for margin maximization: The focus has transitioned from a tax saving
approach, a critical issue with multi state logistic plans to building cost efficiencies via
appropriate warehousing plans.
 Quick supply: State border checkpoints for tax compliances that accounted for almost 60% of
trucks transit time have been reduced. This would lead to predictable turnarounds at
warehouses including shorter lead times increasing the utilization of the warehouse asset.

1
http://jllapsites.com/real-estate-compass/2018/03/storage-warehouses-2020-jll-report/

2 http://holisollogistics.com/impact-of-gst-on-warehousing-in-india/
  Reduced cost to customers: Reduction in taxes is cascading to the consumer level, thus
increasing distribution in certain areas.
Additionally, the listing of the logistic space as infrastructure may have a larger impact on the
investment trends in light of the following reasons1:
 Ability to borrow from India Infrastructure Financing Company. Also, access to funds as external
commercial borrowing and long tenure funds including insurance and pension funds.
 Development of multi modal logistic parks requiring minimum investment of INR 50 crores and
minimum area of 10 acres leading to consolidation
 Traditional warehousing investments now require minimum investments of INR 25 crore and
minimum area of 100,000 sq. ft. again leading to consolidation.
Considering the above factors and the rapid change in the Indian economic space with focus on Make in
India and Ecommerce industry, two major routes of investment exist for warehouses.
Brownfield Investments
With improving infrastructure and spread of Urban areas, satellite town and gateway cities have turned
out to be new avenues of investments in warehouses. The investors could look into purchasing leased
assets in satellite towns and gateway cities, managing them to generate risk adjusted returns.
Moreover, with traditional sectors concerning construction material and FMCG facing headwinds and
looking to offload non-performing assets such as warehouses, gives investors an opportunity to build a
large portfolio. Consolidating such fragmented assets may
allow the investors to build a large hub and spoke model that could be managed for a large investor.
One major issue of buying into non-performing assets fraught with operational issues may include
reputational issues and external factors pertaining to infrastructure and bureaucracy that are difficult to
turn around. Therefore, a lot of foreign investors with limited geo-political understanding of the Indian
real estate space may look to participate in under construction assets through limited equity
investments. With mid-sized investors such as local multi retail firms and traditional FMCG
manufacturers highly burdened from earlier debt obligation, this would allow the investors to leave
operation management to the borrower and exit the investment once the asset has stabilized and a
handsome return on investment has been realized.
A classic example of such a deal is the INR 534 sale of six warehouses owned by Arshiya Group to
Ascendas India Trust. In order to move towards an asset light business model, Arshiya has provided
Ascendas India Trust a long term leasehold rights over 800,000 sw. ft. of warehouse space. Ascendas
India has inturn leased a portion of that space to Arshiya Lifestyle at pre agreed rentals. The remaining

1
https://economictimes.indiatimes.com/news/economy/policy/logistics-sector-gets-infrastructure-status/articleshow/61724575.cms
space can be utilized by Ascendas to develop and monetize fetching Ascendas almost 1500-1700 crore
over the next 4-5 years. This deal allows Arshiya to participate in world-class warehouses and their
subsequent sale while also maintaining the third party logistics management allowing the
implementation of their asset light strategy.1
While Brownfield investments may be appropriate for new investors looking to gain a foothold in the
market and also to understand the Indian real estate dynamics, established players may take a route of
Greenfield investments.
Greenfield Investments
One major issue facing the current warehousing space in India is the operational efficiency of the asset
due to limited refurbishment options, inability to expand existing facilities and inadequate technology
implementation.
To attract large FDI players (retailers, ecommerce, pharma and FMCG) from renting or buying
warehouses, investors may look to develop warehouses on their own. Moreover, to amplify their
returns from early investments, seasoned investors could look to partnerships with quality developers
to acquire large pockets of land and build warehouses from the ground up.
With the emergence of almost 30 major emerging cities in India, investors could look at two primary
metrics- 6 hours distribution potential and Composite Logistic Score Index- to develop their
consideration set of cities to invest in. The 6 hours distribution helps identity to new areas proximity to
major markets, with transportation infrastructure allowing access feeder locations in less than 6 hours2.
The scenario around Greenfield investment in discussed in detail in the following sections.
Last Mile Financing:
With residential developers seeing slowdown in sales and hence lower cash flows, last mile financing is
drawing the attention of real estate funds who whose 70-80% investments were only focused on
residential developers. Marquee investors like Altico Capital India whose investment portfolio increased
from INR 1600 crore in 2015-16 to INR 4000 crore in 2016-17 are looking to provide last mile financing
to warehouse developers.1
One method of investing using last mile financing is to provide secured mezzanine debt to developers.
The investment of the investing partner is secured by the equity of the developer who own the major
part of equity in the investment. But such mezzanine funds are riskier since they are paid only after the
senior loan is paid in full and hence command a higher cost. Such an investment model was used by
Kotak Realty Fund to fund its investments in NDR warehousing- a developer for warehouses looking to
expand into Kolkata and Delhi.2

1
https://economictimes.indiatimes.com/industry/transportation/shipping-/-transport/arshiya-sells-6-warehouses-to-ascendas-leases-
themback/articleshow/62781749.cms
2
http://jllapsites.com/real-estate-compass/2018/03/storage-warehouses-2020-jll-report/
Recommended: Greenfield Development with Partnerships (JV model) :-

Greenfield development model presents a good model for investment in the warehousing real estate.
The idea behind utilizing a greenfield model is to capture value from each of the eight stages of real
estate development. The improved margins and an effective risk sharing strategy can help achieve a
good rate of return on initial investment and generate an IRR of 10-20%. Apart from the returns the land
costs in newly developing belts is relatively lower as compared to the urban belts but as the logistic
sector demand is in an upward trend, such investments provide a huge upside potential with low
downside risks.

Another reason to go for a greenfield development is that such developments have greater imbibed
flexibility in terms of choice of locations by identifying strategic nodes to form a portfolio of such
projects. For instance, if the e-commerce sector is developing among the triad of cities like Bangalore,
Hyderabad and Chennai, as strategic portfolio of warehouses can help bag big logistics clients by
reducing their operation and transportation cost by providing modern storage facilities with good
infrastructure support of expressways or major train junctions.

In a greenfield development project, the investment company can form a joint venture with the
landlords/ developers to manage the overall development process. The greenfield development can
have greater returns as the margins can be improved by value additions due to the pre-leasing and
construction phase. As the market is still in a developing stage and a number of construction players
have already taken up major road and infrastructure projects along the major industrial corridors, a JV
with a reputed contractor for developing industrial warehouses in such locations can be a very
rewarding venture. As other major projects running in proximity of warehouses, a contractor company
can be on-boarded at lower rates due to less fixed costs and operational efficiencies from improved
asset turnover. Further, in post development warehouse operators can be partnered to reduce
maintenance costs and equity sharing in the JV. If all the stakeholders are integrated together and their
motivations are aligned to increase operational effectiveness and better rental yields it can be a great
value creation avenue.

The major stakeholders in such a greenfield development can be:-

 The Investors – GP-LP mode can be considered

 Landowner- equity of the JV or profit sharing against the land entitlements
 Contractor – Major EPC contractor with performance oriented contracts
 Design team- Functional and latest emerging design trends using automations
 Facility Management – Intent on reducing operations costs and shares rental yield for
performance
 Users or customers – Avenues for pre-leasing to raise debts at lower costs

The key benefits of a greenfield development in a partnership with the developer, contractor and the
facility management firm can be summarized as under:-

 Improved margins with cost savings and optimization using cost management and control at
every stage of the development
 No/low refurbishment costs as the property is newly constructed and built to sustainability
requirements
 Low initial risks as the landlords of approved industrial lands can be stakeholders
 Freedom to select territory and create clusters provides greater avenues for negotiation and site
selection
 Shared risks with the developer, contractor and even the land-holders manage the regulatory
compliances costs
  Design flexibility and customized product for specific sectors which can be modified based on
evolving trends and customer requirements
 Every stakeholders brings in his expertise and contributes in value creation

A typical risk sharing matrix can be :-

SL No. Risk Factors Responsibility

1 Capital risks Investor /Developer
2 Execution risks Contractor
3 Market risk JV
4 Regulatory risks Landlord/Developer/ JV
5 Return risk JV
6 Technical risk Design/ Developer

Although Greenfield development has the above benefits, the prolonged investment period also has
some intrinsic risks like: -

 Longer project and breakeven period results in delayed incoming cash-flows

 Shared returns
 Construction and partnership risks
 Changing trends and customer preferences
 Identifying customers and tying up pre-lease agreements.

Based on the given market data from Knight Frank for Aslali- Kheda warehousing belt, we have tried to
develop a financial model for a 10000 sft warehouse to demonstrate the kind of returns that can be JV
for a green-field development.
Source: Knight Frank Research

IRR for Investor = 18%

IRR for landowner = 9%

Source: https://kfcontent.blob.core.windows.net/research/677/documents/en/2016-4096.pdf