The demand for warehouse space is surpassing supply, prompting warehouse developers to turn their attention to tier 3 and tier 4 cities. With these cities experiencing aspirational growth and government policies along with private investments backing demand, the warehouse industry is poised for significant expansion
Post Covid the growth of warehouses has continued unabated. According to a report by IMRC Group, the Indian warehouse market size reached INR 1,248 billion in 2022 and expects the market to reach INR 2,271 billion by 2028, exhibiting a growth rate (CAGR) of 11.5 percent during 2023-2028. The report attributes the exponential growth in the warehousing sector to rising number of government initiatives to expand the contribution of India in global trade, rapid expansion of the e-commerce industry, and the growing demand in the automotive industry due to the increasing purchase of personal cars and electric vehicles (EVs) represent some of the key factors driving the market. Pre pandemic, the warehouse sector was going through a nominally single digit growth, and then the pandemic happened. It was during the pandemic the boom in the warehousing sector started. Largely confined to once one residence during the lockdown the day-to-day requirements were ordered through mobile phones. It was during this uncertain time, there was a significant rise in digital literacy and access to high-speed internet and smart phones. The behavioral pattern of ‘click and buy’ continued even after the pandemic with buyers from all strata of the society patronizing the ‘click and buy’ concept. According to a report by MarketResearch.com the Indian warehousing market was valued at INR 1,206.03 billion in 2021. It is expected to reach INR 2,872.10 billion by 2027, expanding at a CAGR of ~15.64 percent during the 2022-2027 period.
According to a latest report by JLL India titled ‘Exploring India's Thriving Logistics and Warehousing Landscape’, total warehousing stock, including Grade A and B, across eight cities (Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, Delhi NCR and Pune) stood at 371 million sq ft by the end of 2023, up from 329 million sq ft a year ago. In 2023, India witnessed a 15 percent year-on-year (Y-o-Y) growth in total stock in Grade A & B warehousing space in the top eight cities. The overall warehousing space stands at 371 million sq ft at the end of 2023. Among the eight major cities, more than half of the warehousing stock is contributed by the country's three largest cities, including Delhi NCR, Mumbai, and Bengaluru. The report further states, year 2023 witnessed a net demand of 40 million sq ft with ~70 percent of the demand observed in Grade A space. This shows a shift in occupiers’ preference towards quality spaces due to adherence to additional hygiene and safety norms during Covid-19. Pune witnessed highest absorption with 8 million sq ft of net absorption driven by the growing manufacturing demand in the country, propelled by government initiatives such as ‘’Make in India and Production Linked Incentives Schemes. At present, Mumbai and Delhi NCR are known as the largest warehousing markets, closely followed Pune with net absorption of ~7 million sq ft each.
According to a report by CBRE 3PL players dominated leasing in Jan-Sep 2023 with a share of 45 percent, followed by engineering and manufacturing players. The report attributes that the demand for 3PL services stems from interlinked stakeholders across the supply chain, including wholesalers, retailers, and e-commerce players. These stakeholders have adopted a combination of ‘just in time’ and ‘just in case’ strategies to optimize their inventory storage and delivery capabilities and mitigate long lead times. Consequently, occupiers with inefficient infrastructure are increasingly turning to 3PL providers to meet their storage and delivery requirements. By utilizing shared space with 3PL providers, occupiers can benefit from cost advantages through the consolidation of transport, distribution, and shared warehouse expenses. This cost-effective approach has led to a strong and continuous demand for 3PL services, which is expected to persist in the foreseeable future.
Absorption and leasing
According to a report by Colliers India, with 25 mn sq ft of gross leasing in 2023, industrial & warehousing demand across the top five cities remained resilient, witnessing a marginal 2 percent annual growth. While H1 2023 was relatively subdued, leasing activity picked up in the second half of the year, with H2 2023 witnessing a 26% rise on a half yearly basis. During the year, Pune led the demand with 25 percent share closely followed by Mumbai at 22 percent. Interestingly, with more than 5 mn sq ft of gross absorption, Chennai saw industrial and warehousing leasing demand almost at par with Delhi NCR, the usual front runner. According to JLL India, with the increasing demand in the market, there is a marginal dip in overall vacancy rate, reaching 15 percent in 2023, and is expected to further decrease to 8 percent in 2027. The Grade A vacancy has witnessed a significant decrease from 7 percent in 2022 to 5 percent in 2023, and it is projected to remain below 5 percent in 2027 due to strong demand for quality and compliant spaces. "While the quantum of leasing by 3PL players continued to remain intact, there was accelerated growth in demand from FMCG, retail and automobile segments, with more than 30 percent YoY rise in each segment. Going ahead, with the rise in use of Electric Vehicles (EVs) and continuous development in associated infrastructure, the warehousing demand for automobile segment is expected to grow manifold," says Vijay Ganesh, Managing Director, Industrial & Logistics Services, Colliers India.
According to property consultant CBRE, leasing activities across the top eight cities remained robust in 2023, showing steady annual space occupancy. "The leasing landscape in 2023 reflects a pronounced influence of 3PL players, commanding a substantial 45 percent share," says Anshuman Magazine, Chairman & CEO, India, Southeast Asia, Middle East & Africa, CBRE. As per CBRE report, leasing of industrial and logistics spaces in Mumbai touched an all-time high, registering 9.9 million sq ft in 2023 as against 7.3 million square feet in the previous year. In Delhi-NCR, the demand fell to 7 million square feet last year from 9.4 million square feet during the 2022 calendar year. Bengaluru saw a decline to 4.7 million square feet from 5.9 million square feet. Kolkata too witnessed a dip to 3 million square feet from 3.8 million square feet. However, in Hyderabad, the demand grew to 4.3 million square feet from 3.7 million square feet.
Leasing of industrial and logistics spaces in Chennai increased to 6 million square feet from 3.9 million square feet. In Pune, the leasing went up to 1.7 million square feet from 0.7 million square feet. The demand for industrial and logistic warehousing spaces in Ahmedabad rose to 2.2 million square feet last year from 1.2 million square feet in the 2022 calendar year. Engineering and manufacturing companies constituted 17 per cent of the total leasing activity.
Micromarket to the fore: According to a report by Colliers India, Bhiwandi remained the most active micro-markets in Mumbai, while Chakan-Talegaon continued to be the preferred market for industrial occupiers in Pune. Within Chennai, NH-16 and NH-48 micro-markets saw demand driven largely by occupiers from 3PL and engineering sectors and electronics sector to a certain extent. According to a report by Vestain, in H1 2023 the micro-markets of Bengaluru and Hyderabad witnessed a drop in demand for warehousing facilities due to the limited supply of Grade A warehouses in the regions during the analysis period while micro-markets of NCR quoted the highest weighted average rentals of INR 22.5/sq ft/month, complementing the region's highest absorption amid strong demand and a competitive market. Bengaluru closely followed the NCR market with INR 22.0/sq ft/month, showcasing the city's prominence in the logistics sector.
Digital transformation
Those are the bygone days when warehouses were referred to as’ Godowns’ and were normally built without taking even the elementary safety features into consideration. These ‘Godowns’ were built far away from the city limit. In those days, the infrastructures were not well developed to have a hassle free access to these Godowns. With times and especially during the pandemic, warehouses underwent a drastic change. Today’s warehouses are not only constructed taking into consideration the aesthetical value of the warehouses but are also integrated with technology features such as Internet of things and artificially intelligence. The e-commerce players are always on their feet to deliver the parcel to the customers as soon as possible. In this era of quick deliver to the customers, manual sorting of packages have taken a backseat. In its place, today’s warehouses are equipped with modern system and equipment to automate the whole process, right from the packet entry into the warehouse to the exit of the package from the warehouse. The integration of automation, including autonomous robots, conveyor systems, and automated picking systems, is enhancing the efficiency of warehouse deliveries. In recent years, the preference for Grade A warehouses has increased manifold. Grade A warehouses represent state-of-the-art facilities, featuring modernized structures equipped with cutting-edge technology, premium building materials, strategically located in prime areas with convenient transportation access. Designed to international standards, these warehouses boast extra height and high-performance flooring systems. They are technologically advanced, incorporating artificial intelligence, drone pickup, Automatic Identification and Data Collection (AIDC), Automated Storage & Retrieval (ASRS), and QR codes for efficient processing. Additionally, these spaces offer tangible advantages such as eco-friendly integrations, mechanized Material Handling Equipment (MHEs), robust fire safety measures, ample docking stations, and spacious parking areas, facilitating smooth vehicular movement. As per a report jointly conducted by Anarock and CREDAI, Grade-A warehousing is projected to expand by 15% by 2025 owing to increasing demand, particularly as Grade-B and Grade-C warehouses fail to meet business requirements adequately. The report also highlights the necessity for India to develop sufficient supply to accommodate the absorption of approximately 223 million square feet of Grade A warehousing demand over the next three years.
Moving Ahead: Challenges galore
The warehousing sector encounters numerous challenges like most of the sectors. Foremost among these is the acquisition of land, alongside issues such as inadequate infrastructure, poor connectivity, insufficient power supply, limited transportation facilities, deficient supply chain management, and a lack of standardization. Furthermore, the warehousing sector in India is subject to stringent regulations, characterized by intricate rules and guidelines that often result in delays and heightened costs for warehouses developers. To accustom to recent trend in the industry which involves a transition from traditional per square foot rental calculations to per pallet space rental methods too is delaying the rapid growth of the warehousing sector. Similar to other sectors, the warehousing industry in India grapples with a shortage of skilled labor. To address this issue, warehousing companies are providing training to their employees and educating them on the advantages of integrating technology into warehouse operations.
Policies tweak: Need of the hour
While the government has initiated several measures to foster the growth of the warehousing sector in India, such as the implementation of GST, introduction of the National Logistics Policy, rollout of Gati Shakti, National Infrastructure Pipeline, and Dedicated Freight Corridor, there remains a significant scope for further policy enhancements in the warehousing sector. To ensure seamless operations, stakeholders in the warehousing industry advocate for government investment in infrastructure development aimed at enhancing connectivity between regions and fostering the establishment of warehousing clusters. This objective can be realized through the construction of new highways, railway lines, and air cargo hubs. The industry encounters significant hurdles in land acquisition. To surmount this challenge, the government could streamline regulations concerning land acquisition, construction permits, and licensing. Simplifying these processes would facilitate warehousing companies in establishing facilities and conducting their operations more efficiently. The industry advocates for tax incentives from the government, including exemptions or reductions in Goods and Services Tax (GST) and other taxes. This initiative aims to incentivize warehousing companies to establish their facilities in less-developed regions. To tackle the shortage of skilled labor in the warehousing sector, the government can encourage skill development initiatives, including training programs tailored for warehouse managers, operators, and logistics professionals. Additionally, the government can implement a single-window clearance system for acquiring essential permits and licenses, aiming to streamline bureaucratic processes, minimize delays, and enhance overall efficiency.
Boom to sustain
The warehousing sector has experienced remarkable growth and continues to thrive. The 'click and buy' trend has become entrenched, driving the expansion of warehouses not only in tier I and tier II cities but also in tier III and tier IV cities. The industry is banking on the e-commerce and manufacturing sectors for further growth opportunities. The rise of tier III and tier IV cities as pivotal warehousing hubs and the widespread adoption of AI and ML technologies to enhance efficiency are poised to redefine the future of India's warehousing and logistics sector. Moreover, initiatives such as the 'Make in India' campaign and the 'China plus One' strategy, alongside upcoming large-scale infrastructure projects, are expected to bolster the Indian manufacturing industry, consequently driving up the demand for warehouses.
In the upcoming year, we anticipate a notable increase in occupancy from the 3PL segment, driven by the sustained growth of the e-commerce industry. Additionally, the manufacturing sector is expected to experience exponential growth, thus contributing to India's warehouse demand.
