Warehousing, which was once sidelined in the larger scheme of things, is now rapidly gaining prominence across the Indian realty sector. There are many factors at the micro and macro-economic level that are coming to play, making warehousing anattractive proposition for investors looking to leverage the significant tailwinds witnessed around it.In fact, the growth prospects for warehousing are so favourable that as per recent reports, we could seesignificant investments being madein the region of $8-9 billionfor creation of warehousing facilities across the country over the next two years. This in turn would result in creation of over 20,000 jobs at different levels of specification and specialisation.
To gain understanding of the paradigm shift that we are witnessing in warehousing, it’s imperative to know what it essentially entails. At the core of it,warehousing plays a multi-faceted role and is an integral part of any logistics system. Warehouses are basically intermediate storage points in the logistics system where raw material, work-in-process, finished goods, and goods in transit are held for varying durations for a variety of purposes.
With that as a background, it’s important to get a perspective on how warehousing stacks up in the larger context. The very first headway made was around the government’s decision to give logistics and warehousing sectors infrastructure status last year. This greatly gives a much needed fillip to this marginalised sector, thereby spawning interest from some of the biggest players who are keenly looking to invest in it.Many of them are looking to invest over $2 billion for creating mega warehousing spaces in India, as the sector gears up for transitioning through a revolutionary phase. Also, the implementation of GST will help bring about remarkable structural changes and more systematic modes of operation, with increased emphasis on supply chain efficiencies.
From the developers’ point of view the sector seems promising, as very little adjustments to the physical structure are needed to transform a warehouse to a manufacturing space. Hence we are increasingly witnessing developers move ahead with speculative spaces to cater for either need. Also, an interesting trend that we are witnessing in this space is that ecosystems are being built around warehouses and the likes, i.e. residential, hotels, exhibition centres, etc.
According to the India Warehousing Market Report 2018, leasing transactions in the warehousing sector across key Indian markets burgeoned to 25.7 million sft in 2017, recording an 85% spike YoY. The NCR region attracted the highest footprint followed by Mumbai. Other cities such as Bengaluru, Ahmedabad and Hyderabad witnessed a flourishing double-digit growth. Greenfield projects or new developments attracted more than two-third of these investments followed by 27% for acquisition of completed projects.
Private equity and venture capital firms’ interest in warehousing space is also brisk as indicated by a five-fold jump in investments in the segment. Warehousing is attracting foreign players and there have been multiple initiatives associated with large investments within this segment, clearly underscoring the upcoming trend.With many players investing, there could be higher supply and the rent escalation will be critical.
Strong influences, such as an overall growth in e-commerce and a shortening turnaround time for delivery, has necessitated a sharp growth in warehousing in the country. Apart from e-commerce, the next big sector of spaces will be electronics and white goods that command significant warehousing spaces in urban and semi-urban locations.
Hence, this increase in demand from sectors such as e-commerce, 3PLs (third party logistics), consumer durables, FMCG and manufacturing to name a few, coupled with a requirement for larger sized warehouses, has opened up the field for more and more organised players.
Other Growth Drivers
Technology –Technology is playing an important role in making the real estate industry more organised and there will be a paradigm shift in warehouses that players will ask for going forward. Today’s warehouses need fewer operatives and hence, fewer line managers, because certain labour-reducing technologies have either made labour more efficient or eliminated it altogether. Warehouse management systems (WMS), scanning technologies, voice technologies and warehouse automation are gaining in prominence.
The old-concept godownsno longer support the present warehousing technology, which requires spaces built to higher specifications for achieving stringent physical as well as environment tolerances. The present technology and system allows the products to be stored in various locations around the globe where they are locally manufactured. And later as required, they can be brought to one centralised location for assembly.
Tier-II Cities – Industrial growth is going out of cities and peripheral locations of tier-I and tier-II cities are expected to be the prime beneficiaries of the next wave of growth in warehousing. Reports estimate that tier-II cities such as Surat, Kanpur, Lucknow, Ranchi, Madurai, Coimbatore, Ludhaina, Ambala, Tiruchirapalli, Nasik, Madurai and Jaipur have shown strong growth characteristics that will allow them to emerge as warehousing hubs. These cities are strategically located in proximity of other major markets, and allow transportation to happen to their feeder. Further, these cities provide favourable policies for setting up of businesses and have high manufacturing potential.
Key industries – The sectors of auto and auto-ancillaries, chemicals and pharmaceuticalsare the largest demand drivers of warehousing space. Expansion will also be seen in inland container depots, which offer services for handling and temporary storage of laden and empty containers being carried through custom control. Agriculture will also open up opportunities for large warehousing and logistics infrastructure. The need for a wide range of warehousing infrastructure including private and common warehousing, specialised warehouses, cold storages, free trade warehousing zones, and logistics parks is also set to crystalisein the coming years.
The author is COO at Synergy Property Development Services.