by Bhupindra Singh, Managing Director, North India, Colliers
Over the last decade, the warehousing sector in India has transformed into a prominent real estate asset class from the unorganized sector it was known to be. The sector has been revolutionized by regulatory measures, growing demands of the e-commerce sector, a boom in organized retail, changing consumer behaviours, and India's mission to become a global manufacturing center.
What are the demand drivers?
The rising demand to keep goods fresh and cater to last-mile delivery is being fulfilled by well-equipped warehousing and logistics services by adopting new-age technology that improves efficiency and optimizes cost. These are the primary factors influencing the market positively in India. The strong demand for warehouses in the automotive industry, driven by the increased sale of automobiles and electric vehicles (EVs),is further stimulating growth in the Indian market. Additionally, the value proposition of warehouses is on the rise due to added conveniences including spontaneous packaging, docking, and drawing out products to reduce delivery time.
Favorable government reforms augmenting the sector
To boost the logistics sector, the Indian government has launched several initiatives such as Gati Shakti Yojna, BharatmalaPariyojna, and National Logistics Policy. The Gati Shakti Yojna is a digital platform master plan for multi-modal connectivity, aiming to transform economic growth and sustainable development encompassing all means of transport for economic transformation, seamless multimodal connectivity, and logistics efficiency. The Bharatmala Pariyojna plans for 53 Multi-Model Logistic Parks across the country to optimize the efficiency of freight and passenger movement. The National Logistics Policy seeks to complement the PM Gati Shakti Yojna and proposes an outline to ensure faster first and last-mile connectivity.
These initiatives have had a significant impact on the Indian logistics sector. The World Bank report has ranked India at 38 in the Logistic Performance Index 2023, up from 44 in 2018, among 139 countries. This is due to sizable investments in soft and hard infrastructure, as well as technology, which has led to an improvement in the country's port performance and has reduced port delays by up to 70% as compared to developed countries.
The sector is also witnessing a rising demand for green logistics, with more than 70% of shippers looking for environmentally friendly options when trading with developed countries. This presents an opportunity for India to further steady an upward performance in the logistics index by investing in green logistics.
The way ahead
The warehousing sector is one of the most resilient segments and inevitable pillars of India's economy, keeping the momentum of the global supply chain steady. India's warehousing market is expected to reach INR 2,872.10 bn by 2027, expanding at a CAGR of ~15.64% during 2022-2027, according to reports by Research and Markets. Sectors such as retail and FMCG saw a three-fold rise year on year, as they expanded their footprints in larger markets such as Delhi-NCR and Mumbai.
During the first quarter of the year 2023, Delhi-NCR led the demand, accounting for a 29% share in total industrial leasing, followed by Mumbai at 25%. With demand being upbeat amidst limited supply, rentals across top micro-markets saw an annual average rise of 5 – 8%, a report by Colliers stated.
In conclusion, the growth of India's warehousing and logistics sector is significant for the country's economic growth, playing a crucial role in achieving India's vision of becoming a USD 5 trillion economy by 2025. The government's continued focus on improving logistics infrastructure and policies, combined with the sector's strong demand from key industries, will ensure a positive trajectory for the Indian logistics sector.
Reference
- The World Bank Report – Logistic Performance Index 2023
- Colliers Reports
- Credai Reports
