– By Sudarshan Lodha
After garnering attention from global and domestic investors, the Indian warehousing market has set on a growth trajectory like never before. The outbreak of pandemic has made the use of warehouses imperative. E-commerce platforms have risen sharply as the demand for goods has been at an unprecedented high. Similarly, the Quick Serving Restaurants (QSRs) and food delivery segments have also grown, fueling the need for cold warehousing space. A significant investment has been made in warehouse technology and infrastructure to ensure process efficiency and automation.
The warehousing industry-current scenario
The sector has established itself as one of the most resilient asset classes. According to the reports, the market grew by 45 per cent in the first 9 months of FY 2022 and may push the net absorption to around $43 million sq. ft. by the end of 2022. While the market expanded by 46 percent in 2019 to $ 25 million square feet, the market contracted by 49 per cent in 2020, with net absorption of only 13 million square feet. The industry is mainly concentrated in the major ports and their hinterlands, including the National Capital Region (NCR), Bengaluru, Chennai, and the states of Maharashtra, Gujarat, and Karnataka. The industry’s growth is mainly led by an uptick in demand from consumers being routed through e-commerce, which has opened up new avenues of investment. According to the ICRA report, the overall supply warehouse space witnessed a 17 per cent CAGR from 2016 to 2021, pushing the net absorption to a whopping 258 million sq ft. Additionally, an uptick in grade-A warehouse supply was seen pushing 16 per cent in 2016 to 45 per cent in 2021. The demand for warehousing services is expected to grow at a CAGR of 17-18 per cent until the end of 2022, primarily driven by the growing e-commerce sector.
Warehousing as an asset class
NRIs, HNIs and UHNIs, whose prior investment priorities only included residential assets, have increased their participation in the warehousing sector. The industry is also attracting private equity funds as well as real estate developers. Moreover, with the advent of new- age investment models, even retail investors are interested in investing in warehouses and industrial spaces. There is a paradigm shift in investors’ sentiments towards warehousing space, earlier investors only looked at the office and retail sectors for investment, but now they are eyeing investment in the warehousing sector.
Fractional investment in warehousing: a lucrative strategy
To retail investors who have been looking to invest in warehouse properties and industrial parks, the fractional ownership model has appeared to be one of the easiest options for them to invest in bespoke properties. Earlier, large scale commercial realty such as warehousing spaces was always limited to HNIs and affluent investors since it required a large ticket size to enter the market as an investor. But with fractional ownership, investors can invest in grade-A warehousing space according to their investment bandwidth. This model allows investors to own a piece of grade-A commercial property of their choice. The options presented to investors range from warehouses to large industrial parks. The minimum investment size for commercial property is Rs 20 lakh. Post the purchase, the investor will be a part of a special purpose vehicle (SPV), which will own the property. Monthly rentals will be transferred to the SPV and shall be divided proportionally amongst the members of the SPV. The returns on CRE are lucrative. Investors enjoy annual rental yields of 8-12 per cent on their investment, which is three times higher than what a residential property could yield.
Warehousing development attracts less investment, but its rental yield is among the highest in the commercial real estate segment. Many start-ups and tech platforms are facilitating the purchase and management of various warehouse assets across the country.
Warehousing as an asset class has been a preferred sector for investors and developers alike, who include this in their real estate portfolios as the production is faster and generates higher revenues with lower risks. The grade-A warehousing market has grown at a steady rate in the recent past owing to the growth of e-commerce in the country and is expected to grow at a rate of 15 per cent by 2025. Manufacturing, e-commerce companies, and third-party logistics firms are the top three sectors that lease the most warehouse space in India. Additionally, India, being the fastest growing economy, is rapidly emerging as the world’s manufacturing and logistics hub, thereby creating a myriad of opportunities for investors. Fractional ownership has proven to be one such investment avenue that has democratised CRE investment in this [warehousing] space.
(Sudarshan Lodha is the Co-founder and CEO at Strata)