India’s logistics and storage segments are undergoing significant transformation. Organised warehousing is gaining traction owing to the increase in regulatory requirements and the demand for economic efficiencies by new businesses. The goods and services tax has paved the way for the hub-and-spoke model of ware-housing, which is both cost-effective and operationally efficient. Storage requirements have risen over the past few years owing to burgeoning demand from end-user industries such as automobiles, pharmaceuticals and fast moving consumer goods. The COVID-19 pandemic has further pushed up demand for organised warehousing as consumers have increasingly switched to online platforms. Agricultural warehousing too has received a lot of attention in recent times. Further, the warehousing industry is set to undergo technological transformation in the times to come.
Rising institutional investments
The storage segment has seen a surge in private equity activity over the years with the participation of a wide range of foreign investors. Real estate developers are making a foray into industrial warehousing while investor interest remains unscathed as they consider industrial warehouse to be a safer, resilient and scalable asset class. Brookfield, Warburg Pincus, Morgan Stanley, the Abu Dhabi Investment Authority, and CPP Investments are among the notable investors in the warehousing space.
Agricultural warehousing and cold storage
Storage losses of fruits and vegetables have turned the government’s attention towards augmenting agricultural warehousing. The recent stimulus package is also aimed at creating adequate cold storage infrastructure for increasing the shelf life of post-harvest produce. The focus is also gradually shifting towards modernising warehouse facilities and streamlining operations. To this end, many agriculture-focused technology startups are making inroads in the segment. These start-ups provide personalised and innovative solutions at affordable costs and help provide tech-enabled warehouse management solutions to reduce storage losses. Start-ups such as Arya and Tessol provide post-harvest services and cold chain solutions. The shifting focus on warehouse management in the agricultural sector thus augurs well for agri-tech start-ups.
E-commerce and 3PL fuelling demand
As per industry sources, the year 2019 witnessed a 25 per cent year-on-year growth in total stock in the Grade A and Grade B warehousing space in the top eight cities at 211 million square feet as compared to 169 million square feet in 2018. Third-party logistics (3PL) providers and e-commerce players form the biggest market for organised warehousing. Storage demand in Tier II cities is rising as user industries, 3PL companies and e-commerce players are rapidly expanding into these areas owing to increasing consumer demand, low rentals and better transport connectivity. With Tier I cities reaching saturation, developers are expanding their footprint in Tier II and Tier III cities. Those such as Guwahati, Indore, Kochi and Lucknow are emerging markets for industrial warehousing. Companies are expected to look at backup storage options in terms of large warehouses in these cities to further de-risk their supply chains, away from Tier I cities that have been greatly affected by the COVID-19 pandemic.
Outlook
While growth in the storage and warehousing segments hinges on a number of factors, the government has of late started giving the sector its due importance. Impetus to manufacturing, partial shifting of manufacturing out of China and a demand surge in the e-commerce segment will certainly drive the demand for warehouses and storage facilities. The country’s demand for storage infrastructure will witness a significant rise post-COVID-19 as e-commerce grows and manufacturing gradually shifts away from China.
Growing end-user industries as well as the demand for one-stop logistics solutions with specialised value-added services are driving growth in the sector. Industrial warehousing is expected to grow due to various factors including the growth in organised retail, increasing manufacturing activities, expansion of e-commerce options and growth in international trade. Also, as compared to other real estate assets, warehousing assets can be built in a much shorter span of time, bringing down the risk involved in greenfield investments. Demand for agricultural warehousing is expected to grow moderately on account of the upcoming monsoon season. The warehousing segment for agriculture is exploring the idea of modern warehouses with better infrastructure to reduce storage losses. Though modern technology is being introduced in the warehouses owned/operated by private companies, the godowns operated by government agencies are still lacking.