Warehousing: Defining Indian realty landscape

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 macroeconomic level that are coming to play, making warehousing an attractive proposition for investors looking to leverage the significant tailwinds witnessed around it.

In fact, the growth prospects for warehousing is so favourable, that as per recent reports we could see significant investments being made in the tune of $8-9 billion, for creation of warehousing facilities across the country over the next two years, which in turn would result in creation of over 20,000 jobs at different levels of specification and specialisation.

To gain cognizance of the paradigm shift that we are witnessing in warehousing, it’s imperative to understand 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 duration of times 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 into creating mega warehousing spaces in India, as the sector gears up to transition through a revolutionary phase. Also, the implementation of the GST will help bring about remarkable structural changes and more systematic mode 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 warehouse and the likes, i.e. residential, hotel, exhibition centre etc. so that goods can be displayed.

According to the India Warehousing Market Report 2018, the leasing transactions in the warehousing sector across key Indian markets burgeoned to 25.7 million sq feet in 2017, recording 85% spike year-on-year.

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-thirds of these investments, followed by 27% for acquisition of complete projects.

Private equity and venture capital firms’ interest in the 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 influencers, such as an overall growth in ecommerce and a shortening turnaround time for delivery has necessitated a sharp growth in warehousing in the country. Apart from ecommerce, the next big sector of spaces will be the electronic and white goods that command significant warehousing spaces in urban and semi-urban locations. Hence, this increase in demand from sectors such as ecommerce, 3PLs (3rd 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 organised players which has led to demand.

Other significant factors driving growth for Warehousing in India, include - Impact of 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 seek. 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. Technologies such as Warehouse Management System (WMS), Scanning Technologies, Voice Technologies and Warehouse Automation are gaining prominence.

The old concept 'godowns' do not cater for present warehousing technology which require spaces built to higher specifications for achieving stringent physical as well as environment tolerances.

Growth across Tier-II cities: Industrial growth is going out of cities and the peripheral locations of Tier-I and II cities are expected to be the prime beneficiaries of the new wave of growth in warehousing.

Reports estimate that Tier-II cities such as Surat, Kanpur, Lucknow, Ranchi, Madurai, Coimbatore, Ludhiana, 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 to other major markets and allow transportation to happen to their feeder.

Demand from auto and auto-ancillary, chemical and pharmaceutical sectors: These sectors are the largest demand drivers of warehousing space. The expansion would also be seen in inland container depots which offer services for handling and temporary storage and warehousing of import and export-laden and empty containers, carried under customs control.

(The writer is the Chief Operating Officer of the Synergy Property Development Services)