resilience redefined · 2020. 12. 3. · 3pl e-commerce engineering & manufacturing firms auto...

C B R E I N D I A

I N D U S T R I A L & LO G I S T I C S S TA K E H O L D E R S U R V E Y -C O N N E C T I N G T H E D OT S B E T W E E N O C C U P I E R S , D E V E LO P E R S A N D I N V E S TO R S

RESILIENCEREDEFINED

NOVEMBER 2020

| 2I N D I A I N D U S T R I A L & L O G I S T I C S S TA K E H O L D E R S U R V E Y © 2020 CBRE, INC.© 2020 CBRE, INC.

Source: CBRE Research, Q4 2020

I&L STAKEHOLDER SURVEY OVERVIEW

The COVID-19 pandemic disrupted the I&L ecosystem with several structural and cyclical implications. CBRE India Research undertook a series of stakeholder surveys during Q2 and Q3 2020 to understand the implications of this disruption with the commencement of ‘Unlock India 1.0’. About a 100 stakeholders participated in these surveys and the analysis of their responses is given in subsequent sections.

SHARE OF SURVEY RESPONDENTS TABLE OF CONTENTS

Occupiers

38%

Developers

47%

Investors

15%

I&L OCCUPIER SURVEY RESULTS

1

I&L DEVELOPER SURVEY RESULTS2

I&L INVESTOR SURVEY RESULTS3

WHAT ARE OCCUPIERS SAYING?

1

2

3



SUMMARY

The results of our survey revealed three key themes which would govern I&L occupiers in India post COVID-19

46% Preferred flexible

warehouse space for future leasing

#1 SUPPLY CHAIN DISRUPTIONS #2 IMPACT ON RE DECISIONS

89% Said that there would be no change in their

preferences from the pre-COVID-19 era between tier I and II / III cities

84% Change in warehouse design and

focus on improving last-mile logistics as their long-term strategy

#3 IMPACT ON WORK, WORKFORCE AND THE WAREHOUSE

32%Likely to invest in

strengthening supply chain infrastructure

27% Likely to further invest in fulfilment centers

75% Highlighted that their top short-

term RE strategy was to expand, albeit cautiously

39%Highlighted an increase in their

small-to-medium sized warehousing requirements

in the short term

65% Highlighted higher occupancy

costs and lack of quality spaces as top concerns following COVID-19

69% Highlighted that they will increase the implementation of tech

across the supply chain



SURVEY PROFILE

41%

32%

16%

11%

Domestic EMEA Americas APAC

RESPONDENTS BY OCCUPIER SEGMENT RESPONDENTS BY OCCUPIER REGION

38%

14%14%

14%

11%

3%

3% 5%

3PL E-commerce

Auto and auto ancillaries Electrical and electronics

Engineering & manufacturing firms FMCD

Pharmaceutical and healthcare Others



SUPPLY CHAIN DISRUPTIONS



FINANCIAL IMPACT, RECESSION, MANPOWER AND MATERIAL EMERGE AS TOP CONCERNS POST COVID-19

WHAT ARE YOUR TOP CONCERNS FOLLOWING THE COVID-19 OUTBREAK IN INDIA?

52%

45%

35%

35%

19%

13%

Financial impact due to COVID-19including effects on operations, future

revenues and liquidity

Potential global / domestic recession

Weak economic growth

Retaining migrant labour

Sourcing raw materials

Adapting to frequent supply chaindisruptions

High Concern

Low Concern

Due to potential income losses as a result of trade restrictions

Weaker macro-economic fundamentals resulted in global supply chains becoming increasingly challenged, with greater nearshoring of manufacturing operations and slowdown of consumer demand

The prolonged lockdown and shutdown of factories led to a mass exodus of manpower in India

Initial restrictions on the inter-state movement of goods created roadblocks in transporting critical raw material

Frequently changing regulations during Lockdowns 1.0 - 4.0 and city / district level restrictions during Unlock 1.0 and 2.0 often disrupted supply chains

Consequently, these disruptions led to occupiers considering more agile and resilient warehousing solutions for operating in India.

THE ‘DUAL’ IMPACT ON I&L OCCUPIERS: SUPPLY CHAIN DISRUPTIONS AND REGULATORY BOTTLENECKS



FLEXIBLE

WAREHOUSE

SPACES

Construction delays and the intent to cater to ‘immediate’ demand resulted in

almost half of the occupiers looking to transact short-term lease contracts,

thereby preferring to invest in flexible warehouse spaces.

Additionally, supply constraints would also provide occupiers the flexibility to

sub-let ‘white’ spaces in their warehouses.

SUPPLY CHAIN

INFRASTRUCTURE

About a third of the respondents highlighted that they are likely to invest in

strengthening the supply chain to mitigate risks by increasingly looking at:

• Near-shoring – Higher ‘essential’ demand led to occupiers focusing on

locating closer to demand centers, increasing their response time.

• Expanding distribution / sourcing networks to de-risk single source

reliance.

• Diversifying transport networks and increasing reliance on multi-modal

transport to negate inter-state restrictions.

FULFILMENT

CENTERS

The pandemic underscored the fragility of Just-In-Time (JIT) production and

long-established lean practices. As a result, one-third of occupiers are expected

to adopt the inventory model by investing in fulfilment centers, thereby

increasing their storage capabilities for months’ over weeks’ worth of goods.

FLEXIBLE WAREHOUSE SPACES ENTICING OCCUPIER FOCUS IN INDIA

TOP THREE I&L INVESTMENT AVENUES IN INDIA

3%

11%

14%

27%

32%

46%

Increasing cold storage units

First-mile warehouses

Last-mile warehouses

Fulfillment centers

Supply chain infrastructure

Investing in flexiblewarehouse spaces

TOWARDS WHICH I&L AVENUES WOULD YOUR LEASING / INVESTMENT PREFERENCE IMPROVE FOLLOWING THE COVID-19 OUTBREAK IN INDIA?



I&L OCCUPIERS SHIFTING TOWARDS A NETWORKED SUPPLY CHAIN ECOSYSTEM IN INDIA POST COVID-19Historically, supply chain disruptions have risen either due to production / trade restrictions on the supply side or by variance in consumer sentiments on the demand side. Most of the times, these disruptions have been confined to individual industries or markets, with supportive conditions enabling a relatively quick rebound from any short-term shock.

ACCELERATION OF THE NETWORKED SUPPLY CHAIN ECOSYSTEM OVER A LINEAR MODEL POST COVID-19

PRE COVID-19: A TRADITIONAL LINEAR SYSTEM POST COVID-19: A NETWORKED SUPPLY CHAIN ECOSYSTEM

The COVID-19 pandemic was all-encompassing as it caused a simultaneous disruption in both global supply and demand networks.

Within the span of a few months, serious flaws in supply chains were uncovered and questions were raised over the viability of long-accepted linear supply chain practices.

While linear supply chains concentrated on cost, speed, reliability and connectivity, a new networked supply chain ecosystem emerged post the pandemic.

This ecosystem is expected to lay equal emphasis on resilience, near-shoring capability, sustainability and agility – a trend reflected in our survey as well.



IMPACT ON RE DECISIONS (IMMEDIATELY POST COVID-19)



DELAYED / CANCELLED SITE VISITS AND DEFERRED EXPANSION PLANS IMPACTED I&L LEASING DECISIONS IN THE SHORT TERMHow have your RE leasing decisions been impacted immediately following the COVID-19 outbreak in India?

32%

30%

27%

24%

11%

11%

3%

Site visits delayed

No change

Expansion plans on hold

Site visits cancelled

Consolidation plans on hold

Relocation plans on hold

Renewal decisions delayed

Localised travel restrictions adversely impacted RE leasing decisions and increased pent-up space demand from e-commerce players

Immediate e-commerce requirements post Unlock 1.0 led to an increase in space demand for 3PL players

58%

25%

8%

3PL

E-commerce

Engineering &manufacturing firms

33%

17%

17%

3PL

Engineering &manufacturing firms

Electrical and electronics

27%

18%

18%

Auto and autoancillaries

3PL

Electrical andelectronics

SECTORAL BREAK-UP OF OCCUPIERS WHO INDICATED DELAYS OR CANCELLATIONS IN SITE VISITS

SECTORAL BREAK-UP OF OCCUPIERS WHO INDICATED A HOLD ON EXPANSION / CONSOLIDATION PLANS

SECTORAL BREAK-UP OF OCCUPIERS WHO INDICATED NO CHANGE IN RE DECISIONS



CHANGE IN SHORT-TERM RE STRATEGIES: CAUTIOUS EXPANSION PLANS

65%

35%

Yes No, remained the same

HAS YOUR SHORT-TERM RE STRATEGY FOR INDIA CHANGED FOLLOWING THE COVID-19 OUTBREAK?

CHANGE IN SHORT-TERM RE STRATEGIES: A SECTORAL VIEW OF OCCUPIERS

E-tailers started witnessing a strong surge in demand for online shopping, both for essential and non-essential items.

This resulted in the expansion of I&L operations to be driven mainly by 3PL and e-commerce firms.

46%

17%

13%

8%

0%

8%

4%

4%

23%

8%

8%

23%

8%

23%

0%

0%

3PL

E-commerce

Engineering & manufacturing firms

Auto and auto ancillaries

Pharmaceuticals & healthcare


FMCD

Others

Yes No, remained the same



About 89% of respondents said that there would be no change in their preferences from the pre-COVID-19 era between tier I and II / III cities.

This could be because online shoppers in tier-II and smaller towns constituted more than half of all shoppers in India and accounted for three of every five orders received by leading e-retail platforms.1

During 2019, about 70% of the closed deals were in the ‘less than 100,000 sq. ft.’format; fast forward to now – almost 40% of the respondents highlighted that they have an increased preference to lease ‘less than 100,000 sq. ft.’. This sentiment was mainly in the short term, due to a current lack of larger-sized spaces.

89%

5%

3%

3%

3%Remained the same

Increased leasing preference

towards tier II and III cities

Increased leasing preference

towards tier I cities

Decreased preference towards

tier I cities

Yet to decide

Decreased leasing preference

towards tier II and III cities

SMALL-TO-MEDIUM SIZED SPACES MORE POPULAR IN THE SHORT TERM; CITY LEASING PREFERENCES INTACT

HOW HAS THE COVID-19 OUTBREAK IMPACTED YOUR I&L LEASING PREFERENCES BETWEEN TIER I AND TIER II/III CITIES IN INDIA?

HAS THERE BEEN A SHIFT IN YOUR WAREHOUSING SPACE REQUIREMENT FOLLOWING COVID-19?

1 How India shops online, Bain & Company & Flipkart, June 2020

39%

19%

61%

81%

Size less than 100,000 sq. ft.

Size more than 100,000 sq. ft.

Increased Same



IMPACT ON WORK, WORKFORCE AND WAREHOUSES



WORKPLACE SAFETY PRIORITISED BY BOTH LANDLORDS AND OCCUPIERS

WHAT ARE THE PREVENTIVE MEASURES ADOPTED BY YOUR LANDLORD / ORGANISATION FOLLOWING THE COVID-19 OUTBREAK IN INDIA?

100%

100%

100%

100%

91%

Pandemic prevention material - procurement anddisposal

Additional cleaning procedures

Contingency plan in case the location falls undercontainment zone

Staggered entry / exits

Disinfecting and restoring utilities, operations,workplace etc.

Developer

100%

83%

83%

72%

72%


Ensuring social distancing norms within thewarehouse / cafeteria

Fumigation of warehouse

Additional cleaning procedures

Contingency plan in case the location falls undercontainment zone

Occupier

When we enquired about workplace safety solutions being offered, respondentshighlighted a ‘dual’ strategy – wherein developers would focus on common areapreventive measures while occupiers would concentrate on in-house sanitization /preventive measures.

Some of the other relatively easier solutions would also include chalking out crewscheduling and balancing programmes, deploying adequate personal protectiveequipment (PPE) and developing PPE standard operating procedures.

The topmost priority of occupiers would be to make their employees feel safe at theworkplace and protect them from the risks of the virus spread. This would involverethinking their work strategies across factory floors from a social distancing perspectiveagainst the backdrop of production and warehouse environments.

As the I&L sector enters the ‘recovery’ phase, select occupiers also plan to ramp upproduction / inventories; while others, such as automotive players, are set to restartproduction. In both cases, manufacturing companies now need to make decisions on the3 Ws – work, workforce, and the warehouse.

OCCUPIER - DEVELOPER ALIGNMENT ON PREVENTIVE MEASURES



CHANGE IN WAREHOUSE DESIGN, BETTER LAST-MILE LOGISTICS AND INVENTORY MANAGEMENT EMERGED AS THE TOP LONG-TERM STRATEGIES

How has your long-term RE strategy changed due to the COVID-19 outbreak in India?

51%

69%

72%

84%

84%

Automation of warehouses / industry units

Increased implementation of tech across the supply chain

Increased focus on inventory management

Change in warehouse design / spec

Focus on improving last-mile logistics



LOOKING BEYOND COVID-19



POST COVID-19, I&L REVENUES AND PORTFOLIOS TO GROW IN 2020 IN INDIA; MAINLY LED BY 3PL OCCUPIERS

On an annual basis, what change do you expect in your company’s revenue and I&L portfolio in India in 2020?

3%

5%

43%

52%

33%

24%

3%

14%

13% 3%

5%

I&L PORTFOLIO

REVENUE

Grow by more than 30% Grow by 10-30% Grow by less than 10%

Flat Contract by less than 10% Contract by 10-30%

Contract by more than 30%

More than 80% of our respondents stated that they expect their revenues as well as RE portfolios to continue to grow in 2020.

On the flip side, only a select few global 3PL and auto & ancillary companies were sceptical about their expansion plans, thereby divesting towards other asset classes or deferring decisions to 2021.

Segment-wise break-up of occupiers positive about their I&L revenues and portfolios in 2020

42%

15%

12%

12%

8%

4%

38%

14%

14%

11%

14%

3%

3PL


E-commerce

Engineering & manufacturing firms

Auto and auto ancillaries

Pharmaceutical and healthcare

Revenue Portfolio

Backed by increasing e-commerce demand and investment schemes such as Production-Linked Incentives (PLI); 3PL, e-commerce and electrical & electronics occupiers appeared more optimisticabout their growth projections.

While the positive outlook of 3PL and e-commerce players was mainly driven by domestic firms, global electrical & electronics firms expected their I&L revenues and portfolios to grow in 2020.



POST COVID-19: WHAT CHANGED FOR I&L OCCUPIERS IN INDIA?

SUPPLY CHAIN DISRUPTIONS IMPACT ON RE DECISIONS IMPACT ON WORK, WORKFORCE AND

WAREHOUSES

THEN

Pre-COVID-19

✓ The ‘traditional’ linear supply chain ecosystem

was widely accepted which withstood the usual

supply / demand shocks

✓ Occupiers had to meet short-term requirements via limited options

offered in investment / semi-investment grade spaces

✓ Increasing preferences towards larger spaces; ‘more than 50,000 sq.

ft’ format dominated 2019 leasing

✓ Occupiers were optimistic about large-scale, long-term operations for

expansion / consolidation in the much-awaited investment-grade

pipeline

✓ Standard employee health and wellbeing

practices followed

✓ Occupiers were finalising their long-term

strategies which they were to implement in the

much-awaited upcoming investment-grade supply

NOW

Post COVID-19

✓ Flaws in the linear supply chain model were

discovered as occupiers were unable to cater to

the increasing consumer demand

✓ Short-term expansion to continue, but cautiously; mainly led by 3PL

and e-commerce players

✓ Preferences for small-sized spaces (less than 50,000 sq. ft) increased

in the short term to cater to near-shoring opportunities

✓ Site visits delayed / cancelled; long-term expansion / consolidation

plans on hold

✓ Occupiers to align with developers to take

pandemic-related safety measures – the former

following safety protocols within warehouses, the

latter incorporating these in common areas

✓ The pandemic led occupiers to accelerate their

long-term strategies for improving warehouse

efficiencies

NEXT

✓ A ‘networked’ supply chain model is likely to be

adopted by occupiers, which would be more

resilient, sustainable and agile to external

shocks

✓ Occupiers would look to further invest in supply

chain infrastructure and fulfilment centers; select

occupiers to also increase investment in first and

last-mile warehouses

✓ Occupiers would increasingly opt for flexible leasing terms for

catering to their short-term needs

✓ We expect occupiers to increasingly prefer large-sized spaces, even

more than 100,000 sq. ft.

✓ Occupier demand to be inclined towards locating in investment-

grade, compliant spaces to meet long-term needs

✓ More focus on employee safety and wellbeing;

pandemic prevention protocols to become a norm

✓ Long-term strategies that occupiers would

implement in warehouses could include improving

specifications, last-mile logistics and inventory

management; along with increasing investment in

tech and flexible supply chains

WHAT ARE DEVELOPERS SAYING?

1

2

3



SUMMARY

The results of our survey revealed three key themes which would govern I&L developers in India post COVID-19. It is to be noted that majority of the respondents were domestic developers

57% Cited labour migration or

unavailability of critical raw materials as top reasons for construction delays

#1 PROJECT MANAGEMENT DISRUPTIONS #2 IMPACT ON MANPOWER, MATERIAL AND MAINTENANCE

89% Highlighted sanitization methods, wellness

checks and ensuring social distancing norms as top COVID-19 preventive measures

69% Cited an increase or stability in

occupier enquiries / inspections

#3 IMPACT ON RE DECISIONS

53%Expected a construction delay of

3-6 months in ongoing projects

38% Expected a construction delay of less than 3 months in

ongoing projects

69% Listed retaining migrant labour or sourcing raw

materials as top concerns post COVID-19

36%Were concerned about the

deferment of occupiers’ leasing decisions

56% Were looking to further diversify I&L portfolios,

investing mainly in fulfillment centers, first-mile and last-mile warehouses; along with

cold storage units and data centers

40% Revealed a heightened interest to

partner with global investors or developers



IMPACT ON PROJECT MANAGEMENT



A TRIGONAL IMPACT ON PROJECT MANAGEMENT LED TO CONSTRUCTION DELAYS

IF YOU BELIEVE THERE WOULD BE CONSTRUCTION DELAYS, PLEASE RANK THE IMPACT OF THE FOLLOWING REASONS.

PROJECT MANAGEMENT DISRUPTIONS

33%

24%

18%

11%

9%

4%

4%

Labour migration

Unavailability of raw materials such as cement, steel,etc.

Supply chain disruptions

Delay in disbursing construction funding

Untimely import of HVACs and other electricalequipment

Delay in regulatory approvals

Reduction in shifts due to increased sanitization /social distancing norms / sudden containment

zoning

The lockdown and subsequent migration resulted in a significant workforce shortage. Reverse migration has been an uphill task for developers, with a third of our respondents citing it as the principle reason for construction delays.

Supply chain disruptions caused by national / state / district-level lockdowns also delayed construction, resulting in the unavailability of critical raw materials / equipment.

Deferment of fund disbursement and regulatory approvals led to further construction delays.

I&L developers reported a trigonal impact on project management due to COVID-19:

+

LABOUR / MANPOWER SHORTAGE

SUPPLY CHAIN DISRUPTIONS

DELAYED CONSTRUCTION



A 3-6-MONTH DELAY IS LARGELY EXPECTED IN I&L PROJECT COMPLETIONS DUE TO COVID-19

How much delay do you expect in the construction of ongoing I&L projects due to the COVID-19 outbreak in India?

38%

53%

9%

0-3 months

3-6 months

More than 6 months



IMPACT ON MANPOWER, MATERIAL AND MAINTENANCE



SANITIZATION, SOCIAL DISTANCING AND WELLNESS MEASURES WIDELY ADOPTED BY DEVELOPERSWhat are the preventive measures deployed within your facility following the COVID-19 outbreak in India?

2%

33%

36%

38%

49%

51%

62%

69%

78%

84%

89%

Others

Provisions for isolation rooms

Implementing 14-day quarantine for workers returning from other districts /states

Contingency plan in case the location falls under containment zone


Pandemic prevention - material procurement and disposal

Setting up disinfection stations

Pandemic prevention - communication at site

Everyday wellness checks

Ensuring social distancing norms

Disinfecting and restoring utilities operations, workplace, additional cleaningprocedures, etc.

Preventive measures

Social distancing measures

Wellness measures

Contingency measures

As the I&L sector enters the ‘recovery’ phase, developers plan to restart construction activity and facilitate reverse migration of employees to achieve efficiencies. In both cases, developers now need to make decisions on the 3 Ms – manpower, material, and maintenance.



IMPACT ON RE DECISIONS



3PL AND E-COMMERCE OCCUPIERS CONTINUED TO LEAD I&L ENQUIRIES ANDINSPECTIONS POST COVID-19

HAS THERE BEEN A CHANGE IN WAREHOUSING SPACE REQUIREMENTS OF OCCUPIERS FOLLOWING THE COVID-19 OUTBREAK IN INDIA

WHAT CHANGE HAVE YOU WITNESSED IN I&L ENQUIRIES AND INSPECTIONS FOLLOWING THE COVID-19 OUTBREAK IN INDIA (FROM MID-MARCH ONWARDS) AS COMPARED TO LAST YEAR?

44%

69%

40%

29%

16%

2%

3PL

E-commerce

Increased Same Decreased

24%

24%

21%

15%

15%

Growth of 10-30%

Growth of less than 10%

Flat

Reduction of less than 10%

Reduction of 10-30%

About 65% of the respondents highlighted that occupier enquires / inspections either remained stable or increased marginally post COVID-19.

Growing consumer demand, construction delays and change in business models from ‘just-in-time’ to inventory-led delivery led to rising I&L enquiries / inspections.

E-tailers’ requirements for on-demand warehouses and the need for delivery partners to bridge the growing supply-demand gap led to higher I&L enquires / inspections.



56%31%

13%

Yes No Not Sure

CORE WAREHOUSING REMAINS THE TOP PREFERENCE OF I&L DEVELOPERS

IF YES, WHICH OF THE FOLLOWING SEGMENTS WOULD YOU HAVE AN INCREASING PREFERENCE TOWARDS?

ARE YOU LOOKING TO FURTHER DIVERSIFY YOUR CURRENT I&L PORTFOLIO IN 2020-21, FOLLOWING THE COVID-19 OUTBREAK IN INDIA?

Increasing new supplier addition and growing demand for on-time delivery are expected to boost e-commerce players’ appetite for fulfilment centers.

As e-tailers are looking to locate closer to both supply and demand centers, the need for first- and last-mile warehouses is gaining prominence.

2%

11%

18%

31%

38%

42%

1

Fulfillment centers



Cold storage facilities

Data centers

Others



40%

31%

29%

Yes Not Sure No

GROWING APPETITE FOR INVESTOR PARTNERSHIPS

IF YES, WHICH OF THE FOLLOWING ROUTES WOULD YOU HAVE AN INCREASING PREFERENCE FOR?

HAS THERE BEEN A CHANGE IN PREFERENCE TOWARDS FUTURE INVESTMENT ROUTES?

Almost a third of our respondents said they would continue to opt for the same pre-COVID-19 investment route, with the I&L sector attracting more than USD 0.6* billion over the last three years.

4%

4%

13%

15%

15%

23%

25%

Asset divestment followingconstruction completion

Inclusion of present I&L assetsas part of future REIT portfolios

Forward sale agreements

Partnership with globaldevelopers

Partnership with domesticinvestors

Partnership with domesticlandlords

Partnership with global investors

40% of respondents want to partner with global investors or developers.

*Real Capital Analytics, CBRE Research, Q4 2020



FLEXIBILITY IN LEASE TERMS TO ATTRACT OCCUPIERS EMERGED AS THE TOP LONG-TERM RE STRATEGY

HOW HAS YOUR LONG-TERM RE STRATEGY CHANGED DUE TO THE COVID-19 OUTBREAK IN INDIA?

OCCUPIER-DEVELOPER ALIGNMENT OF LONG-TERM RE STRATEGIES

17%

22%

39%

Diversifying RE portfolios to includeother asset classes such as office,

retail, etc.

Increasing preference towards tier IIand III cities

Increasing flexibility in leasingagreements

FLEXIBILITY

CITYPREFERENCES

OC

CU

PIE

RS

During our occupier interactions, it was noted that construction delays and the intent to cater to ‘immediate’ demand had resulted in almost half of them looking to transact short-term lease contracts, and thereby preferring to invest in flexible warehouse spaces. Additionally, supply constraints would also provide occupiers the flexibility to sub-let ‘white’ spaces in their warehouses.

Our investor respondents (whose portfolios are already in tier I cities) mentioned an increased interest towards exploring tier II and III cities post COVID-19, similar to our developer respondents.

INV

ES

TO

RS

DE

VE

LO

PE

RS

DE

VE

LO

PE

RS

In line with the response from occupiers on their expansion plans in tier II / III cities, about one-third of the developers also highlighted that their preference towards these cities would increase.

A win-win situation for both stakeholders as almost 40% of developers would increase flexibility in lease terms in line with occupier demand



POST COVID-19: WHAT CHANGED FOR I&L DEVELOPERS IN INDIA

PROJECT MANAGEMENT DISRUPTIONSIMPACT ON MANPOWER, MATERIAL

AND MAINTENANCEIMPACT ON RE DECISIONS

THEN

Pre-COVID-19

✓ Any project management disruptions that incurred were mainly

local such as delayed regulatory approvals

✓ Global supply chain linkages were relatively sufficient

✓ Standard health and wellbeing practices

✓ Project maintenance as per SOPs

✓ Leasing demand in India was mainly led by 3PL and e-

commerce players, followed by engineering & manufacturing

firms

✓ I&L portfolios of developers mainly consisted of fulfilment

centers to cater to 3PL and e-commerce firms

NOW

Post COVID-19

✓ Localised disruptions now also include labour shortages due to

the recent large-scale migration

✓ Global supply chain linkages were questioned due to the

shortage of critical raw material, leading to delayed construction

✓ Stringent health and safety protocols

adopted

✓ COVID-19 preventive measures and

contingency protocols implemented

✓ Heightened demand from e-commerce and 3PL players; short-

term reduction in demand from engineering & manufacturing

firms

✓ Developers looking to diversify their I&L portfolios by increasing

the share of first- and last-mile warehouses; a select few may

even explore tier II/ III cities, cold storage facilities and data

centers

NEXT

✓ Issues brought out by labour migration / reverse migration likely

to result in developers increasingly opting for automation of

construction processes

✓ Weakness of current global supply chains likely to result in

developers diversifying their previously accepted singular

dependence on China

✓ Employee safety and wellbeing to be at the

forefront; we expect PM services may

become more tech-enhanced

✓ Pandemic-related protocols to become a

norm

✓ Anticipated rise in occupier demand from most players to result

in developers becoming more accommodative, willing to offer

higher flexibility of leasing terms

✓ Further diversification of I&L portfolios likely to occur; could take

the form of partnership with global / domestic investors; a select

few may also consider forward sale agreements

WHAT ARE INVESTORS SAYING?

1

2

3



SUMMARY

The results of our survey revealed three key themes which would govern I&L investors in India post COVID-19

71% Expect investment activity to revive to ‘business as usual’ in 6-12

months in India

#1 INVESTOR INTENTIONS #2 INVESTOR STRATEGIES

86% Would prefer to invest in

opportunistic assets post COVID-19

67% Highly prefer greenfield project acquisitions post COVID-19

#3 INVESTMENT ROUTESS

64%Cited income stability as the key

reason for investing in I&L assets post COVID-19

14% Highlighted data centers as a ‘highly preferred’ alternate asset class for investment post

COVID-19

43% Would prefer to invest in

distressed assets post COVID-19

36%Would prefer to invest in prime / core assets

post COVID-19

50% Highly prefer undertaking a JV/ JD

with organized developers post COVID-19

58% Moderately prefer portfolio

acquisitions post COVID-19



SURVEY PROFILE

The results of our survey revealed three key themes which would govern I&L occupiers in India post COVID-19

INVESTOR PROFILE BY TYPE INVESTOR PROFILE BY REGION

43%

36%

21%

Developer Property fund Corporation

21%

29%

43%

7%

Americas APAC Domestic EMEA



INVESTOR INTENTIONS, STRATEGIES AND INVESTMENT ROUTES



I&L-FOCUSED INVESTORS WOULD NOW CONSIDER DATA CENTERS AND OTHER ALTERNATE ASSETS IN INDIAPost COVID-19, has there been a shift in your investment intentions with respect to the following real estate segments in India?

INVESTOR-DEVELOPER ALIGNMENT OF INVESTMENT INTENTIONS

Highly

Preferred

Less

Preferred

14%

14%

71%

43%

29%

86%

43%

Other alternate segmentsincluding student housing,

flexible spaces, co-living, seniorliving etc.

Data Centres

Industrial & Logistics

Post-COVID

100%

25%

50%

75%

50%

Other alternate segmentsincluding student housing,flexible spaces, co-living,

senior living etc.

Data Centres

Industrial & Logistics

Pre-COVID

Increased demand for data centers on the back of rise

of OTT platforms, adoption of cloud-based platforms

and increasing internet penetration in India

Driven by increasing investor intent towards

opportunistic assets in India

When we interacted with developers, 56% mentioned they wanted to further diversify their I&L portfolios to include options such as data centers

When we asked these I&L-focused investors about other asset classes (including office, residential and retail), they said that their post COVID-19 intentionsremained the same



I&L-FOCUSED INVESTORS WOULD BE INTERESTED IN FULFILLMENT CENTERS, FIRST-MILE WAREHOUSES AND COLD STORAGE FACILITIES IN INDIAWhat are the key reasons for a heightened interest in the I&L segment, especially post COVID-19?

50%

43%

43%

36%

21%

21%

14%

7%

7%

Fulfilment centers






Data centers

Tech to improve warehouse / fleetmanagement

Cold storage transport infrastructure

Within the I&L supply chain, what will be the typical segmentation (share in I&L portfolio) of your investment across the following options*?

Within the I&L supply chain, will the following segments be a part of your investment portfolio post COVID-19 in India?

67%

83%

20%

67%

100%

50%

100%

43%

60%

33%

50%

43%

33%

17%

20%

100%

14%Fulfilment centers






Data centers

Tech to improve warehouse / fleet management

Cold storage transport infrastructure

0-20% share 21-40% share 41-60% share 61-80% share 81-100% share



STABLE INCOME CITED AS A KEY REASON FOR HEIGHTENED INTEREST IN I&L ASSETS

What are the key reasons for a heightened interest in the I&L segment, especially post COVID-19?

64%

36%

29%

21%

14%

Income stream stability

Sustained occupier demand, especially from e-commercefirms

Asset class diversification

Rise in investible assets

Higher cap rates

Other reasons stated by select respondents included improved developer-investor partnership opportunities, state incentives offered for the sector and rising global interest towardsIndia’s Free Trade and Warehousing Zones (FTWZs).

Mostly felt by global property funds,

developers and corporations

Driven mainly by domestic developers and

American respondents

Stated by mainly global property funds

Opined by mainly global property funds

Stated by only domestic developers



STRONG DEMAND FOR I&L ASSETS LEADING INVESTORS TO LOOK FOR OPPORTUNISTIC DEALSWhat is your preferred investment strategy for I&L investments following the COVID-19 outbreak in India?

INVESTOR-DEVELOPER ALIGNMENT ON OPPORTUNISTIC INVESTMENT STRATEGIES

7%

14%

36%

43%

86%

Investing in core plus / quality secondary assets

Investing in value-add assets

Investing in prime / core assets

Investing in distressed assets

Investing in opportunistic assetsMostly felt by global property funds, developers and

corporations

Driven mainly by global property funds, followed by

domestic corporations

Led mainly by global property funds

Cited only by American property funds

Our investor respondents (whose portfolios are already in tier I cities) mentioned an increased interest towards exploring tier II and III cities post COVID-19, similar to our developer respondents.



GREENFIELD ACQUISITIONS AND PARTNERSHIPS TOP I&L INVESTMENT ROUTE EVEN POST COVID-19What would be your preferred investment route for acquiring I&L assets following the COVID-19 outbreak in India?

67%

50%

25%

25%

25%

33%

33%

58%

75%

8%

92%

17%

17%

67%

8%

Greenfield project acquisitions

JV / JD with organised developers

Portfolio acquisitions

Brownfield project acquisitions

Debt funding of projects

Equity funding of projects

Highly preferred Moderately preferred Less preferred

Highly preferred by developers, corporations and global

property funds

Highly preferred by global property funds and moderately by

developers and domestic corporations

Highly preferred by only global property funds and moderately by

developers and corporations

Highly preferred by only corporations

Highly preferred by developers and global property funds

Moderately preferred by almost all respondents

40% of our developer respondents also displayed an increasing preference to partner with domestic or global investors as a future investment route post COVID-19, similar to investors (as shown above).

INVESTOR-DEVELOPER ALIGNMENT OF INVESTMENT ROUTES



INVESTMENT ACTIVITY LIKELY TO RECOVER TO PRE-PANDEMIC LEVELS BY 2021

How long do you think will it take for the investment activity to revive to ‘business as usual’ post the Covid-19 outbreak?

Compared to H1 2020, how do you expect the investment environment to be in H2 2020 in India?

29%

71%

More than 12 months

6-12 months64%

21%

14%

About the same

Better

Worse

Mainly stated by

developers and

corporations,

followed by select

global property

funds

Opined mostly

by global

property funds

Mainly cited by

select American

respondents

Mostly felt by

developers and

global property

funds

Chosen by only

domestic

respondents



POST COVID-19: WHAT CHANGED FOR I&L INVESTORS IN INDIA

INVESTOR INTENTIONS INVESTOR STRATEGIES INVESTMENT ROUTES

THEN

Pre-COVID-

19

✓ Investor interest was primarily focused towards

only brownfield office and retail along with

residential assets; shifted to include I&L

particularly post policy reforms

✓ Investment in the I&L sector was mainly opportunistic

due to the lack of investible options

✓ Lack of investible options in India resulted in the prime

investment route in the I&L sector to be ‘greenfield’, mainly

through JV / JD partnerships or select instances of portfolio

acquisitions

NOW

Post COVID-

19

✓ Investor intent towards the I&L sector is largely

unchanged; sentiments remain positive

✓ Investor strategies for the I&L sector are largely

unchanged; there is a higher preference towards

opportunistic assets

✓ Investment routes in the I&L sector remain largely unchanged;

heightened preference towards greenfield acquisitions and JV

/ JD partnerships

NEXT

✓ Investor focus to be on I&L assets that offer

income stability, specially backed by sustained

demand from e-commerce firms

✓ Investors want to further diversify their I&L

portfolios to include fulfillment centers, first-

and last-mile warehouses, data centers and

cold storage facilities

✓ Opportunistic assets to remain the key strategy for

I&L-focused investors; select ones already present in

tier I cities may even explore tier II / III cities

✓ Select I&L-focused investors may also consider

distressed or prime / core assets in other sectors

✓ Greenfield acquisitions to remain the prime investment route

for I&L-focused investors; mainly via developer-investor

partnerships

✓ Select I&L-focused investors may also consider brownfield or

portfolio acquisitions

POST COVID-19 OUTLOOK



POST COVID-19: THE I&L SECTOR OUTLOOK FOR INDIA IS POSITIVE

STAKEHOLDEREXPECTED CYCLICAL IMPACT OF A NEGATIVE

ECONOMIC SHOCK ON THE REAL ESTATE SECTOR

IS THE IMPACT OF

COVID-19 ON THE

I&L SECTOR IN INDIA

SIMILAR?

WHY – WHAT’S HAPPENING IN INDIA?LONG-TERM OUTLOOK FOR THE

I&L SECTOR IN INDIA

I&L OCCUPIERS

Potential immediate impact:

Drop in leasing activityYes

Delays in supply resulted in a lack of ready-to-move-in

spacesPositive

We expect leasing activity to rise

across cities in India in 2021-22 due

to the pandemic as occupiers are

likely to switch to inventory models

and cater to the heightened e-tail

demand; thereby further expanding

their RE portfolios

Potential short-term impact:

Delay in expansion plans; adopt a ‘wait-and-watch’

mode

No

On the contrary, they temporarily increased their

demand of small-sized spaces; cautiously expanding in

the short-term as well

Potential long-term impact:

Relook at expansion / consolidation plansNo

Heightened increase in demand for larger spaces via

pre-leasing

I&L DEVELOPERS


Increase in vacanciesNo

Occupier demand to service new-found nearshoring

opportunities resulted in lower vacancies in well-located

projectsPositive

We expect supply completions / new

launches to rise on the back of

increased investor interest towards

greenfield acquisitions and JV / JD

partnerships from leading players


Delay in construction activity of ongoing projectsYes

Significant project management / supply chain

disruptions; reverse labour migration in the country has

taken time


Increased supply slippage beyond 2021-22 / delay in

new launches

No

A large share of the pipeline consists of institutional

investment-backed projects which were already near

completion

A pandemic or any other shock to the economy results in two types of changes to any real estate sector:

a. Cyclical changes, which have short-term effects – these involve the sector absorbing the impact of the shock such as rental dip or a rise in vacancies; these tend to fade away with time as the

economy / sector recover.

b. Structural changes, which have long-term effects – they have a permanent impact on the real estate sector which would not recede even after the economy / sector recover. In the case of the I&L

sector, our surveys revealed this change to be an increased preference of stakeholders to diversify or include a ‘flexible’ element in their portfolios



POST COVID-19: THE I&L SECTOR OUTLOOK FOR INDIA IS POSITIVE

A key structural change has also occurred due to COVID-19, the impact of which can be seen on all stakeholders in India:

STAKEHOLDEREXPECTED CYCLICAL IMPACT OF A NEGATIVE

ECONOMIC SHOCK ON THE REAL ESTATE SECTOR

IS THE IMPACT OF

COVID-19 ON THE

I&L SECTOR IN INDIA

SIMILAR ?

WHY – WHAT’S HAPPENING IN INDIA?LONG-TERM OUTLOOK FOR THE

I&L SECTOR IN INDIA

I&L INVESTORS


Rents would fallNo

Sustained occupier demand coupled with already low

vacanciesPositive

We expect an increase in the quantum of I&L investment in India, both through present players further funding / launching new projects or new players entering India via the JV / JD route. Moreover, we also expect rents to further rise due to the increased demand / improved quality of projects delivered going forward.


Cap rates would riseNo

Investor interest towards this sector has further risen post

COVID-19, preventing any current change in cap rates


RE portfolio diversification to other sectors such as

office, retail and residential

No

On the contrary, investors have indicated a heightened

interest towards investing in the I&L sector by increasing

the share of fulfillment centers, first-mile warehouses,

data centers, cold storage facilities etc.

STAKEHOLDERGLOBAL SUPPLY CHAIN

DIVERSIFICATION

FLEXIBILITY IN LEASING TERMS /

TENURES

I&L PORTFOLIO DIVERSIFICATION

IN INDIA

IMPACT ON THE I&L SECTOR

OUTLOOK IN INDIA

I&L OCCUPIERS ✓ ✓ ✓ Positive

I&L DEVELOPERS ✓ ✓ ✓ Positive

I&L INVESTORS - - ✓ Positive



For more information about this regional major report, please contact:

RESEARCH

Abhinav Joshi

Head – Research, India, Middle East & North Africa

[email protected]

Raaj Thilak Raveendran

Deputy General Manager

[email protected]

Sachi Goel

Senior General Manager

[email protected]

For more information regarding global research, please contact:

Richard Barkham, Ph.D., MRICS

Global Chief Economist & Head of Research

[email protected]

Henry Chin, Ph.D.

Global Head of Investor Thought Leadership and

Head of Research, APAC

[email protected]

© 2020 CBRE, Inc.

CBRE RESEARCH

This report was prepared by the CBRE Asia Pacific Research Team, which forms part of CBRE Research—a network of preeminent researchers who collaborate to provide real estate market research and econometric forecasting to real estate.

All materials presented in this report, unless specifically indicated otherwise, is under copyright and proprietary to CBRE. Information contained herein, including projections, has been obtained from materials and sources believed to be reliable at the date of publication. While we do not doubt its

accuracy, we have not verified it and make no guarantee, warranty or representation about it. Readers are responsible for independently assessing the relevance, accuracy, completeness and currency of the information of this publication. This report is presented for information purposes only exclusively

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