The global as well as Indian logistics industries, in the last few years, have witnessed two major trends. The first among these is the transformation in the role of the warehouse. From merely being a space to store inventory, the warehouse has now become an enabler of greater efficiency in logistics operations, and a prepotent contributor to business growth and success. This has resulted in the second, more obvious, trend—an increase in demand for Grade A warehouses, and warehousing space in general. This trend has further accelerated in the last couple of years, due to the boom in e-commerce, and more recently, the emergence of q-commerce (quick commerce/on-demand delivery). To meet the growing demand from these segments, warehouses aren’t just growing in number, but also in size.
Larger than ever: tracking the growth in warehousing capacity
After the disruption caused in global supply chains due to the COVID pandemic, single-warehouse dependency was expected to go down throughout global supply chains. This would have translated to a decrease in demand for large warehouses spaces. However, the evidence so far suggests that there has been an increase in the demand for large warehouses in the last few years. This trend has continued even through the pandemic. While newer, smaller warehouses have emerged, they have only been limited to urban spaces for last-mile operations. Between 2016 and the first half of 2021, the average size of Grade A warehouses has nearly doubled from 80,000 sqft. to 150,000 sqft. in India, according to a JLL research. The reason for this is the increase in warehousing demand from third-party logistics (3PL) providers amidst growth in the adoption of e-commerce, D2C (Direct to Customer), and omnichannel business models.
In a bid to compete with bigger players in retail and e-commerce for warehousing space, smaller companies, especially those in the D2C segment, are increasingly enlisting the services of 3PL partners. As a result, 3PL players account for a significantly greater share of total warehousing demand now than a few years ago. Having contributed less than a third of the total warehousing demand in 2016, 3PL and e-commerce companies accounted for over half of the total demand in India in 2021.
Another factor contributing to the increased preference for larger Grade A warehouses in India is the implementation of the unified GST regime since 2017. Until then, warehouses were scattered across different states with the primary goal of minimizing central tax liabilities that would accompany inter-state transactions. With that objective now redundant, logistics players and their customers are eyeing higher supply chain performance through efficiency upgrades. And more and more business leaders are realizing that such performance upgrades are only possible under the consolidation-driven operating model allowed by spacious Grade A warehouses. Moreover, with the national logistics infrastructure seeing greater improvements in recent years and the GST regime resulting in quicker transportation, businesses are more focused on saving inventory costs, which is enabled by big-box warehouses. And these trends are expected to extend further into the future as warehouses continue to evolve and offer more than just extra space.
More than storage: exploring the advantages of large warehouses
As far as advantages go, large Grade A warehouses offer both functional and economic value. In terms of function, large warehouses play the role of fulfillment centers that have a direct impact on customer experience. This requires them to be equipped with more than space to keep goods. They are upgraded with automation technologies for quicker turnaround, larger outdoor spaces for easy loading, unloading and movement of vehicles, and adequate indoor spaces to allow for value-adding activities like labeling, repacking, and kitting among others.
Economically, large warehouses—particularly those leased by 3PL providers—can offer lower-cost and more flexible warehousing services to their clients. They achieve this by serving multiple clients within their large, shared warehouses that enable them to leverage economies of scale. As a result, they can leverage automation to enhance speed and accuracy in logistics operations while keeping operational costs low. Such spaces also enable 3PL companies and logistics providers to extend warehousing on an on-demand basis, which is increasingly being preferred by Indian companies.
Due to the advantages they offer, and consequently, their sky-high demand, multiple Grade A warehouses have emerged in India, specifically around major trade hubs like Mumbai, NCR, and Bengaluru. And as the demand for world-class warehouses continues to rise, more are being constructed by institutional Grade A developers like IndoSpace across the country. These warehouses will be instrumental in making India not just a competitive manufacturing hub, but also an attractive consumer market for businesses worldwide.
Vice Chairman, Real Estate – The Everstone Group