India’s warehousing and logistics sector has gone through a huge transformation in the last few years. From being categorized among the non-glamourous and overlooked sectors, it has come a long way to becoming one of the most sought-after real estate asset classes in the country today.
Logistics and warehousing go hand-in-hand and form an important part of the complete supply chain. Though warehousing takes up only a small percentage of the entire logistics cost, it plays a significant role in optimizing the remaining costs which include transportation, inventory management, material handling, packaging etc.
Warehouses in India have historically been low-grade concrete godowns that dotted highways around transit hubs. GST, which came into force in 2017, was a realigning moment for the sector. From a network of smaller warehouses across multiple states, set up to be tax efficient, companies now started utilizing fewer, but larger, warehouses in more strategic locations since India became a single tax country. These larger warehouses are now more sophisticated, made of steel, are often pre-fabricated and more automated. Such large-scale developments and quality, come at a cost and so increasingly, warehousing is becoming a big boys club. Large developers are trying to corner the market. Most of them have a strong private equity or institutional backing. Huge amount of liquidity infusion by global investors has been prompting the market to move towards a more organized form, offering globally accepted warehousing spaces.
Other advantages for a developer or investor in this sector include reduced vacancy risks since tenants tend to retain leases longer. Additionally, owing to price pressures, most of these requirements tend to be located outside prime areas, typically in peripheral areas of city limits. The land thus is relatively cheaper and has the potential to appreciate in value as cities grow outwards.
Ecommerce and digitization led sectors are at the forefront of demand and the current Covid pandemic situation has acted as a catalyst. This has led to exponential demand for quality warehouses. The Government’s push to enhance the manufacturing sector is also likely to add to the growth of the sector. Lack of infrastructure is, however, one of the biggest hurdles in the warehousing market in India. Though we are in a transition phase and moving towards betterment, India currently has one of the lowest warehousing capacities with modern amenities when compared to other mature countries.
Various initiatives taken by the government have been driving the warehousing market towards institutionalization, though investors had started taking cognizance of the sector much before the implementation of structural reforms including the awarding of infrastructure status and the implementation of GST. Majority of the modern warehousing space is concentrated in the key cities of Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, National Capital Region (NCR) and Pune. 3PL, Ecommerce, Consumer Durables, FMCG, Pharmaceutical, Manufacturing and Retail industries are the major adopters of organized warehousing spaces.
Despite the slowdown and the pandemic, the warehousing market has remained largely resilient. Though investment activity has been impacted in 2020 owing to Covid-19, but as things come back to normal, investment activities are likely to outdo previous numbers. The industrial and warehousing sector is poised for a revolutionary leap in the next 5-10 years. We would see an upgradation in offerings backed by modern technology along with a rapid adaptation to modern logistics and industrial parks. This space would surely keep everyone’s attention.
