What should be the land price for a warehouse rental of Rs 15/Sq.ft?
This is a million dollar question! This question is basically about RoI – return on Investment on warehouse for rent in Chennai. The cost of the warehouse determines the monthly…
The cost of the warehouse determines the monthly rental quite clearly
The Return on Investment should ideally be higher than the PLR – Prime Lending Rate for the same to be profitable and workable for an investor.
So let us break down the cost of the warehouse into 3 parts
- Land cost: This cost is calculated on FSI – This means we need to arrive at the cost per square foot of build up area. By example, let us assume that you can build 25,000 square feet per acre and your land cost is Rs 1.1 crore per acre.
- Warehouse Construction Cost: This cost to build warehouse varies from city to city as plan sanction costs, input material costs are not standard across India. Furthermore, most importantly, the specification defines the warehouse construction cost. Building with Grade A specifications and fire sprinklers can make the shed very expensive. Further, we need to arrive at a total construction cost including compound walls, plan sanctions and approvals, infrastructure costs on EB, and common area development costs. Let us say that all this costs us a total value that when divided by 25,000 square feet of the constructed area works out to Rs 1,350 cost per square foot including all taxes and GST.
- Holding cost: The time taken from the purchase of the land to completion of the building, to the finding of the tenant has costed us interest on whatever is invested over the period of time.
Also assume that we find a tenant who commences payment of rental from 1st April 2022. Then the holding cost should be calculated until 01st April 2022.
Let us assume that the PLR – Prime lending rate is 9%:
This therefore amounts to Rs 300/ square foot on the total built up from the day of land acquisition until the date of rent realization
Therefore now we have a total cost to build a warehouse per square foot of Rs 550+1350+300=Rs 2200/ sft
The RoI that an investor should get should 1% higher than PLR, therefore at 10% RoI the annual rental should be Rs 220 or Rs 18.30 per month
Now coming back to the question, you need to know that warehouse construction costs are standard for your city. There could be a 5% variation.
Now lets picture this – Rental rs 15/sq.ft/month
Annual rental: Rs 15×12 months = Rs 180/ sft
At a 10% RoI, your cost cannot exceed Rs 1800/ sq.ft
- You will need to have a lower specification to bring down your construction cost to Rs 1200 all inclusive.
- Reduce your land acquisition cost to Rs 1 crore or Rs 400/ square foot on built up area. Therefore find a good rectangular land that does not need conversion or filling
- Complete your project faster and reduce your holding cost to Rs 200/ square foot
This is precisely on how you can achieve a 10% RoI at the Rs 15 rental with a land cost of Rs 1 crore, keeping in mind the increasing demand for Warehouse for rent in Chennai. Hope I have answered this well.
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