The commercial real estate sector has witnessed robust growth and created a market for global investors. The industrial and warehousing sector has witnessed consistent growth for last 2 years. The real estate market of India has attracted USD 5 billion private equity (PE) inflows in 2019. Of this, over 66% or USD 3.3 billion filled in commercial real estate. There is an increased demand in the industrial sector like manufacture, lift in consumer demand and a huge impact of global trade on the business. Factors like this growth in the manufacturing sector, rising consumer demand, a boost in international relations, the emergence of organized retail in the country, increasing private and international investments in infrastructure along with the dynamic growth in e-commerce is ought to maintain prosperity in the sector in next few years. 77% YOY growth was observed in warehouse leasing.
A recently published report states that the manufacturing sector that accounts for 80% of the warehousing market is estimated at 739 million sq. ft. in 2019 and is expected to grow to 922 million sq. ft by 2024. A strategically placed and well planned warehouse not only improves the consumer services but also enables competitive advantage through efficient supply chain economics. At this rate, the current warehousing space is said to double in 3 years- 2022.
Land acquisition is the biggest challenge in this business. Strategic land positioning in industrial and logistics parks is key as it serves the business needs of clients. The demand for warehousing has fairly outshined its supply in the last 4 years. The increasing demand also was proportionate to the high lease transactions. Compared to the total amount of industrial and logistic leases in 2018, 56 % was Grade-A space. The industrial parks and warehousing sector has huge demand in sectors like 3PL, logistics, engineering, auto and ancillary, e-commerce, FMCG, retail and telecom.
Grade A logistic parks have gained importance across sectors today as it serves the business purpose without the need of owning it. A good warehouse is the primary requirement for businesses today and is a first-hand enabler of the global supply chain. It is pivotal for procurement, manufacturing and distribution services which collectively contribute to the growth of the economy.
A few patterns we will notice in the business in the next coming years are the usage of the internet in the country which is bound to grow in the next 5 years. E-commerce accessibility will also increase. In order to meet the demand of the market, the logistics and warehousing sector will also have to be organised and the efficient and strategic positioning of the parks will be crucial.
The involvement and interests of renowned global investors and developers have set a high standard. Therefore, the benchmark for warehousing developments in the country will be higher and we will experience a shift of pattern in the industry dynamics. Outsourcing of the logistics activity is the next practical stage of progress for most sectors as taxes have been restructured across the country and the Input Tax Credit is now open to be availed across product and service lines. The industrial and warehousing sector will undergo a key evolutionary leap in the next 5-8 years. We will witness substantial warehouse consolidation by companies in the B2C segment in few years and we will positively see the upgradation in offerings by the large modern technology-based warehousing operations with effective productivity and the rapid conversion of unorganised godowns to modern logistics and industrial parks.
The warehousing sector is gaining maturity, even smaller and upcoming developers have started providing quality specifications and infrastructure as a standard offering. The benchmark of warehousing space has moved up and has been established. Consolidation will also be common amongst players, where smaller local developers and property owners will sell out to the larger institutional developers in the existing clusters.
Also Read: Industrial Warehousing, a key demand driver for foreign investors