The Grade-A storage business in India is expected to develop by 15% by 2025. According to the India Warehousing Report by CREDAI and Anarock, warehousing is on track to become a US$ 2.8 billion business in the near future.
According to the research, the expansion would be driven by increased demand for Grade-B and Grade-C office spaces, which are not large enough to meet expanding needs for modern and extensive infrastructure.
Warehouse Emerging as a Favoured Asset Class
The previous decade saw India’s attitude towards the warehousing industry shifting from unorganized godown structures to a critical asset class. According to the survey, 48.5 million square feet of Grade-A warehouse space was leased in the top seven cities in 2021, with that figure likely to rise to 55.8 million square feet by the end of 2023.
It said that the total area leased for Grade-A storage space in seven cities was 160 million square feet, with the western region (Mumbai and Pune) accounting for 37% of the leased area, followed by the southern region (32%). (Bengaluru, Chennai, and Hyderabad).
With greater returns and reduced risks, warehousing has become a favorite asset class for many investors and developers looking to diversify their real estate portfolios. This is also fueling the need for storage.
Furthermore, regulatory assistance from the government in recent years has been critical in encouraging investments in this sector, including infrastructure status for the logistics industry, GST implementation, and allowing 100 percent FDI in warehousing and storage.
Third-party logistics, e-commerce, and manufacturing are the top three industries contributing to overall warehouse leasing space across seven locations.
Role of 3PL in Warehousing Sector Growth
The expansion of third-party logistics is the second-largest driver of the increase in warehouse demand. The 3PL (third-party logistics) industry purchased the most warehouse space in 2021, followed by e-commerce.
The agriculture and manufacturing sectors will continue to increase 3PL warehousing demand due to increased FDI and relaxed policy reforms. Other more vital driving forces for 3PL warehousing will be newer industries such as e-commerce with last-mile deliveries of 30 minutes and 10 minutes, telecommunications, healthcare, and IT.
Following the introduction of the Production Linked Incentive (PLI) scheme by the government, various sectors, including food processing, mobile devices, pharmaceuticals, and car components, invested heavily in building up manufacturing operations in India.
The country’s hashtag#makeinIndia, hashtag#atmanirbharbharat, and hashtag#vocalforlocal initiatives have also resulted in a good reaction and increased demand. Furthermore, the government’s Bharatmala Project aims to establish 35 multimodal logistics parks across the country, with four proposed in Maharashtra under the Public-Private Partnership. This combination of logistics operations is expected to boost the country’s logistics and warehouse operations.
E-commerce Expansion
According to the Warehousing Market in India 2022 Report published by Netscribes (India) Pvt Ltd, the Indian warehousing market is expected to reach 2243.79 billion by 2026, expanding at a CAGR of 10.90%.
The Indian e-commerce business is playing a significant part in this expansion. Due to pandemic-induced lockdowns, consumers began to rely on e-commerce players for food and grocery delivery.
There was a greater emphasis on the same-day delivery strategy. As a result, e-commerce businesses are attempting to hold more inventory closer to clients’ locations in order to improve product quality upon delivery and optimize efficiency. As a result, their demand for warehousing in tier-1 and tier-2 cities risesGovernment Reforms in Logistics
Moreover, with India’s considerable legislative reforms, international investors’ interest in expanding their footprint in the country through investments in the storage and logistics sectors has increased.
Systematic reforms such as the implementation of the goods and services tax (GST), tax breaks for FDI investments, interest rate decreases, and corporate tax reforms have piqued the attention of investors in the new industrial asset class. A minimum investment of Rs. 2 crores is required. Investors can purchase independent warehouses, which demand more cash. Final Thoughts
The future looks bright for the logistics and storage industry. The sector will benefit from the knowledge gained during the pandemic years, the emphasis on building stability, the rise of e-commerce, the acceleration of digital mediums, the adoption of newer technologies, and green logistics this year and beyond.
With the government’s continued emphasis on ease of doing business, massive investments in infrastructure, and an emphasis on public-private partnerships, the sector is poised for rapid growth, creating job opportunities for millions of people across segments.
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Author: –
Anis Kazi
Chief Business Officer (CBO) – Logistics & Ecommerce Business
MERAQUI Ventures Pvt Ltd
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