The novel coronavirus, or COVID-19, pandemic has driven demand for warehousing facilities to reduce delivery time and transportation costs so much so that over 3 million square feet of new warehousing contracts have been signed across six locations by manufacturing and e-commerce clients in the last few weeks, a new report revealed.
Land acquisition of more than 3,000 acres is under various stages of due diligence or closing, the report by Savills India stated.
Institutional investment deals of almost $600 million are underway in the warehousing space, it said.
COVID-19 is expected to induce multiple resets going forward with selectively and sparingly used vacant retail and commercial spaces undergoing refurbishments as warehousing spaces, the report added.
Industrial and warehousing is the most resilient segment in India, which is likely to emerge quickest and strongest post COVID-19, it said. "This is because there will be increased diversification with respect to sourcing and greater attention to local sourcing as well leading to increased regional demand for warehousing space."
Warehousing space requirement for players, especially dealing with essential items, have witnessed increased demand in terms of enquiries and expression of interest during the pandemic, says a report titled, 'COVID-19: India Front & Center – Production & Supply Chain' by Savills India.
"The depth of eventual economic impact is not easy to ascertain for any segment of industry at the moment. However, despite the ambiguity, it is highly likely that warehousing and industrial sectors will recover stronger than most others in India. Apart from India’s tactical geopolitical advantages, the demand growth and policy-momentum of the past few years should hold the warehousing sector in good shape. There is no denying the risk-factors on labour or logistics front. However, the inherent strengths cultivated over the last few years continue to hold promise. Most downward revisions of space absorptions and stock additions in the current year can be reversed to upswings within a short to medium term,” said Arvind Nandan, Head of Research, Savills India.
With social distancing becoming the new normal post the coronavirus pandemic and retailers under pressure to secure warehousing locations close to their customer base, there may be greater demand for warehousing facilities in urban areas to reduce delivery time and transportation costs. Warehouses are currently restricted to cities' peripheral areas and far from the larger customer base.
Storage facilities are expected to be built closer to consumers. A probable shift from the existing lean supply chain to ideal inventory levels is resulting in companies reassessing optimum inventory volumes and businesses continuity plans that could translate to greater demand, the report said.
More companies are expected to adopt omni channel distribution models or offline online. However, for certain categories such as groceries, the shift to online shopping could become more permanent and in turn fuel the demand for logistics space.
Although both demand and supply are expected to soften as compared to previous estimates in the near to medium term, higher supply contraction is expected to lead to decrease in vacancies and optimum pricing, the report said.