The world as we knew it has changed completely with the onset of the global pandemic Covid-19, with every gamut of business challenged the real estate landscape is no exception. To take a step back before the onset of Covid-19 pandemic, India was setting course to compete on global stage with manufacturing push aided by “Make In India”, Uniform Taxation with roll out of Goods & Service Tax (GST) and announcing infrastructure initiatives such as setting of dedicated freight corridors.
In addition, granting of infrastructure status to Logistics in late 2017 helped in augmenting growth in the sector. The Department of Economic Affairs (DEA) classified "Logistics Infrastructure” to Multimodal Logistics Park comprising Inland Container Depot (ICD) with minimum investment of Rs. 50 crore and minimum area of 10 acres, Cold Chain Facility with minimum investment of Rs. 15 crore and minimum area of 20,000 sq ft, and/or Warehousing Facility with investment of minimum Rs. 25 crore and minimum area of 1 lakh square feet. Infrastructure status means ease of access to capital with longer tenures and eligibility to borrow from India Infrastructure Financing Company (IIFCL). This step from the government was a big boost to the sector at large.
Both domestic and foreign developers were keen to capitalise on the growth potential leading to upsurge in land acquisition and development of large scale Industrial & Logistics parks across India. Some of the large developers/funds who were actively investing in this sector include Indospace, ESR, Ascendas-Firstspace, Logos, Embassy, Hiranandani, All Cargo Logistics, Welspun One logistics Parks, etc. who were setting up world-class infrastructure which was catering to the latent demand for Grade A warehousing and industrial infrastructure. Need for greater compliance such as availability of necessary approvals for construction and seamless operation, safety infrastructure such as fire detection and protection systems were some of the key requisites that were fulfilled by these developers. Last year, around 35 million square feet of Industrial and Logistics space absorption was witnessed across key 8 Indian cities of Mumbai, NCR, Pune, Bangalore, Chennai, Hyderabad, Kolkata & Ahmedabad.
However, with nation-wide lock down announced and subsequent separate lockdowns called for by various state governments have disrupted the supply chains. Companies and government unilaterally now echo that the new normal is here to stay.
Innovation is taking forefront to ensure things are back on track or at-least reaching closer to Pre-Covid-19 levels of activity. The key challenges in front of infrastructure players include conserving cash, labour/material shortage for construction, in-ability to forecast immediate demand, etc leading to them to adopt a wait and watch policy. Irrespective, the following trends witnessed in the warehousing and logistics sector positions it as one of the fast revival sectors post Covid-19 onset.
- Flight to quality – majority of warehousing in the country still cannot be classified as Grade A (considering global standards) and lacks heavily on compliance and operational efficiencies and hence latent demand will continue to drive growth.
- Short-term Flex Space Demand: In the short term, e-commerce, some manufacturing industries will also require short-term space to cater to increased demand and piled up inventory. Developers keen to maintain occupancy at optimum levels and are keen to offer flexibility to occupiers to sustain demand
- Increased Technology Adoption of consumers –significant structural shift of consumers to online purchase models owing to living restrictions across states and practice of social distancing since arrival of Covid-19. This new environment calls for redesign of existing supply chains catering to new market entrants/participants who are going digital. This shift is expected to lead to last mile delivery space surge expected in the short to medium term. In case of Big basket alone the order placement has witnessed a 2x to 3x increase since onset of Covid-19.
- Supply chains resilience building: While companies anticipate and have adapted to operate through cyclones and natural calamities in major countries, Covid-19 caught everyone by surprise. Now most industrial corporations, warehousing and logistics firms now race to design supply chains with the ability to wade through unexpected risk events, responding and recovering quickly to potential disruptions such as this pandemic.
- Proximity to customers: Time and again large warehousing players and now retailers are keen to move proximate to consumers cutting down on delivery timelines. There is expected to be emergence of three positive outcomes due to this trend:
a) Increased demand witnessed in Tier II and Tier III towns as customers will try to shop local
- Vocal for Local – In the medium to long term the central governments clarion call to become self-reliant would mean that local manufacturing levels would see a rise thereby calling for necessary infrastructure. Considering companies will be keen to conserve cash there would be increased demand for leasing Build to Suit/Ready Built Factories to support the “Atmanirbhar Bharat Abhiyan” initiative of the government. Though this is expected as a medium to long term impact, any small step in the right direction will contribute to the sector at large.
- China plus One – “De-risking” is one of the widely discussed topics recently. Since the onset of US-China trade conflicts, US and European companies have been evaluating additional destinations in Asia such as Taiwan, Vietnam, Cambodia and Thailand to move manufacturing units or have additional presence. However, India in addition to being a sought after destination also offers also a huge market opportunity coupled with demographic dividend offering both superior labour and consumers at the same time.
b) Increased demand for city-based warehouses in prime city areas to tackle un-interrupted supplies during imminent lock downs
c) Increase in cold storage/agricultural storage infrastructure to cater to local demand
As in case of China and parts of Europe where the bounce back was stronger due to pent-up demand, we expect some pent-up demand to return once we get back to some normalcy. The larger question looming is the timing of revival. However, we understand basis our discussions with various stakeholders that e-commerce will drive immediate demand in the sector along with healthcare and hygiene sectors. On the other hand, local manufacturing push will need more policy level and structural level push with key being tremendous improvement of innovation spends. While the world has changed and will never go back to what it was in the year beginning, the story of India’s warehousing and logistics sector looks brighter and promising in the days to come.
