The total warehousing space is estimated to be 68 million sq m in 2019 for the manufacturing sector, which is projected to grow at a compounded annual growth rate of 5 percent in the next five years to 86 million sq m by 2024. The sector attracted around Rs 47,385 crore funds since 2014 from institutional investors and developers amid increasing demand for logistic spaces, according to a report by Knight Frank titled 'India Warehousing Market 2019'.
Leasing of warehousing spaces went up by 77 percent last calendar year to 46.2 million sq ft of which, at 128 percent growth, the e-commerce segment is the fastest growing occupier segment for the Indian warehousing market, the report noted.
The warehousing industry has witnessed massive participation from institutional investors, as well as developers, who have collectively invested over $6.8 billion since 2014, with an average investment per deal of $282 million. Private equity funds had a 49 percent share of the total investments into the warehousing industry. This was followed by sovereign and pension funds at 31 percent and 20 percent of the pie belonging to the developers, it said.
Kolkata witnessed the highest year-on-year surge with 191 percent in warehousing leasing volume over 2017 followed by Bengaluru (147 percent) and Hyderabad (96 percent). Other cities such as Coimbatore, Guwahati, Rajpura, Ludhiana, Nagpur, Lucknow, Visakhapatnam, Bhubaneswar and Siliguri are gaining prominence, now in terms of the growing demand for warehousing space, it said.
The investments committed by institutional investors alone, is estimated to create over 15 million sq m (158 million sq ft) of new warehousing space over the next few years. The report notes that 83 percent of the investments in warehousing assets went into new developments whereas 10 percent went into ready assets and 7 percent into a combination of ready and under construction assets.
The report notes that logistics cost in India accounts for 13 percent to 14 percent of the Gross Domestic Product (GDP) which is substantially higher than the (8-10%) logistics cost to GDP ratio in other developed countries. The primary reason for this is the skewed multi-modal mix and the fact that 60 percent of freight movement in India happens via roadways.
It notes that the total requirement of storage space in the Indian manufacturing sector accounts for 80 percent of the warehousing market today.
"The growth of the manufacturing sector has been slated to have the most prominent impact on the Indian Warehousing industry. Just this sector’s storage requirement is forecast to reach 86 million sqm by 2024, instantly puts the spotlight on scope and growth for developers and investors in the warehousing market," said Shishir Baijal, chairman and managing director, Knight Frank India.
"Organised warehousing developers are steadily seeing more demand from occupier groups and sectors like E-commerce, 3PLs, Retail, Manufacturing, FMCG, FMCD etc. Regulatory reforms unveiled by India in recent times such as implementation of the Goods and Services Tax (GST), the Make in India programme and initiatives to set up industrial corridors like Delhi Mumbai Industrial Corridor (DMIC), Delhi-Kolkata Industrial Corridor and logistics parks has accelerated the entry of international institutional players in the Indian warehousing and logistics space," said Balbirsingh Khalsa, National Director, Industrial & Asset Services, Knight Frank India.
Another report on warehousing by JLL said that the annual demand of around 32 mn sq ft has outstripped the supply of 31 mn sq ft witnessed for the first time in last four years. With January-March period of 2019 has already witnessing 8.4 mn sq ft. of absorption, it is expected to clock approx. 38 mn sq ft by end of 2019. With high demand, lease transactions have remained high so far, it added. Alongside the rise in transactions, the share of Grade A spaces leases have also gone up in the past four years, it said.
Of the total 32 mn sq ft of industrial and logistics leases in 2018, 56 percent were concluded in Grade A spaces, the report Indian Logistics and Warehousing: Tracing the Lifecycle, said.
Sectors such as 3PL/logistics, engineering, auto and ancillary, e-commerce, FMCG, retail and telecom and white goods have remained the biggest demand drivers. As a result of the high demand, logistics sector is expected to grow to US$ 215 billion by 2020.
"Favourable investment regulations have made the deployment of development funds a lot easier than it used to be in the past. Moreover, the infrastructure status as expected has added strength to the development pace. GST implementation has brought in a uniform tax regime and has removed the challenges relating to logistics supply chain, making it easier for operators in the space to expand across geographies," said Ramesh Nair, CEO & Country Head, JLL India.