India’s warehouses: How are they set to change?

When one thinks of a warehouse, the image that probably comes to mind is that of a damp, humid, airless space. A place where one stores goods in transit.

For long, warehouses were considered a weak link in India’s logistics chain. Not anymore.

With initiatives such as PM Gati Shakti and more recently, the National Logistics Policy (NLP) serving as requisite tailwinds, along with a flourishing logistics industry, production-linked incentive-based manufacturing and a booming e-commerce ecosystem leading the way, the Indian warehousing sector is making significant strides. 

Conversations with key stakeholders reveal that after two decades where highways were the most dominant infrastructure sector, the next decade is expected to see an unprecedented investment boom in warehouses. Most of it will be driven not by the government, but by the private sector. 

According to the Indian Brand Equity Foundation (IBEF), the Indian warehousing market is set to grow at a compound annual growth rate of 15.64 per cent to reach $34.99 billion by 2027. Against this backdrop, India is looking at a transforming warehousing map in the decade ahead.

“From small godowns to large warehouses and now modern distribution centres, the Indian warehousing landscape has evolved to mirror global standards,” said founder of supply chain services company Stellar Value Chain Solutions, Anshuman Singh. 

The industry, which has benefited from the granting of infrastructure status to the logistics sector, including cold chains and warehousing, is set to further profit. To reduce logistics costs in India, which are pegged at approximately 13 per cent of the gross domestic product (GDP) compared to single-digit levels in developed nations, the government has taken steps to boost the sector.

The sector’s growth piggybacked on the success of the retail sector in the initial years and a booming e-commerce industry thereafter. Currently, it is riding on increased interest from third-party logistics (3PL) players. According to a June 2023 report from property consultancy Knight Frank India, the 3PL segment accounted for the highest market share amongst all warehousing occupier groups at 39 per cent in FY23.

“Manufacturing and allied sectors, fast-moving consumer goods and consumer durables players are the other major drivers for the burgeoning demand,” said Manikandan Ramachandran, chief operating officer at TVS Industrial Logistics Parks Pvt Ltd. 

The PM Gati Shakti masterplan, which aims to strengthen multimodal connectivity, reduce timelines and improve last-mile delivery, could prove a gamechanger for the warehousing industry — opening up new launch sites and attracting higher investments for modernisation and automation.

“With NLP, policy guidance is in place. To see development on ground, it will take another two to three years,” said Hybrid Shifting (HSSIPL) Founder and Chief Executive Rahul Pillai. He added that warehousing demand and investments have both grown in recent years with new overseas players entering the fray. 

Sushil Rathi, director of Allcargo Supply Chain, credited additional factors such as the introduction of GST and the ‘China plus one’ policy for overall industrial development in India, leading to growth in the warehousing sector. 

Beginning of a boom

Warehouses are emerging in major production/manufacturing clusters across cities like Chennai, Hyderabad, Bengaluru and Surat, among others. This is supported by the steady development of dedicated freight corridors for fast and efficient rail freight movement and 11 industrial corridors connecting major hubs like Delhi-Mumbai, Amritsar-Kolkata, Chennai-Bengaluru, Hyderabad-Bengaluru and the East Coast Economic corridor,  among others, via road. 

“On the back of production-linked incentive schemes across major sectors and a major thrust on exports for improving global value chain participation, extensive capacity creation is happening - not just on ports but a larger cluster of port areas,” underscored Easwaran Subramanian, a consulting partner at Deloitte India.

Furthermore, as many as 35 locations have been identified under the PM Gati Shakti programme for development of multimodal logistics parks to reduce delivery timelines via strategic connectivity.

This infrastructure development is fuelling an ecosystem for efficient long-haul movement of goods, shifting the largely unorganised warehousing sector towards an organised play, explained experts. 

In addition to the top eight primary warehousing markets in the country, primarily in metropolitan Tier 1 cities, businesses are increasingly moving to over 15 secondary markets to tap into growing consumption demand in the Indian hinterland. These include Coimbatore, Ludhiana, Lucknow, Guwahati, Patna, Indore, Visakhapatnam and Kochi, among others. 

According to Knight Frank India, secondary markets registered 1.3 million square feet of warehousing transactions in FY23, bagging a 21 per cent share in total sectoral transactions as opposed to 11 per cent in FY19. 

Positive investment landscape 

The possibilities are only growing — data from IBEF shows that warehousing investment secured the second-largest share in institutional real estate investments in both 2021 and 2022, accounting for 27 per cent and 31 per cent, respectively.

“Significant interest came from private investors in the last two to three years and the sector will only attract more private investments in the years to come,” said Subramanian.

Overall, the sector garnered investments worth $366 million in the first half of 2023, registering an 80 per cent increase compared to the same period last year.  

While government push on infrastructure is set to facilitate better logistics and reduce costs, warehousing is largely a private playing field, said Abhishek Bhutani, a managing director in the logistics and industrial division of commercial real estate services provider Cushman & Wakefield.

Interestingly, 50 per cent to 60 per cent of private players investing in warehousing are foreign investors, he said. According to data from Knight Frank India, between 2011 - Q1 2023, investors from Singapore and the US pumped in the highest foreign capital into Indian warehousing amounting to $6,405 million via 19 deals. 

As per the Knight Frank report, about 77 per cent of private equity (PE) players hold positive sentiments towards continued participation in creating new warehousing assets in India. 

However, industry experts highlighted concerns about non-uniform policies on transportation and building bylaws across states which may discourage greater investment inflows. 

Warehouses are evolving

With over 40 per cent of the total warehousing stock in the country falling in the grade A category, lofty structures laden with solar rooftop panels and armed with the latest technology can be spotted dotting the outskirts of major cities. 

Smart technology is now being used to sort, package and move products across the supply chain, including inside warehouses. 

Today, brands store their inventory in multiple locations across India to enable seamless and faster deliveries, implementing advanced warehouse management systems (WMS).

“The industry is swiftly moving towards embracing the concept of distributive warehousing, where inventory is strategically placed, reducing shipping time frame and enhancing customer experiences,” noted Ketan Kulkarni, Chief Commercial Officer, Blue Dart. 

Not just that, the trend of green warehousing is also gaining traction, with occupiers looking to reduce their carbon footprint.

India is also championing in-house technology development and manufacturing to aid players in scaling operations. The Indian warehousing market currently buys a majority of automation equipment and management software domestically, benefitting from quick service, while continuing to import the remaining from countries such as Japan, China, Europe and the US.

Highlighting India’s dependence on indigenous technologies, Satish Shukla, co-founder of global robotics and automation company Addverb, said, “About 20 per cent to 30 per cent of automation is imported from foreign companies, while 75 per cent is manufactured in India.”

However, “technology adoption has been slow in India, largely because the country has the advantage of cheaper workforce cost as compared to other countries,” said Bhutani. 

Mitigating factors 

However, despite its potential, growth may be mitigated by a number of factors, experts point out. Key concerns include the slow adoption of technology and low availability of suitable land parcels. Legal complexities and varying bylaws relating to upgrading old facilities are also contributing to regional imbalances in the development of modern, grade A warehouses. 

While big players in the warehousing industry have been quick to adopt automation and AI-driven technology, smaller companies have been rather slow, owing to the high costs of tech acquisition.

“There is huge potential in warehouse automation. India has not even reached 5 per cent of its potential,” said Shukla.

Furthermore, while the warehousing industry is treading towards an organised play on the back of surging investments, 60 per cent of the sector continues to be grade B and C warehouses and conventional godown structures. The traditional heavyweights in the sector such as the Mumbai Metropolitan Region and National Capital Region house significant proportions of this share. 

Experts highlighted the unavailability of adequately large land parcels, especially close to the production clusters, and high land prices as the top challenges plaguing the sector. The cost of land varies significantly in India — rates range from Rs 9 to 16 crore per acre in the Attibele-Bommasandra warehousing cluster of Bengaluru to Rs 2 to 2.5 crore per acre in the Sriperumbudur-Oragadam warehousing cluster of Chennai.

In addition, regulatory and compliance concerns continue. This includes cumbersome land acquisition processes and construction bylaws in different states on the upgradation of old warehouses into grade-A quality warehouses.