"CWC Anticipates Rs. 1,500-2,000 Crore Inflows from Private Players for Warehouse Redevelopment"

The Central Warehousing Corporation (CWC) is gearing up for a substantial influx of funds, estimating an investment ranging between Rs. 1,500 crore to Rs. 2,000 crore from private players for the redevelopment, upgradation, and leasing of 54 warehouses. These warehouses are set to be offered to private entities through a tendering process.

CWC, a government-owned warehousing entity that manages 458 warehouses across the country, is initiating a second round of tendering for these 54 locations. The decision follows an earlier attempt this year that did not yield the desired results. The combined area of the warehouses available for redevelopment totals 7.5-8 million square feet.

During an investor roadshow in Mumbai, several issues were raised, including concerns related to payment modalities. Under the current tendering terms, 5 percent of the gross revenue from lease rentals or the minimum guaranteed revenue share will go to CWC, with the remaining 95 percent designated for the developer. However, investors and warehouse developers expressed apprehension over the uncertainty of cashflow predictability as CWC would be responsible for disbursing the developers' share, without a clear timeline.

Additionally, concerns were voiced regarding a 15 percent escalation clause in the lease rent, which could pose challenges during economic downturns or sectoral declines.

CWC's Managing Director, Amit Kumar Singh, mentioned that the company aims to address these concerns and make necessary amendments to the tender documents within the next week. Singh anticipates that private developers will invest significantly in the redevelopment of these warehouses. This transition to private participation is expected to boost revenue streams, enhance space utilization, attract a more diverse clientele, implement modern storage practices, and achieve cost efficiencies. Singh emphasized that this move is intended to unlock the value potential in these assets.

The tendering process is expected to be completed by the end of December, paving the way for private participation in early 2024. Out of the 54 sites available for tendering, 15 are located in tier-1 cities, 13 in tier-2 locations, 3 in tier-3 cities, and one in a tier-4 city. All these warehouses are nearly fully leased and operational.

CWC acknowledges that its available land resources are underutilized, and private participation is envisioned to optimize their use. Of the operational storage capacity of 10.4 million tonnes, CWC warehouses currently boast an average utilization of close to 87 percent. Around 85 more warehouses are being assessed for potential private participation.

The warehousing sector in India is experiencing substantial interest not only from a real estate perspective but also from private equity and other investment funds. According to a report by Knight Frank India, despite a slump in warehousing activity in the first half of FY24, rent growth across key cities remains healthy, ranging from 1 to 4 percent. Pune and Chennai observed the highest growth rates. In the April to September period, warehousing leasing amounted to 23 million square feet, marking a 10 percent decline compared to the previous year. The manufacturing sector contributed to half of the transaction volume, with third-party logistics companies accounting for less than one-third.

HBL