Class A Warehouses: Next in Industrial Real Estate; the market will register the highest absorption ever in 2022


By Sandeep Chanda

The warehousing industry in India has gone through a multiple evolution from a largely unorganized and asset-heavy industry to one of the leading sectors of the national economy. With the sector playing a crucial role in maintaining a steady momentum in the business supply chain, the demand for warehouses is on a healthy slope. According to JLL India, the warehousing market is expected to see the highest uptake ever this year. The report says net uptake in 2022 will reach a record 42.5 million square feet – up 17% from pre-COVID highs of 36.3 million square feet in 2019. Remarkably, the sector s is established as one of the most resilient asset classes.

The consequences of Covid-19 have led to a substantial increase in virtual transactions and an increased reliance on delivery solutions, especially for essential supplies like food and medicine that required fast and on-time deliveries. There has been a drastic shift among consumers towards online shopping. Today’s consumers need direct access to the products they need, and they need them in a short period of time. As a result, the e-commerce sector has grown tremendously as players seek to increase supply and storage for enhanced delivery, resulting in a huge demand for warehousing spaces.

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Responding to today’s business demands, modern Class A warehousing facilities are emerging as the appropriate and preferred choice. Class A warehouses, built to international standards, have high performance flooring systems and are equipped with artificial intelligence and technologies such as automatic identification and data collection (AIDC), storage and automated retrieval (ASRS) and QR codes to ensure faster processing. These spaces provide tangible benefits through green integrations, mechanized MHEs, fire safety protocols, sufficient docking stations, and sufficient space for parking and vehicle circulation.

With Class A warehouses, companies can align their operational requirements while having the flexibility to meet critical business goals. Fueling the growth, the booming e-commerce and fast-paced commerce market, omni-channel operations and strong demand for strengthening supply chains across all sectors have boosted the demand for Grade A warehousing facilities across the country. Global warehouse supply grew at a CAGR of 17% during 2016-2021 to reach 258 million square feet with an increase in Class A supply mix from 30% in 2016 to 45% in 2021, according to the rating firm ICRA.

Due to consumer shifts, infrastructural developments and increased internet penetration, e-commerce players are rethinking the supply chain with more emphasis on last mile deliveries and moving closer to consumer hubs. As business models shift towards faster deliveries, the demand for city warehouses is also seeing an increase. Businesses have realized the importance of having real-time market momentum and are investing in Class A warehousing facilities in small towns. It has also helped them cater to the rapidly growing customer base in Tier 2 and 3 cities.

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

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On the demand side, while the trend of e-commerce occupiers is stronger and secondary cities are becoming more important, the supply side includes a strong trend of institutional participation and large warehousing of superior quality. The growing Indian economy and favorable industrial developments have prompted multinational corporations to establish their manufacturing hubs in major destinations in the country. India’s quest to become a global manufacturing hub has therefore captured the attention of global and domestic institutional investors in the warehouse market.

The “Make in India” initiative as well as systematic reforms such as the implementation of GST, tax advantages for FDI investments and the conformity of the status of infrastructure to the sector have positively directed the interest of investors towards the warehousing as an emerging industrial asset class. The government also plans to introduce a warehousing policy to help reduce transportation and logistics costs as well as develop exclusive warehousing areas through public-private partnerships. Moreover, the creation and development of industrial corridors, port and road infrastructures and multimodal connectivity make the segment even more attractive.

Given the resilient fundamentals, India’s warehouse market is poised for steady and sustained growth, with demand driven primarily by A-grade warehouses. Insights presented in a recent report by market research firm “Research and Markets” indicates that the segment’s space requirements are expected to reach 483 million square feet in 2026, growing at a CAGR of 12.77% from 265 million square feet in FY2021. In view of the immense potential, the market has a long track of growth in this country and the actors of industrial real estate must exploit this demand to contribute significantly to the take-off of the sector and the national economy in its entirety. together.

(Sandeep ChandaManaging Director India, Panattoni. The opinions expressed are those of the author.)


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