Textile Industry Closures Create Surplus Industrial Real Estate
The closure of over 20 textile mills and 15 manufacturing units across India in the last 6-12 months has resulted in a substantial surplus of industrial real estate. With over 20,000 textile workers now unemployed, the demand for industrial space has decreased, further driving down prices.
Rental Rates Plummet in Industrial Belts
Rentals in industrial belts have plummeted by 20-25%. An estimated 1.5 million square feet of surplus space has entered an already struggling market.
Sources indicate that with ample supply and few takers, rental transactions are scarce. In the Gurgaon industrial belt, rentals have decreased to Rs 20-30 per square foot per month, a significant drop from the previous Rs 45-50. Similar trends are evident in industrial areas around Surat, Tirupur, Kundli, Panipat, and Coimbatore.
Rakesh Vaid, Chairman of the Apparel Export Promotion Council (AEPC), stated, “A lot of garment exporters are downsizing their operations and international market slowdown has dented the demand. We are not in a healthy shape and the government is contemplating withdrawing some of the sops given to us at the time of dollar depreciation. Crude prices are on a record high. To add to it cotton is very expensive. Indonesia and China have a very healthy growth rate but we will have to revise our target downward for this year. All these factors are sure to create some problem for real estate also.”
Impact on Real Estate Investment
Industry experts believe this industrial real estate slowdown will significantly impact the overall real estate market, as individuals frequently invest surplus funds in industrial properties.
Pawan Swamy, MD (markets) at JLLM, explained, “The impact on the industrial real estate market is definitely there. Many industries are shifting operations to less expensive and more incentivised zones when they can no longer benefit from the economies of scale at their original locations. They leave behind considerable packets of prime land for development. Textile units, for instance, necessarily occupy considerable areas, further enabled with key utilities such as water and electricity.”
New Developments Face Challenges
The declining demand has affected the supply of new industrial real estate. Newly developed plots are struggling to find buyers, creating difficulties for smaller developers who are engaged in construction of industrial properties. They encounter difficulties in successfully marketing and making sales of their developed industrial land plots.