How is the warehousing sector shaping up in India?
The warehousing market has shown resilience throughout the pandemic, at a time when demand in hospitality, retail and office sectors got impacted. The leasing of industrial and warehousing spaces in five major cities rose 31 per cent during H1 2021. During this period, 15.1 million sq ft new supply was added across the top 5 cities in India, with gross absorption of about 10.1 million sq ft. 58% of the total leasing in H1 2021 was for Grade A warehousing facilities indicating increased inclination for superior quality and compliance standards. Hence looking forward, the demand for warehouses with upgraded technology and building specifications is likely to increase. During H1 2021, the demand for Grade A warehousing was largely driven by E-commerce & 3PL, with a 53% share in total gross leasing, as major e-commerce and hyper-local delivery players like Amazon, Flipkart and Swiggy are scaling up their operations across various locations. Demand for quality warehousing spaces is soaring in Tier 2 and Tier 3 cities in India on the back of e-commerce adoption in these regions. This demand is only expected to increase going forward.
Can you please provide us with an overview of the investments ticked in the Indian warehousing sector in FY2020-21 and FY2019-20?
The increased demand for warehousing has resulted in continued interest from institutional investors with inflows of about USD775 million in H1 2021 in industrial and warehousing assets, the highest in any year since 2016. Many investors are entering into joint venture projects with the local developers to increase develop and expand the current portfolio.
Which are the sectors that are driving the growth of the warehousing sector in India?
3PL and E-commerce industry: The past few years has observed a huge demand from the E-commerce industry due to evolving consumer consumption patterns. India is currently the fastest-growing e-commerce market in the world due to increased internet penetration and digital literacy. During the lockdown period, the consumer base of e-commerce shoppers doubled to 42% of urban active internet users in India. Leading e-commerce giants like Amazon, Flipkart and 3PL players are driving the demand for fulfilment centres across the country which takes care of dynamic functions like sorting, packaging, labelling of goods apart from storage.
Hyper-local grocery delivery: The pandemic has led to increased adoption of online platforms for grocery and essential goods’ delivery. Startups in the hyperlocal delivery space such as Dunzo, Swiggy and BigBasket witnessed steady growth during the Covid-19 outbreak, catering to the surging demand for essentials, food & grocery and medicines. The Indian online grocery market is estimated to reach US$ 18.2 billion in 2024 from the US $1.9 billion in 2019, expanding at a CAGR of 57%.
Manufacturing sector: The government’s thrust on campaigns like ‘Make In India’, compiled with strategies like ‘China Plus One’ has resulted in increased investments, in some part, in the manufacturing sectors and multinational corporations setting up their manufacturing units in India. Various Performance Linked Incentive (PLI) schemes approved by the government across the manufacturing have also led to a surge in production, causing increased demand for manufacturing and warehousing spaces.
The growth in the warehousing sector is currently fuelled by e-commerce. Post pandemic your assessment of the sectors that will drive the growth.
E-commerce will continue to flourish on the back of economic recovery and increased consumer spending, adoption of technology, innovation in the e-commerce fulfilment process such as same-day deliveries, etc. Pharma, healthcare and FMCG companies will also fuel demand for warehouses, especially on the cold storage front. There is ample opportunity for developers and third-party logistics players to develop a multi-purpose cold chain in India, driven by the growth in pharma products. Colliers forecasts the cold storage sector revenue to grow at 14% CAGR by 2023. Strategic policy initiatives by the government will also fuel demand for warehousing from sectors such as electronics, clean energy, etc.
Major demand for warehouses is from Tier II and Tier III cities. Your views and reasons
In recent years the demand for e-commerce has gradually increased in Tier 2 and Tier 3 cities due to rapid internet penetration and an increase in consumer spending. Tier 2 and 3 cities accounted for a 90 % YoY incremental volume and value growth in the e-commerce market in the last quarter of 2020. We expect demand for Grade A warehousing facilities to further increase in Tier 2 and Tier 3 cities as more than 60% of e-commerce transactions in India are witnessed in these towns.
You take on warehouse technology?
Warehouses should be upgraded to incorporate artificial intelligence and the Internet of Things (IoT) to increase their efficiency and functioning. Technologies like warehouse management systems (WMS) help in optimising and managing the inventory, locating parcels, and picking up the right kind of packaging, while Transportation Management System (TMS) should enable safer, efficient supply chain management.
Over the next few years, we expect a greater amalgamation of technologies such as, Real Time Locating Systems, radio frequency identification (RFID), automation and robotics that is essential for a wide range of automated real time data management. This should enable companies to efficiently coordinate inventory management, handling, and faster delivery. These technologies also allow suppliers to cater to consumers requirements in a more cost-effective and time-efficient manner while maintaining the safety standards, avoiding inventory damage and creating transparency.
What are the challenges faced by the warehousing sector in India?
One of the most difficult challenges faced by the warehousing sector is the unavailability of feasible land parcels, and the cumbersome process of land acquisition. Lack of seamless electricity and power is also another challenge. Although the Indian warehousing sector has improved since the past few years, it is still in a nascent stage with many facilities managed by unorganised and local players. This sector needs organised players in the market to attract investors and improve quality. There is also a supply shortage of high quality, technologically sound grade A warehouses in the market. Almost 58% of the total leasing was observed in Grade A industrial and warehousing facilities in H1 2021 indicating increased inclination for high-grade structures. Given that India is one of the largest consumer markets with a low per capita warehouse space ratio as compared to economies such as the US, there is ample potential for physical and quality growth in the sector.
How can the government assist in the growth of the warehousing sector? What are the policy and regulatory changes needed?
Implementing labour laws surrounding regulating wages, defining industrial relations, addressing occupational safety, health, and regulating social security. This can help India becoming more attractive as a manufacturing destination. Introducing single-window clearances for government approvals will ease approval cost and time for developers and logistics players. Focusing on developing infrastructure interlinkages between storage and deliveries. Tax waivers for manufacturing units are directly proportional to employment generation. Improving contract enforcement by putting in place a stronger judicial mechanism.
Will the growth sustain post Pandemic? Your views
It is expected that in future, the e-commerce and 3PL players will capitalise on these consumer-driven demands thus, in turn, increasing the demand for the warehousing industry. We believe, post-pandemic, in the coming years, the warehousing sector may observe a shift in its trends. Many logistics and e-commerce players are opting for secondary in-city warehousing to optimise the logistics cost, avoid travel restrictions, and increase efficiency in faster deliveries. This will lead to a system of hub and spoke warehousing model with the integrated logistic system having a primary warehouse supported by in-city smaller distribution centres to receive and distribute products in a faster and efficient way.
About Author
By Ramesh Nair, CEO, India & Managing Director, Market Development, Asia at Colliers
With a diverse experience of over 23 years, Ramesh’s career has been focused on overseeing/driving transformational change and delivering real estate solutions to domestic and multinational owners, investors and occupiers across India and South Asia. As the Chief Executive Officer (CEO), India & Managing Director, Market Development, Asia, Ramesh is responsible for the overall direction, strategy, and growth of the India’s business. His key responsibilities include driving long-term sustainable and profitable growth for the company along with developing company’s short-term and long-term strategy. He also drives business development and key relationship management across APAC to expand our client base and identify new business and opportunities to accelerate success.
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