The warehousing sector in India has come a long way from godowns to state-of-the-art automation-assisted warehouses. It is a fundamental part of business infrastructure and one of the key enablers in the global supply chain. Fuelling its rapid transformation are challenges of the pandemic and the rising e-commerce activity.

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India’s warehousing market picture

India's warehousing market has been experiencing remarkable growth in recent years. According to Research and Markets, as of 2021, it was valued at Rs 1,206.03 billion. However, by 2027, it's projected to reach a staggering Rs 2,872.10 billion, with a compound annual growth rate (CAGR) of approximately 15.64 percent during the 2022 to 2027 period. These numbers indicate a significant opportunity for investors and businesses in the warehousing sector.

So, what factors are driving this growth in the Indian warehousing market?

First, the rise of e-commerce has been a major contributor. With the increasing adoption of online shopping, the demand for efficient storage and distribution centres has soared.

Second, the growth of the manufacturing sector has played a crucial role. As manufacturing activities expand, the need for warehousing space to store raw materials and finished goods has grown substantially.

Third, the government's focus on infrastructure development has created a conducive environment for the warehousing industry. Investments in roads, highways, and logistics parks have improved connectivity and logistics efficiency.

Finally, there is an increasing demand for cold storage facilities due to the growing need to preserve perishable goods such as food, pharmaceuticals, and other temperature-sensitive products.

India’s warehousing industry Vs developed markets

Indian warehousing is still at a very nascent stage and has a long way to go before tapping into its full potential. One of the ways to gauge the scale of the opportunity the Indian warehousing market represents would be to compare the per capita stock of warehousing with developed markets. India has a per capita warehousing stock of just 0.02 sq m compared to the USA, China and the United Kingdom that have 4.4 sq m, 0.8 sq m and 1.09 sq m respectively, as per data from Knight Frank.

Third Part Logistics or 3PL players have been the most prolific occupier group fuelled by the increasing need for e-commerce logistics as well as the strengthening trend of most companies increasingly preferring to outsource their logistics requirements. According to Knight Frank, the 3PL sector accounted for the highest market share among all occupier groups at 39 percent in FY23, the highest by any sector, followed by manufacturing, retail and others. E-commerce — which had been a big growth driver in FY22 saw a sharp dip in FY23 as players witnessed some slowdown and a tough macro environment. However, come FY26, and e-commerce is expected to bounce back as the largest contributor to demand, followed by 3PL and others, a Knight Frank study showed.

Transaction volumes grow

With FY22 having achieved record transaction volumes, industry stakeholders doubted if FY23 would sustain the momentum, especially with the slowdown in demand from the prolific e-commerce sector during the year. Nonetheless, warehousing transaction volumes have matched the record levels achieved in FY22, as the 3PL and manufacturing companies filled the vacuum left by the e-commerce sector, with transaction volumes touching 4.8 million square metre as of FY23.

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The eight primary markets of India held an estimated 38 million sq m (412 million sq ft) of warehousing stock at the end of FY23. Strong transaction volumes, in tandem with comparatively lower supply in FY23, have brought down the vacancy level to 12.2 percent during the year.

The Mumbai market accounted for 34 percent of this stock and along with NCR, constituted 52 percent of the total stock. Vacancy levels in the major markets of Mumbai, NCR, Bengaluru, Pune and NCR have dropped significantly compared to the previous year.

Warehousing — not all are equal

Not all warehouses are the same- they are roughly divided into grades. There is an increasing demand for Grade-A warehousing facilities which are better equipped with additional floor-load capacity, better planned spaces, safety precautions as well as adherence to international standards. Grade-A warehousing is taking over Grade B and C, which have limited infra capabilities.

Now here’s where the opportunity lies — India will need to create adequate supply to meet an absorption of 223 million square feet of Grade-A warehousing demand over the next three years, as per a study done by Credai and Anarock Research last year.

Investments in the sector

This will require an equity investment of $3.8 billion to support this scale of development. As per Credai and Anarock’s estimates, this signifies a latent investment opportunity of further $2.8 billion in warehousing in the near future.

In 2022, warehousing continued to emerge as the most sought-after sector for investment, despite other sectors experiencing slowdown. Data from Venture Intelligence showed that private equity investors collectively invested over $1.9 billion in 2022, with an average investment per deal of $272 million. The annual investment volume increased by 45 percent year-on-year compared to $1.3 billion received in 2021.

Factors affecting the growth of the warehousing industry

As more consumers turn to online shopping, there is a need for efficient fulfillment centers and last-mile delivery infrastructure, creating opportunities for the warehousing.

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Then you have the 'Make in India' campaign, GST implementation, and the National Logistics Policy to promote the growth of the manufacturing and logistics sectors, which auger well for the sector.

There’s also increasing organised retailers who require warehousing facilities to maintain sufficient inventory and ensure timely replenishment, leading to increased demand for warehousing services.

India's growing middle class and increasing disposable incomes are driving consumer demand for a wide range of products. This surge in demand necessitates efficient supply chain management and adequate warehousing facilities.

The warehousing sector in India is attracting investments from domestic and international players. Collaborations between stakeholders, including e-commerce platforms, logistics providers, and manufacturers, are also driving the growth of the sector by creating integrated supply chain ecosystems.

On the other hand, inadequate transportation networks, lack of modern facilities, and limited availability of land suitable for warehouses.

Secondly, complex and time-consuming regulatory procedures can pose a significant hurdle. Obtaining necessary permits, licenses, and clearances can be a lengthy and cumbersome process.

Then there’s shortage of skilled workers in the industry, and attracting and retaining talent can be challenging, affecting the growth potential.

Also, the warehousing sector in India is highly fragmented, with many small and unorganized players. This leads to inefficiencies, lack of standardisation, and limited scalability.

While technology adoption is increasing in the warehousing sector, there are still significant gaps in implementing advanced solutions such as warehouse management systems, automation, and data analytics.

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First Published:Jul 12, 2023 3:46 PM IST