Warehousing demand is expected to grow around 160% to reach 35 million square ft. in 2021 according to a recent JLL report. This is in line with the government’s priority to make India a global manufacturing hub, which has led to warehousing clusters expanding rapidly beyond Tier I cities and capitalizing on the potential of Tier II and III cities, where majority of growth can be witnessed currently and in the near future.
Growing urbanization and e-commerce penetration have resulted in customers demanding faster and timely fulfilments. In populous and urban locations, the e-commerce sector is rapidly transforming from a two-day to a two-hour delivery model for select SKUs. Presently, this is most popular for grocery/FMCG and other time-sensitive SKUs.
In-city warehousing has emerged as a major trend due to COVID-19, with Tiers II and III locations emerging as preferred warehousing hubs and investment destinations. The demand for Grade A, compliant, multi-storey warehouses will see a spike in the near future in these markets. The factors that led to the rise of in-city and multi-storey warehouses include: same-day delivery guarantees by many e-commerce companies, easy return policies, overall shorter supply chains, the rising popularity of daily online orders etc.
Consequently, warehouse operations have transformed because of customer expectations in terms of delivery speed and availability. Effective order fulfillment and inventory availability are some of the trends manufacturers have re-evaluated during the pandemic. Nowadays, fast delivery is a crucial requirement for the seamless omnichannel strategy of e-commerce players.
Warehousing companies are also opting for a hub-and-spoke model. A big regional center around a key market acts as a hub warehouse for smaller warehouses. These models will see a definite growth in the medium to long term.
Other sector-related schemes – such as the Production-linked Incentive Scheme (PLI) – have been introduced to develop manufacturing clusters across India. PLI will create economies of scale and provide a conducive manufacturing ecosystem which, in turn, will benefit the warehousing sector.
The change in global supply chains has made firms reform their expansion strategy and regionalize operations to cover themselves from contingencies and provide efficient last-mile deliveries. This trend will continue with increasing demand and a rise in manufacturing to benefit Tiers II and III cities such as Ludhiana, Ambala, Lucknow, Patna, Siliguri, Guwahati, Bhubaneswar, Vishakhapatnam, Vijayawada, Coimbatore, Kochi, Nagpur, Indore, Jaipur and Dholera, which may emerge Grade A warehousing clusters. Some of these cities have witnessed 20% growth in warehousing in FY2020, as indicated in a Knight Frank report.
The obvious advantages in terms of low rentals, availability of cheaper manpower, low capitalization and high vacancy levels are driving the growth in non-tier I cities. The demand in these cities is primarily driven by the e-commerce, 3PL, FMCG, retail and automobile industries. These industries are expected to witness a 2.5x to 4x growth from FY20 to FY25, according to a report by Praxis Global Alliance.
As per recent estimates, more than 60% of e-commerce sales and 90% of new customers are generated from non-Tier I markets. Hence, these areas are now fast becoming very attractive for warehousing-related investments.
Due to the emergence of many online brands in Tiers II and III markets, which require warehouse space, demand for Grade A warehousing is increasing even in the hinterland.
Manufacturers are moving closer to their customer base in non-tier I cities due to increased internet services, rising levels of disposable income, a young and brand-conscious population, a higher standard of living, nuclear families and the government’s push for digital in non-tier I regions.
The majority of these emerging warehousing clusters are also in line with the industrial and freight corridors being developed in the country. More industrialized locations will surely come up around utilization hubs because of the largest ongoing highway project in India, the North-South-East-West corridor. This will be a key part of the Indian highway structure and will connect many important manufacturing and industrial centres. So, national players will have to step up and make sure that for efficient last-mile delivery, there is a substantial presence of warehouses in Tiers II and III cities as well in some top regional hubs.
The large warehousing developers are concentrating on developing built-to-suit, plug-and-play facilities across the country due to the presence of improved rail and road infrastructure. The emerging plug-and-play facilities are in areas such as Greater Noida, Aurangabad and Hosur.
In 2019 and 2020, IndoSpace launched six parks across the country, including Bavla and Becharaji in Gujarat, Rajpura in Punjab, and Anantapur in Andhra Pradesh. IndoSpace will add more parks in Tiers II and III cities in southern and northern India in 2021.