At a time when the Indian real-estate industry has been facing headwinds on account of a difficult residential market, the warehousing property segment has emerged as a promising option. The implementation of GST, the continued government focus on building industrial corridors, the infrastructure status to logistics industry including warehousing, thrust on manufacturing and the promise of the Indian consumption market has whipped up the investment prospects of the country’s warehousing sector. In the last 3 years from 2016 to 2019, the sector has attracted investments over $6.5 billion. Warehousing demand or leasing activity has also has grown rapidly in the same period, increasing from 13.9 mn sq ft in 2016 to around 37 mn sq ft in 2019. Demand for e-commerce and pharmaceutical services enabled India’s industrial and logistics industry to remain the most resilient asset class in the first half of 2020 with digital transformation, and compliance, quality and improved specifications offerings being the key differentiators, and which will continue to hog the limelight. All the more, there is in excess of 800 million sq ft of Grade C and D stock across India which will start migrating to Grade A and B over the next 3 to 5 years.
Nuanced understanding of future scenarios and crucial elements affecting them
2020 has been full of trials and tribulations across the globe and our sector was no exception as far as the impact of the pandemic is concerned. However, as the warehousing sector is categorised under essential services, our logistics parks were operational throughout successive lockdowns.
The pandemic did slow down the growth rate of the sector. There were challenges regarding availability of labour force and issues related to the procurement of raw materials at few locations due to frequent lockdowns which led to disruption of work. The entire industry faced similar problems which led to some delays in project deliveries in Q2, and the impact is also being seen in Q3 of FY 21. However, the business is expected to pick up pace in the last quarter of FY 2021. We anticipate strong growth in medium to long-term, however in the short-term, we need to be watchful and take decisions judiciously.
Management agendas that reflect lessons learned from the first half of 2020
Due to the pandemic, businesses and their supply chains have undergone a significant transformation to align with the evolving business landscape and changing consumer preferences. Some key themes driving supply chain related transformation are– operational resilience, digitisation and automation for efficient and speedy fulfilment, and cost management.
The year 2020 has taught us that tough times can be conquered with smart solutions. We have strengthened our customer centric solutions by focussing on smart park strategy. This year we have introduced many technology-led solutions at our parks to enable accessibility for all stakeholders, and to make operations contactless, more efficient, and data-driven. This includes drone and camera-led construction monitoring, gate and visitor management systems, and smart water and electricity meters, among others.
I believe in 2021, there will be an increased focus towards sustainability in operations and recognition for companies who have built their businesses on the foundation of environment-friendly policies, processes and products. For instance, IndoSpace was recently awarded ‘Platinum’ certification by Indian Green Building Council (IGBC) for its logistics parks at Luhari I and II near Delhi NCR – we are the only company in the country to have achieved this rating.
Demand for warehousing will continue to rise
Warehousing sector is a pivotal link in the Indian logistics ecosystem and has been growing significantly in the last few years. As per JLL’s ‘India Warehousing and Logistics Update 2019’, the warehousing sector has shown substantial growth with absorption moving up to nearly 37 mn sq ft in 2019 from 32 mn sq ft in 2018.
The sector witnessed a 15 per cent Y-O-Y growth in total net absorption in Grade A and B warehousing space across top eight cities namely Delhi NCR, Mumbai, Bengaluru, Kolkata, Pune, Hyderabad, Chennai, and Ahmedabad. Government reforms like introduction of GST and granting infrastructure status to the sector have also provided the impetus which has led to greater interest amongst investors. Today, state governments also offer incentives such as subsidies on capital interest and infrastructure interest as well as waiver of stamp duty, to set up warehousing and logistics parks in their respective regions.
India is one of the largest consumption markets in the world which makes us confident about India’s economy. With such an enormous consumption potential, the requirement for warehousing is expected to spike up.
With consolidation in pipelines by end users and e-commerce sector, the future looks positive with expected absorption growth ranging between 15 – 25 per cent over the next few years. Furthermore, the supply is in the right direction with increasing share of Grade A spaces. The inventory that reached 211 mn sq ft in 2019 from 170 mn sq ft in 2018 is expected to cross 375 mn sq ft by 2023.
Giving a significant fillip to the strong fundamentals of the warehousing industry
The inoculation programmes have started in various countries and once these programmes begin in India, the consumer confidence will be restored and lead to higher consumption. The supply chain will get activated accordingly, creating a positive impact on the warehousing sector and providing opportunities of growth. To fulfil the warehousing requirements in the near future, all the stakeholders of the warehousing industry need to emphasise on technological advancements, modernisation and optimisation along with increased affinity to Grade A facilities and infrastructure.
Being closer to consumption hotspots is always desirable, however the biggest challenge is to find decently sized, compliant land parcels at feasible price. For standardised automation facilities, to be put up the required area also needs to be standardised and such magnitude of land is predominantly available outside of the major cities.
E-commerce to spread its wings wider
One of the recent trends that the sector is witnessing is the development of fulfilment centres and stocking points within cities. Due to the pandemic, there has been a surge in e-retail transactions fuelled by the requirements of grocery or FMCG and other time-sensitive SKUs. Growing urbanisation and e-commerce penetration has resulted in customers demanding faster and timely fulfilments. In highly populous and urban locations within India, the e-commerce sector is rapidly transforming from two-day delivery to a two-hour delivery model for select SKUs.
A two hour or 90-minute delivery is only possible if e-commerce and logistics companies invest in a fulfilment centre or DCs within the city, in proximity to high consumption/spend locations and with good accessibility that ensures smooth movement of inbound and outbound traffic.
Renewed vigour in anticipation of the potential for renewed growth
Our plan is to keep growing in our segment with the backing of our investors. We are always on the lookout of potential land banks in the country around major consumption hubs where the presence of warehouses will help the country’s economy to flourish.
At IndoSpace, we provide a combination of our strategic land banks, world-class infrastructure and amenities, backed by our unwavering commitment to provide best-in-class solutions that keep the interests of our clients and their employees at the core.