scorecardresearch

Grade A warehouses: Next big thing in industrial real estate; market to record highest ever absorption in 2022

According to JLL India, the warehousing market is expected to record the highest ever absorption this year. The report states that the net absorption in 2022 will grow to a record 42.5 million sq. ft. – up 17% from the pre-COVID highs of 36.3 million sq. ft. in 2019.

Grade A warehouses: Next big thing in industrial real estate; market to record highest ever absorption in 2022
Considering the resilient fundamentals, the Indian warehouse market is poised for steady and sustained growth, with the demand primarily led by grade A warehouses.

By Sandeep Chanda

India’s warehousing sector has undergone manifold evolution from a largely unorganized, asset-heavy industry to one of the sunrise sectors of the national economy. With the sector playing a crucial role in keeping a steady momentum of the supply chain of businesses, the demand for warehouses has been witnessing a healthy incline. According to JLL India, the warehousing market is expected to record the highest ever absorption this year. The report states that the net absorption in 2022 will grow to a record 42.5 million sq. ft. – up 17% from the pre-COVID highs of 36.3 million sq. ft. in 2019. Remarkably, the sector has established itself as one of the most resilient asset classes.

The aftermath of Covid-19 led to a substantial rise in virtual transactions and an increased reliance on delivery solutions, especially for essential supplies like food and medicines that required fast and timely deliveries. There has been a drastic shift amongst consumers towards online shopping. Consumers today need doorstep access to their required products, and they need them within a short period. As a result, the e-commerce sector has significantly boosted wherein the players are seeking to ramp up supply and storage for improved delivery, further leading to a tremendous demand for warehouse spaces.

Also read: Goldi Solar to invest Rs 5,000 cr to raise module manufacturing capacity to 6 GW: MD Ishver Dholakiya

Catering to the present-day business requisites, modern grade-A warehousing facilities are emerging as the apt and preferred choice. Grade A warehouses, built in accordance with international standards, have extra height, high-performance flooring systems, and are armed with AI and technologies like Automatic Identification and Data Collection (AIDC), Automated Storage & Retrieval (ASRS), and QR codes to ensure faster processing. These spaces offer tangible benefits via green integrations, mechanized MHEs, fire safety protocols, sufficient docking stations and ample space for parking & vehicular movement.

With grade A warehouses, companies can align their operational requirements while also having flexibility as they fulfil critical business objectives. Fueling the growth, the booming e-commerce & quick commerce market, omnichannel operations, and robust demand for the strengthening of supply chains across industries have bolstered the demand for Grade A warehousing facilities across the country. The overall warehouse supply witnessed a CAGR of 17% during 2016-2021 to 258 million sq. ft with an increase in Grade A supply mix from 30% in 2016 to 45% in 2021, according to the rating firm ICRA.

Owing to consumption shifts, infrastructural developments, and increased internet penetration, e-commerce players are redesigning the supply chain with a greater emphasis on last-mile deliveries and are moving closer to consumption centres. As the business models shift towards quicker deliveries, the demand for in-city warehouses is also witnessing a rise. Companies have understood the importance of having a real-time pulse of the market and are investing in Grade A warehousing facilities in smaller cities. This has helped them cater to the rapidly increasing customer base in tier 2 and 3 cities as well.

Followed by e-commerce, third-party logistics (3PL) is the second-largest incentive contributing to the growing demand for grade A warehouses. As per the projections by Knight Frank India, over the next 5 years, the e-commerce segment will take up 165% more space in Indian warehouses whereas 3PL and other sector companies are expected to take up 56% and 43% respectively.

Also read: PVR to invest Rs 350 cr for 100 new screens in FY23; expects Inox merger to close by Feb next year

On the demand side, while there is a stronger e-commerce occupier trend and the rising prominence of secondary cities, the supply side includes a strong trend of institutional participation and large, high-quality, grade A warehouse spaces. The growth of the Indian economy and favourable industrial developments have spurred multinational corporations to set up their manufacturing hubs in the country’s prominent destinations. India’s quest to become a global manufacturing hub has thus garnered attention for the warehouse market from global and domestic institutional investors.

The ‘Make in India’ initiative along with systematic reforms like the implementation of GST, tax benefits to FDI investments, and accordance of infrastructure status to the sector has positively steered the investors’ interest towards warehousing as an emerging industrial asset class. The government is also planning to introduce a warehousing policy to help ease transportation and logistics costs as well as develop exclusive warehousing zones through public-private partnerships. Moreover, the creation and development of industrial corridors, port and road infrastructure, and multi-modal connectivity make the segment further attractive.

Considering the resilient fundamentals, the Indian warehouse market is poised for steady and sustained growth, with the demand primarily led by grade A warehouses. Insights stated in a recent report by market research firm ‘Research and Markets indicate that the space requirement of the segment is projected to reach 483 million sq. ft. in 2026, expanding at a CAGR of 12.77% from 265 million sq. ft. in FY2021. Looking at the immense potential, the market has a long runway for growth in this country and the industrial real estate players must tap this demand to contribute in a big way to the take-off of the sector and the national economy at large.

(Sandeep ChandaManaging Director India, Panattoni. Views expressed are the author’s own.)

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.