“The surge in warehousing demand in recent times is largely attributed to the pivotal role played by Tier-2 and Tier-3 cities, fueled by extensive digital penetration, transforming them into significant consumption markets and driving the need for increased warehousing facilities.”
Anshul Singhal, Managing Director, Welspun One
Challenges confronting Grade-A Warehousing in Tier-2 & 3 cities
The demand for Grade-A warehousing has been relatively limited in Tier-2 and Tier-3 cities, and rentals of Grade-A warehouses remained opportunistic. Factors such as increased urbanization also reduced the availability of commercial and industrial land around India’s urban and even pre-urban centers. This is further worsened by social difficulties in acquiring land due to pushback from certain sectors of the local unorganized economy. There are multiple challenges for licensing and getting permissions from competent authorities, and these also vary across various states and union territories. Multiple renewals are required annually from different government agencies and bodies, which again are also different for respective states and prove to be yet another barrier. Without a national digital repository and the lack of a national ‘single window’ system, managing data and processes is also another major challenge for various inter-state and intra-state warehousing organizations, causing additional friction in this sector. Labour is, and continues to be, a consistent problem in the warehousing sector, due to both regulatory challenges and lack of quality manpower.
Regional Warehousing Market Surges in 2023-24
As of 2023-24, the regional warehousing market has started to gain momentum owing to emerging growth opportunities. Tier-2 and Tier-3 markets are expected to serve as prime markets and have already witnessed a 17.4% Year-on-Year growth in industrial and warehousing absorption. The percentage increase of Grade-A and Grade-B+ warehouse absorption in Tier-2 cities is higher, with a growth of 31% Y-O-Y. With an overall current demand of 12.6 mn sq. ft., cities like Guwahati have shown the maximum growth with 1.6 mn sq. ft. of demand followed by Jaipur with 1.4 mn sq. ft., Ambala & Coimbatore 1.3 mn sq. ft. each, and Patna & Bhubaneshwar with absorption of 1 mn sq. ft each. There is also an additional warehousing absorption of other inventory grades of close to 10 million sq. ft. that was attributed to Tier-2 and 3 cities in this period. For investors, Tier-1 cities are still key focus investment hubs, and the absorption in top Tier-1 markets still continues to dominate, but increasing expansion needs steered by e-commerce and 3-PL players in Tier-2 and 3 cities are attracting investments in these cities leading to the development of more Grade-A warehouses. Other core factors driving this demand include increased internet penetration, the government’s push for Digital India, rising levels of disposable income, a young population which is cognizant of brands, and a demographic shift towards a higher standard of living for the population in these cities.
Warehousing and Logistics Sector
The warehousing, industrial, and logistics sectors are projected to be crucial for attaining India's vision of being a US$ 5 trillion economy by FY25. The Indian warehousing market was valued at INR 1,206.03 Bn in 2021. It is expected to reach INR 2,872.10 Bn by 2027, expanding at a CAGR of ~15.64% during the 2022-2027 period. The expansion of this industry is likely to be aided by robust economic growth, driven by the government’s efforts to improve infrastructure, and to develop a favourable business environment. Increasing consumerism along with a huge consumer base is fostering the growth of retail and e-commerce in India. The Indian retail sector's market size is predicted to increase at a CAGR of 9% between 2019 and 2030, reaching more than US$ 1.8 trillion.
Our commitment to delivering Grade-A logistics parks revolves around the dynamic needs of the industry and more importantly, our tenants. Our customer-centric approach assures client involvement throughout the asset cycle creation. We provide tailor-made warehouses, offering built-to-suit solutions that accommodate the complex infrastructure needs of our clients. Our clients actively participate throughout the design and execution stages ensuring that the warehouses are perfectly aligned with their expectations. This comprehensive approach ensures clients can focus solely on their core business, relieving them of any concerns related to real estate.
India’s warehousing industry is at an inflection point and is expected to grow at a CAGR of ~15.64% in the next five years. Buoyed by the acceleration in e-commerce and 3PL businesses which are leading the way in terms of warehousing demand, this fast-paced upward trajectory is attributed to the increased digitization of services and offerings. Furthermore, growth in quick commerce has given an added impetus to their momentum which continues till date. This elevation in warehousing demand has expanded to the manufacturing sector as well as across auto, EVs, and pharma businesses and further driven by newer trends like in-city warehousing, build-to-suit units, automation, and technological advancements.
The introduction of Government policies and schemes like the Production Linked Incentive (PLI) scheme, GST, PM Gati Shakti, and the National logistics policy have further encouraged the development and expansion of the warehousing and the Indian logistics sector to become a key driver of economic growth. The Union budget 2023 has a strong focus on infrastructure creation, which is also in line with the goals and intent of the National Logistics Policy, which seeks to reduce the logistics cost as a percentage of GDP from 14% to 8%, thereby increasing the overall competitiveness of the Indian industry. Warehousing, being a critical component of the logistics sector, will be a direct beneficiary of this growth. These policies aim to reduce logistics costs, enhance infrastructure, and create a more efficient and competitive logistics ecosystem. By addressing key challenges in the sector, these policies are further bolstering the investment potential of Tier-2 and Tier-3 cities. All in all, the Warehousing sector has emerged as the fastest-growing asset class in the real estate sector and will continue to chart out solution-oriented strategies in anticipation of future impediments.