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 macro-economic 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 is so favourable, that as per recent reports we could see significant investments being made in the tune of $8 to 9 billion, for creation of warehousing facilities across the country over the next two years.
This 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 requires.
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 good 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 boost to this marginalised sector, thereby spawning interest from some of the biggest players who are keenly looking to invest in it. Also, the implementation of 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. An interesting trend that we are witnessing in this space is that ecosystems are being built around warehouse and the likes such as 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 mn sq ft in 2017. 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-third of these investments followed by 27 per cent for acquisition of complete projects.
Private equity and venture capital firms’ interest in 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 e-commerce and a shortening turnaround time for delivery has necessitated a sharp growth in warehousing in the country. Apart from e-commerce, the next big sector of spaces will be the electronic and white goods that command significant warehousing spaces in urban and semi-urban locations.
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 ask for. 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, Scanning Technologies, Voice Technologies and Warehouse automation are gaining prominence.
The old concept “go-downs” do not cater for present warehousing technology, which require spaces built to higher specifications for achieving stringent physical as well as environment tolerances. The present technology and system allows the products to be stored in various locations around the globe where the products are locally manufactured. And later as required, they can be brought into one centralised location for assembly.
Industrial growth is going out of cities and the peripheral locations of tier 1 and tier 2 cities are expected to be the prime beneficiaries of the new wave of growth in warehousing. Reports estimate that, tier 2 cities such as Surat, Kanpur, Lucknow, Ranchi, Madurai, Coimbatore, Ludhaina, 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 to be in proximity to other major markets and allow transportation to happen to their feeder. Further, these cities provide favourable policies for set up of businesses and have high manufacturing potential.
Sectors from auto and auto-ancillary, chemical and pharmaceutical 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. Agriculture logistics, cold chain management etc, will open up opportunities for large warehousing and logistics infrastructure.
A wide range of warehousing infrastructure including private, common warehousing, specialised warehouses, cold storages and free trade warehousing zones and logistics parks will come up in the coming years.
The writer is chief operating officer, Synergy Property Development Services.