How is the warehousing sector shaping up in India?
Amidst growing clamour for making India a global manufacturing hub, warehousing clusters are seen to be expanding rapidly not just in the top cities but to the tier 2 and 3 cities of India. Demand for small and multi-location warehouses is set to rise significantly. Majority of these emerging clusters are in line with the industrial and freight corridors being developed in the country.
Can you please provide us an overview of the investments ticked in the Indian warehousing sector in FY2020-21 and FY2019-20?
As per ANAROCK Research, despite Covid-19, more than USD 6.27 billion was pumped into Indian real estate in FY21 as against USD 5.8 bn in FY20, up by 19% in a year. Interestingly, unlike earlier, private equity investors in FY21 largely focused on portfolio deals spread across multiple cities and assets rather than investing in a specific project or a city. Such portfolio deals constituted 73% of the overall share with approximately USD 4,583 million invested across multiple cities deals via portfolio deals. Warehousing was part of these portfolio deals. However, if we look back, nearly USD 7 bn worth platforms have been created for the warehousing sector between 2015 to 2020. Add to it, over USD 2 Bn PE investments have been infused in the Industrial and Logistics sector between 2017 to Q1 2020. Investors are upbeat on the growth of warehousing in India and are presently working closely with developers to identify and invest in the sector.
Which are the sectors that are driving the growth of the warehousing sector in India?
With e-commerce flourishing in the post-Covid regime, there is a rise in the online businesses. This will eventually lead to surge in new warehousing demand along with rising trend of multi-level warehouses within the city limits. Growth in manufacturing sectors is also leading to high demand for warehousing not just in tier 1 cities but emerging tier 2 cities as well. Add to this, the government’s proactive stance in building robust and well-connected infrastructure is further bolstering the growth of the warehousing sector exponentially.
Major demand for warehouses is from Tier II and Tier III cities. Your views and reasons
The emerging tier 2 and 3 warehousing clusters include Ludhiana, Ambala, Lucknow, Siliguri, Guwahati, Bhubaneshwar, Vishakhapatnam, Vijaywada, Coimbatore, Kochi, Nagpur, Indore, Jaipur and Dholera. One key emerging trend is rising demand for Grade A properties across the country. Notably, as per ANAROCK data, there is more than 110 mn sq ft of Grade A warehousing stock available across the country, of which majority is in the top 8 cities. 3PL and logistics and e-commerce are the largest occupiers of warehousing space. Thus, there is a high opportunity for Grade A warehousing development in the smaller cities amidst rising demand.
You take on warehouse technology?
Covid-19 has also exposed the challenges of consolidation within the warehousing sector. Going forward, the market is expected to de-centralize to mitigate future disruption, ensure business continuity, and ease operations. To contain the cost and maintain social distancing norms, the rise of automation is also expected. Moreover, with e-commerce likely to flourish in the post-Covid regime, there may be a rise in the online businesses. This may eventually lead to surge in new warehousing demand along with rising trend of multi-level warehouses within the city limits.
What are the challenges faced by the warehousing sector in India?
Among the major challenges are transportation issues including high cost of logistics (14% of India’s GDP) and lack of trained manpower that is well-equipped to adapt to various innovations and developments in the cold supply chain, specialised warehousing, and digitisation. Moreover, since demand for Grade A warehouses has grown significantly, there is a need to have more modern warehouses.
How can the government assist in the growth of the warehousing sector? What are the policy and regulatory changes needed?
The current government’s incessant focus on building and developing a sound infrastructure definitely bodes well for the warehousing sector. Additionally due to its efforts, total approvals needed to set up a warehouse in the country has been reduced from 33 in 2015 to 15 as on 2019-end. Likewise, the time taken to construct a warehouse has been brought down to 3.5 months from the previous 6 months during the same period. Meanwhile, India’s high logistics cost – at 14% of its GDP - is still better than China’s 15%.
Will the growth sustain post Pandemic? Your views
Considering that e-commerce is bound to flourish in the post-Covid regime even further, there will be a rise in the online businesses which will continue to lead to surge in new warehousing demand along with a rising trend of multi-level warehouses within the city limits.