Recently, the warehousing industry has been on a high growth trajectory. Both onshore and international investors are confident about the Indian warehousing sector. Despite a slowdown in demand and supply during the pandemic, the warehousing industry has emerged as a resilient asset class and continues to grow within the real estate sector.
According to CBRE reports 2022, 32-34 million sq ft of new warehouse spaces are expected to become operational this year. Investors are increasingly interested in warehousing and logistics, with logistics accounting for 20 percent of the deal volume. Data centres’ investment has also begun to pick up with a few joint ventures announced recently. The continued expansion of e-commerce and 3PL companies is paving the way forward for this sector.
The positive prospect of e-commerce
The warehouse market is projected to reach approximately Rs 2,245 billion in 2026, expanding at a compound annual growth rate (CAGR) of 10.90 percent, with the Indian ecommerce industry driving businesses to ramp up supply and storage to deliver products to customers quickly. The logistics and warehouses are a critical link between the manufacturers and consumers. In a battle for supremacy in quick-commerce (Q-commerce), the industry players are increasing their inventory levels in strategically located areas near the cities. The increased need for stocking and reduced delivery timeline has led to a rise in storage requirements in tier-1 and tier-2 cities.
Therefore, the sector will require a huge investment in Grade A in-city warehouses. Ahmedabad, Bangalore, Pune, Chennai, Mumbai, and Delhi are the cities that have maximum warehousing investment in India.
3PL is changing the logistics game
The second-largest incentive for the rise in e-commerce and demand for warehouses is the growth of third-party logistics (3PL). The trend shows that most companies prefer investing in 3PL in comparison to conducting in-house logistics, which helps in better management of supply chain costs and saves time. The 3PL industry in India is currently estimated to be valued at USD 3.5 billion and projected to grow at a CAGR of 19 percent to USD 11.9 billion by 2025.
Investing in warehouse technology
To remain competitive, companies must invest in the implementation of new technologies. Ease of doing business for customers should remain a top priority. However, the decision to invest is a difficult one. Technology investments in warehousing are significant, require the implementation of complex projects, and need technical and technological capabilities as well. Therefore, it is necessary to identify the requirement and find a satisfactory balance between profit expectations and capital risk.
Government policies driving demand from various sectors
In the past few years, the Indian warehousing and logistics industry has seen a boost from foreign investors who want to spread their footprint in the country. The development is being attributed to India’s significant policy changes, tax benefits to FDI investments, systematic reforms such as the implementation of goods and services tax (GST), corporate tax reforms, and cuts in interest rates. Hence, more and more investors are keen to explore the new emerging asset class. Many global companies have availed of the scheme’s benefits, which has increased the demand for industrial parks in the country.
With the government’s Production Linked Incentive (PLI) scheme, large investments from various sectors such as food processing, automobile components, pharmaceuticals, mobile devices, and battery are working towards setting up manufacturing operations in India. Initiatives like ‘Vocal for Local’, ‘Atmanirbhar Bharat’, and ‘Make in India’ have created a positive outlook and a rise in demand. The Indian government also announced the setting up of 35 multimodal logistics parks across the nation under the Bharatmala project, including four proposed in Maharashtra under the Public-Private Partnership (PPP). The logistics mode mix will enhance the logistic and warehouse operations.
A new hub for global investors
Furthermore, developing built-to-suit warehouses in strategic locations is becoming more appealing to investors as developers identify clients’ requirements in advance and ensure cash flows. The driving demand from the sectors such as automotive, healthcare, retail, FMCG, and electronics ensures return on investment (RoI).
The warehousing industry has seen a rise in investment from non-residential Indians (NRIs) and high net-worth individuals (HNIs) whose earlier focus was only on residential and commercial assets. Furthermore, private equity funds and real estate developers are also heading toward the warehousing and logistics sector. Today, we are witnessing more and more warehousing establishments from new players. The sizes of warehouses are expected to grow in 2022. According to reports, the warehouse industry is estimated to grow at a 20 percent CAGR from 31.7 million sq ft in the year 2020-21 to 45.9 million sq ft in 2022-23.
In the real estate sector, the interest in investment in warehousing has been significantly higher compared to commercial spaces. India can soon establish itself as an ideal manufacturing hub for the global industry while it is on the way to becoming a self-resilient economy as well as an investment destination with low labour costs and business-friendly policies. India is expected to be the fastest-growing large economy over the next 8-10 years, with enhanced investor interest in the warehousing and logistics sector.
Info Source – This article was originally published on 99acres on April 27, 2022.