Forces Powering Warehousing in India

Government policies and infrastructure initiatives are catalyzing performance of this sector. India’s current warehousing upsurge began with the boom in e-commerce, which transformed warehousing from a basic backend storage into a versatile and cutting-edge modern complex, by prioritizing & enhancing operational efficiency. This has been undoubtedly benefitted from large investments in Robotics, Sortation, WMS services and upgraded racking & shelving systems. 

India, the fifth-largest economy and one of the fastest-growing globally, is rapidly enhancing its logistics ecosystem to boost competitiveness. Aatma Nirbhar Bharat (Self-Reliant India) initiative is manifested in various projects, including Sagarmala, Bharatmala, the National Infrastructure Pipeline (NIP), etc., which are at various stages.  In addition, the government's focus on improving multimodal terminal infrastructure, including Industrial Corridors, Inland Waterways, Dedicated Freight Corridors (DFCs), Inland Container Depots (ICDs), Container Freight Stations (CFSs), Air Freight Stations (AFSs), Private Freight Terminals (PFTs), Multi Modal Logistics Parks (MMLPs), Port terminals, Airport terminals, Logistics parks dry ports, Land Custom Stations, etc., has significantly enhanced the business environment for warehousing sector.

Major Indicators Signaling a Bright Future 

3PL & Automation: In the last 2-3 years, the 3PL sector has played a significant role in driving demand, accounting for approximately 40-50% of the pie. The growing trend of supply chain outsourcing has resulted in the proliferation of 3PL players in tier II & III cities, leading to rising demand for warehousing spaces. The 3PL/Logistics companies in India are actively investing in warehouse automation solutions to enhance operational efficiency. This includes integration of Automated Guided Vehicles (AGVs), Autonomous Mobile Robots (AMRs), conveyor systems to optimize material handling, order picking and packing procedures. Automation is being implemented in last-mile delivery operations, including route optimization algorithms and mobile applications for real-time tracking and customer communication.

Growth in Tier II & Tier III cities:  The top five cities contributing to the majority of absorption over the years are Delhi-NCR, Mumbai, Bengaluru, Chennai, and Pune. Tier II & III cities have experienced substantial growth in both supply and absorption over the last 2-3 years, contributing between 20% and 25% for both supply and absorption. The expansion of distribution networks in Tier II and Tier III cities, along with increased e-Commerce penetration, is likely to drive demand.

Adoption of ESG Standards: The changing occupier preferences to meet ESG (Environmental, Social, and Governance) standards are likely to drive demand for Grade A warehousing and ready-fitted-out factory space. In recent years, Grade A space has contributed to more than 40% of the total absorption and is likely to witness a substantial surge in the future. 

Migration from Grade C & D space to Grade A: There is about 800 million sq. ft. of Grade C & D stock (~ 70% of total) in industrial & warehousing properties. The steady shift from Grade C and D properties to Grade A presents promising opportunities for developers and investors in the coming years.

Growing Manufacturing Sector: The manufacturing sector has gained momentum with a host of incentive schemes, including the Production Linked Incentive Scheme (PLI) which encourages domestic manufacturing through financial incentives tied to increased local sales. As a result, the manufacturing sector’s contribution to overall absorption has experienced impressive growth, increasing from 16% of total space absorption in 2022 to 24% in 2023.

e-Commerce’s resurgence after a near knock-out:  Between 2020 and 2023, around 21 million sq. ft of e-Commerce space was absorbed in tier I cities. The e-commerce sector is likely to witness continued surge. It is adopting new business models for increasing urban distribution and extending the reach in tier-II & III locations. The growth in cities like Patna, Ranchi, Lucknow, Guwahati, Rajpura, Ambala, etc., has been remarkable.

Emerging Sub-sectors: Cold Storage, Chemical warehousing, In-city distribution, FTWZs, ICDs, Agricultural warehousing & Self-storage emerging sub-sectors are significantly contributing for the overall absorption.

Future Outlook

Indian consumption market has powered up the investment prospects for its Industrial & Warehousing units. Fueled by rising domestic demand and expanding distribution networks across cities & towns, we anticipate an absorption of over 120 mn sq. ft. over the next 24 months, and the supply at over 150 mn sq. ft. during the same period.

The 3PL sector is expected to play a pivotal role, contributing over 40% to total absorption owing to supply chain outsourcing, coupled with increased manufacturing. India will continue to emerge as an alternate manufacturing investment destination in the coming years. Foreign manufacturing companies are planning more manufacturing bases in India, which will create demand for both ready high-spec fitted out and custom-built industrial spaces. The contribution of manufacturing sector contribution to the total absorption rose noticeably from 16% in 2022 to 24% in 2023. This trend is likely to continue, with a projected contribution in excess of 30% to the total absorption in the next two years.  

The e-Commerce sector is gaining traction, adopting new business models, driving exponential growth in tier II & III cities and beyond amplifying their urban distribution and extending their reach to tier II & III cities. We expect e-Commerce sector contribution is set to surpass 12 to 15 million sq. ft. between 2025 and 2030 with a significant portion originating from tier II & III cities.

Rental values are expected to increase marginally for compliant buildings across the cities, with yields remaining stable. The changing occupier preferences to meet ESG (Environmental, Social, and Governance) standards are likely to drive demand for Grade A warehousing and ready-fitted-out factory space. Over the last 2-3 years, Grade A space has contributed to more than 40% of the total absorption and is likely to witness a substantial surge in the future. 

Investors are confident that Warehousing is a safe bet for their capital investment. The domestic and offshore funds are expected to diversify their portfolios and continue to invest in high yielding assets and many foreign institutions are exploring opportunities to invest in this growth.