Warehouses of the Future: Key drivers and developments in the logistics sector in India

Chandranath Dey, India Head, Operations and Business Development, Logistics and Industrial, JLL

The Indian warehousing sector has come a long way from the “Godown Era” to world-class state-of-the-art warehouses of the future. Despite the external risks and adverse conditions posed by Covid-19, socio-political risks and supply chain recalibration, warehousing in India has emerged a clear winner. A glimpse of the status of warehousing in the country…

Supply update

Supply coverage in the top eight cities in 2022 has reached around 330 million sq. ft, and is projected to cross 470 million sq. ft by 2025. Grade A warehousing supply/stock is taking centre stage, with the current stock standing at 161 million sq. ft in 2022, up from 47 million sq. ft in 2016, registering a compo­und annual growth rate of 28 per cent since 2016. Additionally, diminishing vacancies of Grade A warehouses to 6.6 per cent is a clear indication of tenants going in for high-class/ Grade A warehousing.

Warehousing in major cities

At 81 million sq. ft, Delhi-NCR accounts for a major share of the country’s warehousing supply – almost 25 per cent placing it among the top eight cities Mumbai has the second highest supply with 59 million sq. ft. However, Grade A vacancies in the cities are among the lowest in the country. Bengaluru is the third largest market with 42 million sq. ft of supply and the lowest vacancy at 2 per cent in Grade A spaces. Pune and Chennai have a dominance of Grade A spaces, driven by light manufacturing, apart from warehousing. Kolkata serves as the major hub in eastern India with 31 million sq. ft of warehouse space. Hyderabad and Ahmedabad together offer a supply of 41 million sq. ft.

Demand update

The top eight cities in India hit an all-time high demand/net absorption of 41 million sq. ft in 2022, indicating the V-shaped recovery post Covid-19. Tenant preference for Grade A warehouses has been rising, with 68 per cent of the net absorption attributed to it. Gross absorption in 2022 stood at 49 million sq. ft, which is inclusive of net absorption, renewals in existing spaces, churnings and vacated spaces.

Sectoral absorption

The top three sectors to grab space in 2022 were third-party logistics (3PL) (43 per cent), auto and engineering (20 per cent), and fast-moving consumer goods (FMCG) and retail (16 per cent), adding to almost 80 per cent of the annual take-up. 3PL companies took up the majority share in the warehousing space, with 43 per cent in 2022, up from 31 per cent in 2021. E-commerce companies have been in slow mode in 2022, down to 4 per cent in 2022 against 25 per cent in 2021 as most of them have been focusing on increasing efficiency within their existing warehouses. Auto and engineering companies were a saving gra­ce, driven by strong manufacturing tailwinds with almost 20 per cent of deals, up from 13 per cent in 2021. FMCG and retail companies maintained their position with a 16 per cent share of all transactions.

A few of the notable transactions in 2022 in which JLL played a role include India’s lar­gest warehousing deal of the year involving 1.1 million sq. ft with Skechers; 0.68 million sq. ft with Microplastics, India’s largest toy ma­­nufacturing plant located in Hosur, Tamil Nadu; follow­ed by 0.32 million sq. ft with HTL in a furniture manufacturing deal in Pune; 0.12 million sq. ft for the company’s entry in Kol­kata/east India; 0.25 million sq. ft for a warehouse in Bhi­wandi, Mumbai for Maersk; 0.2 million sq. ft with Simple Energy, an electronics two-wheeler manufacturing plant in Hosur; and 0.09 million sq. ft with Veco Pre­cision for manufacturing of micro-precision equipment in Pune.

Rental scenario

In India, average rentals for Grade A warehouses in the top eight cities stood at Rs 23 per sq. ft per month. The year-on-year growth rate for 2022 was 9 per cent. Similarly, the average re­ntals for Grade B warehouses in the top eight citi­es stood at Rs 19 per sq. ft per month. The 2022 y-o-y growth rate for Grade B was 7 per cent.

Emerging trends

The few growth drivers defining the warehousing sector in India include built manufacturing leasing becoming an easy entry route for non-polluting manufacturing with 15-20 million sq. ft of manufacturing leasing in 2021 and 2022. As per a JLL study, this is due to rents/pallet position in Grade A being approximately 25 per cent less than Grade B.

Technology adoption is another growth driver. Investments in technology are now conside­red “good cost”. Investments in India are taking place for automated storage and retrieval syste­ms, automated conveyor systems and automated sortation systems. Environmental, social and governance norms and sustainability is charting a new course for warehousing in India. ESG is being considered to minimise carbon emissions. Sustainable construction materials are being explored for interiors, cool roofing and solar panels for exteriors, and wastewater treatment plan­ts and rainwater harvesting for infrastructure.

Highlights of 2022

The major developments of 2022 include the introduction of the National Logistics Policy. Me­an­while, the most active manufacturing se­ctors during the year were electric vehicles, re­ne­wables, electronics, and semiconductors. The year also featured production-linked incentives worth $30 billion, triggering manufacturing transactions, along with increased warehouse space outsourcing to 3PL.