The warehousing market in India has grown at a swift pace owing to a number of supportive policies and technological interventions. The industrial warehousing market in particular has witnessed a huge rise in demand with third-party logistics (3PL) driving the overall growth. The market showed resilience even during the pandemic, and the post-pandemic outlook seems bullish, with high institutional investor interest and soaring demand for sophisticated warehouses. Meanwhile, the agricultural warehousing segment is growing steadily, with a large part of the business being handled by private players. While steel silos are gaining traction, the market is also seeing the entry of agritech start-ups focused on supply chain management and cold storage solutions. Industrial and warehouse logistics parks (IWLP) have established a significant presence in the metropolitan areas and present huge potential for growth in the coming times. Autonomous mobile robots and drones are among the noteworthy technological advancements in warehouse management.
Agricultural warehousing
The total agricultural warehousing capacity has jumped from 154.82 mt in 2019-20 to 166.2 mt in 2020-21. This growth is reflected in the fact that the number of warehouses under the Warehousing Development and Regulatory Authority (WDRA) has registered a growth of nearly 30 per cent, with 2,917 warehouses in August 2022 and a capacity of 21.38 mt. The private sector is dominating the sector in terms of storage capacity, with 78.56 mt, followed by state warehousing corporations (SWCs) with 43.91 mt. A major chunk of the organised warehousing capacity in the country is still being managed by the government through public sector units such as the Food Corporation of India (FCI), the Central Warehousing Corporation, SWCs, state marketing federations and state civil supplies corporations. Punjab, being the largest producer of grain in the world, is working towards building a massive storage infrastructure with 12.36 mt of capacity.
As part of the initiative to place the sector on a fast track, an Agriculture Infrastructure Fund has been planned with the aim of providing medium- and long-term debt financing facilities till 2025-26. As of July 2022, the government has received proposals worth Rs 230 billion. Meanwhile, storage facilities are being upgraded with the construction of steel silos in public-private partnership mode. These modern silos will ensure better preservation of foodgrains and safety from loss due to theft, and require much less space than conventional godowns. Construction work on silos aggregating to 1.23 mt of capacity has been completed as of July 31, 2022. FCI plans to construct an additional capacity of 11 mt at 249 locations across 12 states. These silos will employ the hub and spoke model, supported by a total investment of nearly Rs 92.36 billion.
Industrial warehousing
Demand for industrial warehousing registered a strong growth of 77 per cent in 2021, evidently withstanding the shock of the pandemic. The overall warehousing stock also witnessed a year-on-year growth of 21 per cent, reaching 287 million square feet by the end of 2021. Institutional investments have been on the rise with the growth of institutionally funded projects, registering a compound annual growth rate (CAGR) of 28 per cent from 2019-21. Marquee investors in the domain include CPP Investments, Brookfield and Blackstone, Inc. Moreover, Grade A warehouses seem to be the most popular choice due to their large sizes and quality spaces. Their share in the supply mix has increased from 30 per cent in 2016 to 45 per cent in 2021. 3PL players constitute the dominant market segment in terms of warehousing demand. Delhi-NCR has been leading the absorption demand with a 28 per cent share in the first half of 2022.
The high rental and operational costs in Tier I cities have caused a spurt in warehousing demand in Tier II cities. Increased formalisation of the sector, preference for Grade A warehousing facilities, and implementation of the goods and services tax have accelerated the growth of IWLPs. Investments under the production-linked incentive scheme in the electronics, automotive and pharmaceutical industries will also support this demand. As a result, IWLP occupancy is expected to remain in the healthy range of 85-90 per cent, with nearly two-thirds of it concentrated in Mumbai, NCR, Pune, Chennai and Kolkata, as per ICRA. Many state governments are also planning to develop electric vehicle (EV)-focused industrial clusters with plug-and-play capabilities. Along similar lines, IndoSpace, an industrial park and warehouse developer, set up ready-to-move and built-to-suit warehousing development options in August 2022. These are meant for EV manufacturing companies within key auto clusters such as Chakan in Pune, Oragadam in Chennai, Anantapur in Andhra Pradesh, Becharaji in Gujarat and Badli in NCR.
Technology interventions
The agritech sector is growing rapidly in India. It is expected to grow by 25 per cent every year, according to the National Association of Software and Service Companies, and is estimated to reach $24.1 billion by 2025. Arya Collateral Warehousing Services, one of the leading fintech companies, has launched a portal that makes warehouses across the country discoverable online. These warehouses are verified and certified, and are searchable across parameters such as lease rental, insurance status, and WDRA accreditation. Ergos, Ninjacart and AgricxLab are some of the agritech start-ups that are providing information and efficient techniques to farmers through technology.
Warehouse automation has also enabled efficient storage handling by transforming the current infrastructure. Unbox Robotics initiated a robotics-as-a-service programme, with a focus on providing a flexible “plug and play” model on October 23, 2022. Alongside autonomous mobile robots, drones have also found a place in warehouse management. Chennai-based drone start-up Garuda Aerospace recently signed an MoU with Lockheed Martin CDL Systems to use its uncrewed aerial system software solutions. Meanwhile, Zeropoint, a robotics company, is developing robots for automated material movement.
Prevalent challenges
Amongst other predominant issues, the agricultural warehousing segment is facing high fragmentation. The presence of small and scattered localised warehouses has resulted in high storage costs in India. These warehouses store food for just one to two years, against much longer time periods in the advanced silos of foreign countries. The demand for advanced storage facilities is being suppressed by the capital-intensive nature of their construction, with an estimated cost of Rs 4,000-Rs 6,000 per tonne of capacity. In addition, the functioning of these warehouses under a regularised framework is being hampered by the low rate of issuance of negotiable warehouse receipts (NRW). At present, barely a quarter of the warehouses accredited with the WDRA are issuing NWRs. Meanwhile, industrial warehouses lack standardisation and certification. In many cases, tenants have to invest money to upgrade the space to standards that support their operations. Alongside facing high land rates and a complex land acquisition process, warehousing developers experience a low entry yield of 7-7.5 per cent, which further affects service quality. Moreover, rentals grew at a CAGR of less than 3 per cent from 2018 to 2021, further impacting developers’ profitability.
Moving ahead
The industrial warehousing market is expected to enlarge its rental occupancy footprint in the second half of 2022. The new National Logistics Policy, 2022 is also being hailed as a strong answer to the challenge of standardisation of warehouses. This guiding framework is expected to enhance the interoperability of warehouses. Improving the compatibility of warehousing assets across the globe by benchmarking service quality standards would eliminate operational inefficiencies in the sector.
Despite facing multiple roadblocks, the warehousing market, guided by various government initiatives and developments, is expected to grow at a CAGR of 14.86 per cent between 2021 and 2025, hitting a value of Rs 2,028.86 billion by 2025, according to industry reports.
