Warehousing & Industrial

Real Estate Solutions in India

Existing building, built-to-suit space or self-build property
 On Point • Warehousing and Manufacturing Real Estate Solutions in India

Procuring Warehousing and Introduction

Industrial Real Estate Space
in India
There are numerous risks and challenges involved in providing
warehousing and logistics real estate solutions in an emerging
market like India. Real estate procurement strategy is a complex
multi stage process because it is often difficult to know where to
start, what the available options are, what difficulties different areas
face in terms of cost control and what best market practices should
be implemented.
In analysing this process, the Warehousing and Logistics Solutions
(W&LS) team of Jones Lang LaSalle Meghraj has prepared this
paper with insights from Jones Lang LaSalle Industrial Asia to
provide advice on the various warehouse and logistics real estate
procurement solutions in India.
Companies set up new facilities or expand their existing warehouse
facilities in India because of several factors such as access to low-
cost labour, suppliers and components and to take advantage of
domestic consumption.
Investors and developers, both national and international, are
seeking to meet demand from occupiers. However, the quantum and
quality of stock being delivered in the market are posing challenges
for occupiers in search of existing options that can meet their
requirements.
Thus, in assessing real estate options, it is imperative to fully
understand what is possible and the impact of real estate operating
practices on businesses, especially for MNCs operating in India.

To provide answers to the key Corporate Real Estate (CRE)

concerns of occupiers, this paper covers the following:

Do we opt for an existing building? Is there anything available

matching our requirements?

Will we be able to build it ourselves? What are the risks?

What are the local real estate operating practices and what do they
mean for us?

Real estate options available for the industrial / warehousing

occupiers in India include the following:

• Existing Building - lease or purchase of an existing building, which

has been built speculatively;
• Build to Suit - work with a third-party developer to build a facility
according to the specifications of the end-user;
• Self-Build - acquire land, develop the building and either sell the
asset and lease it back or retain ownership.

Warehousing and Industrial
Real Estate Procurement
Options
This paper explains the various procurement options available
for a warehousing and industrial occupier who is planning to set
up warehouses in India. The options include moving into readily
available warehouse and industrial space, built-to-suit warehouse
and industrial space or a space that is built by the occupier.
Real Estate Option 1: Existing Building
Unlike in more mature markets where there is an existing stock of
warehousing space, nascent markets like India have limited stock;
therefore, we focus on new speculatively built facilities. In this
model, the developer undertakes the responsibility of securing all
the required government approvals until the base-building handover.
However, as per market practice the internal distribution of utilities
and the application for the transfer of user rights are the occupier’s
responsibility.
Considerations for warehousing and industrial occupiers
For warehousing and industrial properties, the typical criteria of the
building being considered by occupiers include the capacity for floor
loading, center heights, eaves height, height of the flooring above
Existing Building Option
Advantages
Speed to market-subject to the extent that the building is completed
Risk reduction since there is no need to go through the lengthy and
complicated approval process
Minimal capital expenditure
Limited construction liability since the majority should be incurred by
the developer
Opportunity to control tenant improvements
Flexibility since lease terms are generally short
On Point • Warehousing and Manufacturing Real Estate Solutions in India 
ground level, docking facilities, road width for 40-ft containers,
canopies, shutter sizes, drainage system and parking space. Many
facilities have poor waterproofing at key locations, e.g. window
sills, seepage through below-ground rooms etc. It should also be
highlighted that there are very few warehouses and industrial spaces
with Grade A specifications in India, and the level of customisation
for existing warehouses is difficult.
Building specifications are typically for general use, providing
moderate vehicle-turning circles, low floor-loading capacity, general
clear heights of 5-6 m, limited power supply and power quality,
as well as moderate sump facility. Therefore, this restricts some
specialised warehouse uses. Subject to timing and negotiation, the
developer could offer the base building in an advanced handover
condition by providing a range of improvements above and beyond
a bare shell. These improvements may include surface finishing,
additional building services and enhanced utility connections,
with key upgrades commonly comprising additional power supply,
insulation and ventilators.
Disadvantages
Customisation could be a problem
Quality of the base building during the construction might not have
been independently monitored and verified
Construction-related delays
The solution is a compromise between what is available and what
is desired
Limited control over the design
Mismatch in technical specifications
 On Point • Warehousing and Manufacturing Real Estate Solutions in India
Existing Building: Parameter Assessment Matrix
Corporates Capital Expenditure
Cost Certainty
Schedule Certainty
Quality Certainty
Low
The obvious advantage of buying or leasing an existing building is
that the occupier has an opportunity to see the property beforehand,
evaluate its quality & can use it to meet his immediate requirements.
Time is the major driver for many occupiers since they often need to
enter the Indian market quickly due to business growth or expansion.
Meanwhile, the key constraint is the lack of Grade A warehousing
stock, which has driven many occupiers to develop and build their
own premises.
Tips for Best Practices on Existing Buildings:
• Seek a reputable developer with a strong track record and
a pan – India or local presence.
• Clearly document handover condition, materials, suppliers and
technical specifications and afterwards structure the contract,
incorporating terms to allow protection from latent defects/failure
to meet agreed specifications.
• Ensure that the developers have obtained all relevant approvals/
permits from government authorities.
• Have an independent expert audit the building’s technical and
structural handover condition.
Real Estate Option 2: Built to Suit
In situations where there is insufficient supply of suitable facilities,
need for specific provisions and occupier’s space requirement is not
for immediate use, the built-to-suit option offers a customised facility
to the occupier. There are also developers who are willing to build
this type of facility, subject to agreed specifications. However, the
need to clearly understand and document the delivery assumptions
and specifications is much more critical in India as developers
lack prior experience or track record in delivering Grade Grade A
warehouse and Industrial premise. Precise design criteria, detailed
High
performance requirements, along with appropriate checks and
measures, should be incorporated into the contract document prior
to the final negotiations.
Selecting the Right Development Partners
Factors that must be considered when selecting a development
partner include:
• Developer’s track record
• Capital availability for the project
• Selecting the right development partner - Ensure that the
developer is in procession of industrially converted land
• Local connections and liaison ability for approvals
• Involvement of the occupier, as a future tenant, in the design-and-
build process
• Type of facility management to be employed after the occupation
Built-to-suit premises can be a compromise between the self-build
option and leasing existing premises. The advantage of timeframe
offered by the option to lease existing premises and the level of
control offered by the self-build option is not available in the built-
to-suit option. The main advantage of this option for an occupier
entering India, especially for the first time or in a small to medium
scale, is the fact that it is possible to obtain a specialised facility
without taking too much risk. This is on the assumption that the
documentation between the two parties is in such a way that the
responsibility to complete the facility within the given budget rests
with the developer or construction company. Although the delivery
risk is reduced by the relationship between the developer and the
tenant, there is still a need to ensure that a stringent quality control
is maintained on the site during the entire construction process as
quality control continues to be an issue in India’s construction sector.
 On Point • Warehousing and Manufacturing Real Estate Solutions in India 

Built-to-Suit Option
Advantages
Customised and takes account of occupiers’ specific requirements
Opportunity to negotiate specification, construction quality and
efficiencies
Prescribed time for delivery, with the developer taking on this risk
and incurring penalties for delays
No upfront construction cost (likely to have some fit-out/
infrastructure cost), which is effectively spread over thelease term
Disadvantages
Longer lease commitment
Developers with track record in built-to-suit properties are very
limited
The quality of construction is under question, if not monitored, by a
project management firm
The technical specification must be clearly defined; if this is not
done, there is a possibility that the developer will not adhere to the
requirements of a Grade A warehouse facility

Built-to-Suit: Parameter Assessment Matrix

Corporate Involvement

Corporates Capital Expenditure

Cost Certainty
Schedule Certainty
Quality Certainty

Low High

Best Practices on Built-to-Suit Options:
• Ensure that the land is classified for industrial usage.
• Clear the documentation required to ensure that the specifications
are fixed and adequate penalty is to be imposed if they are not
adhered to.
• Technical specifications, construction costs, drawing, layouts
and timelines for No-Objection-Certificates (NOCs) must be
documented and signed.
• Structure the agreement so that the occupier can be represented
at project meetings and monitor progress.
• Maintain close involvement so that the construction progress is
monitored and the final delivery is done according to expectations.
• Define the project requirement in detail prior to signing a contract
to minimise room for incorrect assumptions and variations. Details
include the required performance, specification and suitable
materials and manufacturers.
• Independently undertake a concept design to minimise risks.
• Penalty clauses and rent-free periods should be discussed so that
the timelines are adhered to.
• There should be clauses in the agreement so that the developer
obtains all NOCs from the government and local authorities before
the occupation.
• Include indemnities in the contract to protect occupier interest in
case there is delay in obtaining the NOCs.
• The defect liability period should be discussed and agreed upon
by both parties.
Real Estate Option 3: Self Build
Under this scenario, the occupier selects a site, purchases the land
and then builds a facility according to the business needs, taking
full responsibility for securing all design and construction-related
government approvals from the start to finish. The key aspects for
this option are to ensure that all the necessary approvals are sought
and then find the right construction partner(s) for the project.
The self-build option will require considerable amount of corporate
involvement in terms of time and capital. This may not be suitable
for every occupier; it is appropriate for corporates that have in-house
expertise or a partner to whom the process can be outsourced.
 On Point • Warehousing and Manufacturing Real Estate Solutions in India

Self Build Option

Advantages Disadvantages
Control over cost, quality and schedule (including the use of Significant capital investment
consultants and contractors)
The occupier secures a facility that is specially tailored Land procurement risk
for its operations
Eliminates the risk of a conflict between the developer or landlord Requires a high level of involvement from the occupier
and the occupier
Suitable for large-scale developments Exposure to financial, construction and schedule risks
There is less flexibility since the occupier is also the owner
of the asset
Cannot leverage developer contacts and liaison ability

Self Build: Parameter Assessment Matrix

Corporate Involvement

Corporates Capital Expenditure

Cost Certainty
Schedule Certainty

Quality Certainty

Low High

Tips for Best Practices on Self–Build Options: Risk Mitigation Strategies of Various Procurement Options
• Consider longer-term exit strategy in the design and, where Option Strategies to Reduce Risk
possible, make the building adaptable to other uses to maintain
Existing • Clear demarcation of responsibilities
maximum flexibility for disposal. Building • Effective monitoring systems
• Consider how potential expansion requirements can be met in • Applications for government approvals delegated
the future. to the developer
• Ensure that the there are no title and documentation-related • Clear penalties for missing key delivery dates
issues during the land acquisition stage. • Penalties for delay in obtaining government
approvals and NOCs
• Understand and plan for the approval process for land & building.
Developer • Establish clear timelines
Have a detailed list of government approvals and make sure to
Design and • Clear penalties for missing key delivery dates
check who is responsible for payment and for driving progress. Build
• Improve transparency/information flow
• Regardless of whether it is a foreign or local construction
• Corporate involvement to monitor the quality of
company, the workforce is largely made up of migrant workers the delivery
with low skill levels. Therefore, the project’s quality is largely • Penalties for delay in obtaining government
driven by effective project management. approvals and NOCs
• Determine the risks and put in place the right contract to manage Self-Build • Develop suitable ‘exit strategy’
the performance of the contractor and the delivery of the project. • Government land allotment could also be
considered as an option
 On Point • Warehousing and Manufacturing Real Estate Solutions in India 

Conclusion
The decision-making process around which real estate option to be the preferred option. However, additional time and money may be
follow is likely to be a compromise between a facility that suits an required during the tenant improvement stage.
occupier’s time needs and business pressures that arise in the
If flexibility for contraction and growth is required, then the solutions
process. Each real estate option discussed in this paper will allow
may be a purpose-built or an existing building; however, the greatest
varying levels of time and cost savings, as well as solutions, that
flexibility is likely to be found on a purpose-built basis.
vary in their ability to meet occupiers’ needs.
Overall, the good practice of allowing sufficient time and expertise
From our experience, facilities that are ‘mission-critical’ lean towards
for finding and planning a new facility and ensuring that all aspects
the built-to-suit/self-build option and are often retained as assets.
of delivery are fully documented must be applied rigorously. With
Nevertheless, occupiers need to assess not only the building but
these in place, companies can procure successful solutions to
also the constraints on their ability to expand as well.
capitalise on real estate opportunities that warehousing facilities in
If timing is the critical success factor, then an existing building should India have to offer.

Hariharan Ganesan
Senior Analyst, Research and REIS
Jones Lang LaSalle Meghraj

Hariharan Ganesan joined the Jones Lang LaSalle Meghraj Research team in April 2008 and is
responsible for the Indian Real Estate Intelligence Service (REIS) publications. Based in Chennai, he
contributes to research deliverables on industrial, commercial, retail and residential real estate markets
in the country. Prior to joining the firm, Hariharan worked on research in different fields for two years in
India. He holds a dual degree from Bits Pilani and an MBA from IIPM, Delhi.

Jerry Kingsley
Assistant Vice President, Warehousing and Logistics Solutions
Jones Lang LaSalle Meghraj

Jerry Kingsley has been a part of Jones Lang LaSalle since 2006 and has been involved in several
projects relating to commercial real estate. He has been an integral part of Warehousing and Logistics
Solutions (WLS) team, tailoring solutions to help clients unlock the potential of their supply chain real
estate. Apart from managing industrial and warehousing related transactions for Chennai region,
Jerry also coordinates with other city teams to drive business development and firm wide best practices,
important for the warehousing business of the firm.
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams
worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2007 global revenue of USD 2.7 billion, Jones Lang
LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices. The firm is an industry leader in property and corporate
facility management services, with a portfolio of approximately 1.2 billion square feet worldwide. LaSalle Investment Management, the company’s investment
management business, is one of the world’s largest and most diverse in real estate with more than USD 53 billion of assets under management. For further
information, please visit our website, www.joneslanglasalle.com.
Jones Lang LaSalle has over 50 years of experience in Asia Pacific, with over 16,500 employees operating in 76 offices in 13 countries across the region.

About Jones Lang LaSalle Meghraj

Jones Lang LaSalle Meghraj, the Indian operations of Jones Lang LaSalle, is the premiere and largest real estate professional services firm in India. With an
extensive geographic footprint across ten cities (Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and
a staff strength of over 2900, the firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services
including research, consultancy, transactions, project and development services, integrated facility management, property management, capital markets,
residential, hotels and retail advisory.

About Warehousing and Logistics Solutions (WLS)

Over 50 years of experience in working with high-profile organizations across the globe to provide specialized services for owners and occupiers of
warehousing and industrial related real estate. We have a very extensive presence in India providing warehousing and industrial real estate services
across the country and our penetration includes not only Tier 1 & Tier 2 cities but also Tier 3 cities. Key services include Tenant Representation
Services: Advice on acquisition of new facilities, expansion of operations, relocation or renegotiation, sublease, sale and lease of buildings.
Projects and Development Services for managing green field and brown field projects. Facilities Management for managing the facilities with respect
to client specific requirements. End-to-end management of day-to-day operations. Research and Consulting Services : Provide our clients with industry
leading research, provide business location advisory , provide updates on market movements and identifying opportunities

To know more about our warehousing and logistics solutions, please contact the following:
Ramesh Nair Chennai Kolkata Nation Capital Region
Managing Director Jerry Kingsley Bharat Manot Himanshu Dhingra
Warehousing & Logistics Solutions +91 98846 21229 +91 98300 49399 +91 98108 66331
+91 98844 11100 Jerry.Kingsley@jllm.co.in Bharat.Manot@jllm.co.in Himanshu.Dhingra@jllm.co.in
Ramesh.Nair@jllm.co.in

Bangalore Hyderabad Mumbai Pune

N Srinivas Sandeep Singh Deo Sharabjit Sighat Dhruv Agarwal
+91 98454 45495 +91 91600 00259 +91 98215 26294 +91 98230 28048
N.Srinivas@jllm.co.in Sandeep.Singh@jllm.co.in Sharabjit.Sighat@jllm.co.in Dhruv.Agarwal@jllm.co.in

Acknowledgments: Jones Lang LaSalle Meghraj India Research Team

COPYRIGHT © JONES LANG LASALLE MEGHRAJ 2009 All rights reserved. No part of this publication may be published without prior written permission from Jones Lang LaSalle Meghraj.
The information in this publication should be regarded solely as a general guide. Whilst care has been taken in its preparation no representation is made or responsibility accepted for the accuracy of
the whole or any part. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process
of making forward projections involves assumptions regarding numerous variables which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome,
and we draw your attention to this factor.