Neeraj Bansal,Co-Head & COO - India Global, KPMG in India, in dialogue with Anshul Singhal, Managing Director, Welspun One Logistic Park Pvt. Ltd., Rahul Pandit, CEO, Horizon Industrial Parks and Rajat Garg, Director & Head - Investments - Logistics, Industrial, Data Centres, ESR India, discussed the current scenario of the warehousing sector in India and the roadmap for the future.
The warehousing sector in the current times is looking at record absorption this year with more than 40mn sq ft net absorption which is much more than the pre-pandemic level. Elaborating on the factors driving this growth Neeraj Bansal stated, “The logistics and warehousing sector in India has seen a significant transformation, driven by the surge in online purchase during and post Covid. Changing business needs, altering consumer behaviour and favourable government support have also led to the fastrack growth and evolving of this sector.”
Anshul Singhal added, “India is a country of 1.6 billion people and current total warehousing stock is 307 mn sq ft. So we haven’t even scratched the surface of what the country’s demand can absorb. We will be growing at a CAGR of minimum 20 -25% Y-O-Y given that a year and a half back we were at 198 mn sq ft and today warehousing stock is more than 300 mn sq ft. By 2030, we will cross a billion sq ft of operational space. Moreover, warehouses now have evolved as fulfillment centers that are fully automated mini-factories doing picking, processing, labeling, and packaging. So this space is just beginning to evolve.”
Rahul Pandit concurred, “The total stock in USA today is 13 bn sq ft and in India 307 mn sq ft. We are just starting out and this is an encouraging scenario. The organized warehousing stock is just the visible iceberg on top, in fact the informal unorganized warehousing comprises approximately 10 billion sq ft, but that stock is not compliant or efficient. In this landscape, there is a brilliant opportunity for professional operators and the public sector to bring informal warehousing into the fold of the organized sector.”
Talking about the rising input costs and low rental Rajat Garg shared, “Warehouse rents in India have increased in the last 4-5 years, at a pace that’s faster than inflation in most markets. We have gone from maybe 20 cents per sq ft per month to about 35-40 cents per sq ft. per month for institutional Grade A warehousing. We are not just competing against existing warehouses on the basis of rents but also against inefficiencies that continue to exist in the systems of Grade B, Grade C warehouses.”
THE NEW TRANSFORMATIONS
According to Anshul Singhal, last year the total rentable area of tier-2 was about 53 percent of total leasable warehousing area, this year it is 62 percent. The warehouse is a multi-functional processing unit eco-system of vendors, suppliers and retailers, it helps raise the economy of the region and there is an entire ecosystem that starts growing, raising the land prices as well.
Rajat Garg added that warehousing is a labor-intensive industry because of the number of jobs it generates, almost 20,000 people per 100 acres. “Also per acre of land we buy is significantly higher than most other real-estate asset classes. We are not going to places where jobs already exist. We are going to communities that need this employment generation and with warehousing development the entire ecosystem in a 5-10 km radius changes.”
Rahul Pandit expressed, “In India our arbitrage is capital. When we look at more mature economies the arbitrage is labor so the technologies being adopted on more mature economies is effective to generate a labor arbitrage. In India that will happen when we develop industrial parks. The national logistics policy will reduce the cost of logistics and cost of operations and will force players to automate faster."
Neeraj Bansal concluded, “The challenge lies in availability of scalable land in the right locations, getting government approvals and getting the right ecosystem of vendors to execute on the ground. It is all about creating the right supply in the right location.”
The warehousing market is appreciating and growth is happening but being the back end of the entire supply chain, price elasticity is lower. It is currently a low to mid margin - high volume play.