_The new face of Indian warehousing: Transformation towards an organised market

Such transformation into an organised play has got accentuated in the recent period mainly by the sophisticated occupiers namely 3PL and e-commerce, which thrive on efficient business models. The Knight Frank report looks at these and similar interesting themes of the Indian warehousing market.

Traditionally the warehousing sector in India has been mired with inherent challenges such as occupier preference for multiple but small warehouses. 

The trend worked as a counter mechanism to avoid inter-state taxes that were applicable on sale of goods and not on stock transfer. This mindset limited automation in warehousing. However, occupiers’ attitude is slowly changing as the sector is becoming organised. 

The introduction of the Goods and Services Tax (GST) primarily set the ball rolling. At the same time inherent changes in the overall regulatory environment courtesy compliance regulations in place (mainly in pharmaceutical industry), quality parameters of regulators and clients and risks and penalties associated with non-compliant warehouses are making a world of difference. 

Further, large warehouses come with the promise of achieving economies of scale and efficiency in operations and safety and security of goods.

Amid this changing scenario, we have also observed the foray of many international businesses and emergence of e-commerce players who prefer to establish their warehousing footprint only through legally compliant warehouses. 

The fruits of the much awaited change has begun showing. The total leasing volume in the organised warehousing segment across eight key Indian markets (Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, NCR and Pune) in 2017 stood at 25.7 million sq. ft recording an 85% year-on-year (YoY) growth over 2016.

Mumbai, NCR and Bengaluru witnessed maximum increase in leasing volume over 2016 as these cities along with their peripheries constitute the vital hubs on the industrial corridors envisioned by the government. 

Sophisticated occupiers such as 3PL and e-commerce, which thrive on efficient business models, have primarily whipped up the warehousing footprint for organized segment.

In 2017, the top three occupier industries were third party logistics (3PL) followed by manufacturing and retail with a 29%, 21% and 16% share of total leasing respectively. 

Meanwhile, the e-commerce industry’s share in total warehouse leasing volume remained largely steady in 2016 and 2017. From a 17% share in total warehouse leasing transactions in 2016, e-commerce’s share stood at 15% in 2017.

Warehousing is set to enter a new phase of growth as regional developers have understood the importance of infrastructure and quality specifications as part of their standard offering. Some have also started selling their portfolios to bigger developers.

Limited supply of quality warehouse stock has also spiked investor interest as they eye this asset class in light of strengthening demand. 

In this backdrop, demand for large warehousing facilities is set to increase as occupiers focus on consolidating in such spaces.

In 3-5 years, we expect the smaller developers to recede their market share to bigger players thereby bringing a structural shift.  In the long run, warehousing will evolve into an organised segment in the same league as its global counterparts. 

Click here to know more: Research - India Warehousing Market Report 2018