By Sandeep Chanda
India’s warehousing sector has undergone multiple evolutions from a largely unorganized and asset-heavy industry to one of the nascent sectors of the national economy. With the sector playing a crucial role in maintaining a constant momentum of the companies’ supply chain, the demand for warehouses has witnessed a healthy incline. According to JLL India, the storage market is expected to record the largest absorption in history this year. The report states that net absorption in 2022 will grow to a record 42.5 million square feet, up 17% from the pre-COVID high of 36.3 million square feet in 2019. Surprisingly, the sector has settled as one of the most resilient asset classes.
The aftermath of Covid-19 led to a substantial increase in virtual transactions and a greater reliance on delivery solutions, especially for essential supplies like food and medicine that required quick and timely deliveries. There has been a drastic shift among consumers towards online shopping. Today’s consumers need direct access to their required products, and they need them in a short period of time. As a result, the e-commerce sector has increased significantly in which players are looking to increase supply and storage to improve delivery, creating a high demand for storage spaces.
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Meeting today’s business requirements, modern Grade A storage facilities are becoming the preferred and appropriate option. Grade A warehouses, built to international standards, have high-performance, extra-height floor systems, and are equipped with AI and technologies such as automatic identification and data collection (AIDC), automated storage and retrieval (ASRS) and QR codes to ensure faster processing. These spaces offer tangible benefits through green integrations, mechanized MHEs, fire safety protocols, sufficient docking stations, and ample space for parking and vehicle movement.
With A-grade warehouses, companies can align their operational requirements while having flexibility as they meet critical business objectives. Driving the growth, the burgeoning e-commerce and fast-trade market, omnichannel operations, and strong demand for strengthening supply chains across industries have fueled demand for Grade A warehousing facilities across the country. Overall warehouse supply witnessed a CAGR of 17% during 2016-2021 at 258 million square feet with Grade A supply mix increasing from 30% in 2016 to 45% in 2021, according to rating firm ICRA .
Due to changes in consumption, infrastructure developments and increased internet penetration, e-commerce players are redesigning the supply chain with a greater emphasis on last-mile deliveries and moving closer to consumption hubs. As business models shift towards faster deliveries, the demand for warehouses in the city is also seeing an increase. Companies have understood the importance of having a real-time pulse of the market and are investing in grade A storage facilities in smaller cities. This has helped them cater to the rapidly growing customer base in tier 2 and 3 cities as well.
Followed by e-commerce, third-party logistics (3PL) is the second largest driver contributing to the growing demand for A-grade warehouses. According to projections by Knight Frank India, over the next 5 years, the e-commerce segment will occupy 165% more space in Indian warehouses, while 3PL and other industry players are expected to occupy 56% and 43% respectively.
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On the demand side, while there is a stronger trend of e-commerce occupancy and the growing prominence of secondary cities, the supply side includes a strong trend of institutional participation and large, high-grade A-grade warehouse spaces. quality. The growth of the Indian economy and favorable industrial developments have stimulated multinational corporations to establish their manufacturing centers in prominent destinations in the country. India’s quest to become a global manufacturing hub has attracted the attention of the warehouse market from global and domestic institutional investors.
The ‘Make in India’ initiative coupled with systematic reforms such as the implementation of GST, tax breaks for FDI investments and infrastructure status compliance with the sector has positively driven investor interest towards storage as a class of emerging industrial asset. The government also plans to introduce a storage policy to help ease transportation and logistics costs, as well as develop dedicated storage zones through public-private partnerships. In addition, the creation and development of industrial corridors, port and road infrastructure, and multimodal connectivity make the segment even more attractive.
Considering resilient fundamentals, the Indian warehouse market is poised for steady and sustained growth, with demand primarily led by A-grade warehouses. The outlook set out in a recent report by market research firm ‘Research and Markets ‘ indicate that the segment’s space requirement is projected to reach 483 million square feet in 2026, expanding at a CAGR of 12.77% from 265 million square feet in fiscal 2021. Looking at the immense potential, the The market has a long way to grow in this country and industrial real estate players must take advantage of this demand to contribute greatly to the take-off of the sector and the national economy in general.
(Sandeep Chanda – Managing Director India, Panattoni. The opinions expressed are those of the author.)