SUMMARY
India will need to create adequate supply to meet an absorption of about 223 Mn sq ft of Grade-A warehousing demand over the next three years
Third-party logistics players shall continue to be the largest occupiers of the warehousing space
Total supply for Grade-A warehousing across top seven cities increased from about 37.8 Mn sq ft in 2018 to approximately 51 Mn sq ft in 2021
Third-party logistics and ecommerce account for 60% of warehousing space, presenting an investment opportunity of $3.8 Bn, according to a study. The report titled ‘India Warehousing – A Sunrise Sector’ by CREDAI-Anarock highlights that India will need to create adequate supply to meet an absorption of about 223 Mn sq ft of Grade-A warehousing demand over the next three years.
The Confederation of Real Estate Developers’ Associations of India (CREDAI) is the apex body of private real-estate developers in India, while Anarock is an independent real estate services company.
Shobhit Agarwal, the MD & CEO of Anarock Capital, said: “The sector has ‘dry powder’ funding of $900 Mn from existing commitments. This signifies a latent investment opportunity of further $2.8 bn in the warehousing sector in the near future. Much of this funding will need to target Grade-A warehousing facilities…”
Ecommerce market in India is touted to be a $400 Bn opportunity, growing at a CAGR of 19%. To be noted, products worth $5.2 Bn were sold on Indian ecommerce platforms in festival sales 2022.
As quoted in one of Inc42’s September 2022 articles, while the warehouse space requirement stood at 265 Mn sq ft in FY21, it is expected to reach 483 Mn sq ft in 2026. According to a report by Research and Markets, the top six cities with modern warehousing capacity are Ahmedabad, Bengaluru, Chennai, Mumbai, Delhi and Pune.
On the other hand, third party logistics providers are gradually evolving and are getting powered up with modern technology, thereby increasing the client’s dependence as an intrinsic layer in the supply chain. With 3PL service providers, the brands, particularly the D2C brands, have high scalability as it offers end-to-end versatile logistics solutions, including inventory management, warehousing, shipping and last-mile delivery.
Third-party Logistics Main Driver of Growth in Warehouse Space
The report said third-party logistics or 3PL players have always been and shall continue to be the largest occupiers of the warehousing space, according to the report.
Companies are increasingly realising the need to have an expert to manage their supply chain so that they focus on their core activities of manufacturing, product development, brand building, etc. “Hence, the 3PL is expected to grow in excess of 10% CAGR in 3-5 years,” it said.
Third-party logistics has the highest leasing space share at 42% across India’s top seven cities.
On ecommerce, which occupies 18% of the warehousing space, the report said: “Given the high convenience and ease provided in terms of ordering, variety as well as secured online payments, there has been a strong increase in ecommerce growth which has further facilitated warehouse demands.”
Manufacturing and automotive also occupy an equal share of 18%. While retail accounts for 12%, consumer electronics & FMCG and pharma and life sciences take 8% and 2%, respectively, of the warehousing space.
Mumbai Has Highest Warehouse Rental
Among the top seven cities, the Mumbai Metropolitan Region (MMR) has the highest average rent at INR 27/sq ft. Neighbouring Pune and Southern city Chennai have the second highest rental at INR 25 sp ft. The lowest rent is in Hyderabad at INR 20 per sq ft.
In the National Capital Region, the average rental is INR 21 per sq ft.
Of the top 10 micro markets, Bhiwandi, Chakan and Panvel/Taloja in western India dominate Grade-A warehousing space leasing share with 41%, the study said.
Steady Demand For Grade-A Facilities
Total supply for Grade-A warehousing across top seven cities increased from about 37.8 Mn sq ft in 2018 to approximately 51 Mn sq ft in 2021, a rise of nearly 10.6%.
On the other hand, total absorption across seven cities rose from 34 Mn sq ft in 2018 to 48.5 Mn sq ft in 2021, nearly 12.6% expansion.
According to the study, there is an increasing demand for Grade-A warehousing facilities.
“Grade-A warehouses are well equipped with additional floor-load capacity, better planned spaces, safety precautions as well as adherence to international standards. Grade-A warehousing is taking over Grade B & C,” it said.
EV Industry Impacting Warehousing Ecosystem
Citing different factors that impact the warehousing system in India, the report said that organised retail, automotive, IT, cold storage, telecommunications and pharmaceuticals/life sciences are driving up consumption and leading to organic growth of the warehousing sector.
“We are also witnessing a slow but a sure shift in the EV (electric vehicle) automotive ecosystem giving birth to opportunities in EV manufacturing, battery manufacturing, EV technology and EV charging stations,” it added.
It also pointed out that robotic process automation, real-time tracking, etc. are key factors that affect the warehousing ecosystem.
