The pandemic and the various changes it would perpetuate the world over would help the Indian warehousing sector grow manifold in the medium-to-long term, say experts
Like other businesses, the Indian warehousing segment is reeling under the effect of the Coronavirus crisis. However, the pandemic and the various changes it would perpetuate the world over, could in fact help this segment in India to grow manifold, in the medium-to-long term, say experts.
According to property consultancy firm Savills India, industrial and warehousing space absorption is expected to grow by 83% to 47.7 million sq ft in 2021, driven by robust growth in e-commerce and manufacturing sectors, as well as rising demand in emerging tier-2 and tier-2 cities.
“Growing demand for cold chain, pharmaceutical warehouses, as well as growth in e-commerce and organized retail, are likely to drive warehousing demand in 2021. In addition, strong macro-economic fundamentals and the government’s policy support, will continue to fuel growth for the entire sub-asset class of industrial and logistics,” said Srinivas N, managing director, industrial and logistics, Savills India.
The brokerage firm also said that warehousing vacancies have also decreased by 170 basis points from 10.2% in 2019 to 8.5% in 2020 and rental values remained stable in 2020 across the major cities. “India is emerging as an alternate manufacturing investment destination. Foreign manufacturing companies are planning to shift their manufacturing base to India. This would lead to an increased demand for both, ready high-spec fitted-out and custom-built industrial spaces across India, particularly from growing sectors such as FMCG, energy, automobile, electronics, pharmaceutical, and medical devices, among others,” Srinivas added.
Indian warehousing: Current challenges
- The unavailability of the workforce is due to reverse migration.
- Cash flow disruptions due to delays in payments from customers.
- Difficulty in facility management due to slow cash flow.
- Pressure from customers to cut costs.
- New projects are unlikely any time soon.
Warehousing in India: The present and future
According to JLL, the warehousing sector saw a 15% fall in new supply year-on-year (y-o-y) during the January-March period of 2020, amid subdued occupier leasing and investment activity. The contraction was 30%, in the case of absorption. Current vacancy levels in the county’s Grade A and B warehousing stood at 10% during the quarter, according to the report.
Nevertheless, the report predicts a brighter future for the segment, especially in light of the fact that India might beat China to emerge as the leading manufacturing destination for the world’s leading economies, in the post-COVID-19 world. “The fundamentals remain strong and there is an opportunity for India to capture the pie of manufacturing demand if companies re-plan their global supply chains from BCP (business continuity planning) point of view,” the report says.
In their latest report, India Warehousing Market Report – 2020, Knight Frank India had estimated that existing land committed to warehousing across the top eight Indian cities had the potential to add 193 million sq ft of new warehousing supply. “Despite the economic slowdown and the pandemic, the warehousing market has remained largely resilient, recording growth of 44% CAGR in the last three years. Demand has especially been strong from industries such as 3PL (third-party logistics), e-commerce, FMCG and pharmaceutical, which is expected to continue in FY 2021. The warehousing segment has been gaining traction with investors in the last few years, due to the potential of India’s domestic consumption and overall GDP growth,” said Shishir Baijal, chairman and managing director, Knight Frank India.
Thanks to the government’s push towards manufacturing and the launch of the Goods and Services Tax (GST) regime, the segment also received institutional investment commitments of USD 6.5 billion, since 2017. “India’s manufacturing sector has gone through a major transformation, helped by some significant reforms announced by the government in recent times,” says Srinivas N, managing director, industrial and logistics, Savills India.
Future growth drivers for warehousing in India
The warehousing sector is expected to expand manifold, despite the short-term issues, owing to various factors contributing to its future growth. Experts are of the opinion that warehousing would be among the first real estate segments, to recover from the shock of the Coronavirus and might even attract huge capital, as investors switch to more resilient asset classes.
China’s loss could be India’s gain
As mentioned earlier, several countries are considering moving their manufacturing facilities from China to other destinations. India has a good chance to gain from the exit of global giants from China. Almost all factors, including pricing, work in favor of India. However, India will have to put in place several measures, typically expected in a post-COVID-19 world, and lower its reliance on manual labor in warehousing facilities, to come across as more advanced.
Demand for e-commerce segment to increase
With many purchases now being made online, the e-commerce business is likely to see unprecedented growth in the post-COVID-19 world. Consequently, the demand for warehousing from this segment could also see high growth.
“With a COVID-19-induced shift in buying behavior, e-commerce growth is likely to accelerate. This will further increase the share of e-commerce in warehousing demand in the medium to long-term,” says the Knight Frank report.
Warehousing demand in tier-2 and tier-3 cities
Even though warehousing demand in tier-2 and tier-3 markets has seen a growth of 20% in FY 2020, these markets still contribute only around 13% to the overall warehousing demand, leaving ample scope for further growth.
Source – https://housing.com/news/impact-of-coronavirus-on-indian-warehousing/
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