Surging land prices, state laws hurt warehousing companies

Soaring land prices and unavailability of good land parcels with right connectivity are posing a stiff challenge to the Indian warehousing and logistics sector.

Additionally, increasing competition for a good land parcel along with different state-specific land laws are increasing complexities for both institutional funds and warehouse developers, putting pressure on yields in turn.

"If the land is aggregated and held in one or two names, it is easy to deal with, as most of the groundwork that needs to be done to consolidate the holding would have already been done by the existing owners," said Mehul Shah, CEO, LOGOS India. "That plot will attract the premium as the competition also chases consolidated land with clear title. So, one is the consolidation premium and the other is the competition that drives price escalation."

According to Shah, any new institutional entrant will cause a 1% increase on the existing good land. So, if there are three more players, chances are prices will go up 3%.
Yields in warehousing assets have fallen to 7.5% from 8.5% in the past two years, as more global players race to invest in such assets amid the pandemic.

The warehousing segment has been witnessing increasing interest from institutional investors, with more than $5 billion funds committed by PEs and pension funds.