The industrial warehousing market in India has grown at a rapid pace owing to a number of supportive policies and technological interventions. The government’s focus on infrastructure development has further created a conducive environment for the warehousing sector. It has witnessed a substantial rise in demand, with third-party logistics (3PL) driving the overall growth. The rise of e-commerce has been another major contributor due to the fast penetration of online retailers. There is also significant demand from the manufacturing and automobile/auto-ancillaries sectors.
Sectoral trends
Grade A warehousing takes centre stage: The demand for Grade A warehouses in India has increased significantly in recent years. This is primarily due to the country’s emphasis on modernising its logistics infrastructure, which includes the adoption of advanced storage spaces with state-of-the-art technologies. Other factors driving this demand include the growth of multi-client warehouses, the increasing popularity of 3PL and 4PL service providers, the need for customised storage facilities and favourable government support.
As a result, there has been a substantial influx of funds into the development of state-of-the-art warehouses, specifically in proximity to prominent industrial centres such as Mumbai, Ahmedabad, Delhi-NCR, Pune, Chennai, Hyderabad and Bengaluru. Moreover, the vacancy of Grade A warehouses has consistently decreased, with the current occupancy rate in single digits.
Rise of automation: As the demand for warehouse facilities escalates, a paradigm shift towards automation is steering the industry. Larger warehouses provide space and opportunity to improve operations via automation, resulting in quicker turnaround times. While warehouse automation systems offer numerous benefits such as cost reduction and inventory transparency, the installation and maintenance costs associated with these are very high. These costs, coupled with the replacement of human labour with robotics, contribute to the conundrum.
Innovative technology providers such as Addverb Technologies Private Limited, Falcon Autotech Private Limited and GreyOrange India Private Limited are driving the sector. These companies are pioneers in technologies such as automated guided vehicles, autonomous mobile robots and warehouse management software. Other technologies in use include automated storage and retrieval systems, automated conveyor systems and automated sortation systems.
Green warehousing: With the backing of the National Logistics Policy (Gati Shakti Plan), multimodal logistics parks and green solutions are progressively assuming a critical role in the upgradation, planning and construction of new warehouses. Some foreseeable upcoming trends that could drive this space include recycling resources, harnessing sustainable energy sources and adopting smarter transportation and advanced technologies. These efforts seek to make transportation more efficient, improve supply chain management and increase connectivity, thereby creating a more sustainable and effective logistics environment. The pursuit of sustainable warehousing is accompanied by various obstacles, but it also offers a chance for innovation and expansion.
Warehouses in Dhulagarh in Kolkata, along with a few 3PL companies in Bengaluru, are taking significant steps towards sustainable logistics. These efforts include the adoption of green technology, eco-friendly packaging, waste management and compliance with government policies and regulations.
Rental rates: According to JLL, the average rental rates for Grade A warehouses in the top eight cities (Ahmedabad, Bengaluru, Chennai, Kolkata, Hyderabad, Mumbai, Delhi NCR and Pune) stood at Rs 23 per square foot. ft per month in 2022, with the year-on-year growth rate standing at 9 per cent. The average rental rates for Grade B warehouses in the top eight cities stood at Rs 19 per square foot per month in the same year, with a year-on-year growth rate of 7 per cent. As per India Infrastructure Research, warehousing rents are expected to witness revisions and grow at 5 per cent annually over the next four years, driven by its share of over 50 per cent of the total transactions.
InvIT play: The sector has been experiencing an increase in investments due to robust demand for this asset class, growing occupier preference for Grade A properties and rising 3PL dominance in warehouse transactions. The launch of two warehouse infrastructure investment trusts (InvITs) by NDR Warehousing Private Limited and Reliance Industries Limited (RIL) stands as a testimony to the maturing warehousing market in India.
Equity strides
In recent times, the warehousing sector has been high on institutional investors’ radar. Investors, including real estate funds, alternate investment funds and sovereign wealth and pension funds, have garnered interest in this asset class. According to Knight Frank LLP, a total of $1.9 billion was invested in 2022 alone (a 45 per cent increase from $1.3 billion in 2021), with an average investment of $272 million per deal.
Since 2016-17, the warehousing industry has accumulated the highest share in equity investments, followed by investments in the office segment. As of the first quarter of 2023, investments worth $216 million have already been committed towards the warehousing segment. A recent key deal involves the Pragati Group raising $200 million from a Singapore-based fund. The investment is intended for the acquisition of Pragati One Logistics Park and Pragati Farukhnagar Logistics Parks – two international-grade operational assets with a combined area of 2 million square foot.
There have been successful private equity exits, with strategic sales and secondary buyouts being the dominant theme. The improving investor appetite for logistics players has provided an impetus to the exit environment.
Other investment trends
In recent years, various firms have set up dedicated logistics platforms to expand their footprint through investments in Indian logistics. A key emerging platform is Horizon Industrial Parks, set up in June 2022 by Blackstone to house its logistics and warehousing assets.
The maturing start-up ecosystem in the logistics sector has also attracted significant venture capital funding in the past three to four years. In September 2023, Kale Logistics Solutions, a software-as-a-service logistics platform provider, raised $30 million in a Series B funding round led by Creaegis Advisors LLP.
With a greater focus on the development of multimodal logistics parks in India, realty developers are foraying into the space. For instance, in September 2023, the ESR Group announced plans to invest Rs 3.6 billion to develop a logistics park in Cuttack, Odisha. It has already acquired 57 acres of land for the same.
Furthermore, firms such as TVS Industrial and Logistics Parks Private Limited (TVS ILP) and Allcargo Logistics have introduced real-estate-focused business verticals. Allocargo Logistics has demerged from its subsidiary TransIndia Real Estate Limited to unlock the value of real estate assets. Meanwhile, TVS ILP has a dedicated entity for its real estate assets, an emerging, lucrative business.
The way forward
Given the significant growth in the manufacturing sector and the critical role of the 3PL sector, the current resilient occupier demand is expected to continue in the near future. India’s renewed commitment to strengthening its manufacturing capabilities creates a positive outlook for further expansion in the warehousing industry. In urban areas, built-to-suit warehousing facilities are likely to be the optimal solution for accommodating the demands of accelerated e-commerce growth and technology-enabled features.
Going forward, warehousing companies will continue to invest in smart green solutions to reduce their carbon footprint, with technology adoption initiatives for energy optimisation, as well as electric vehicles and compressed natural gas vehicles for distribution.
Furthermore, given the increasing popularity of 3PL players, businesses may consider outsourcing functions such as material sourcing, labour and facility management to optimise their cost of operations.
Harman Mangat
