Credit: Shutterstock

A PHP Error was encountered

Severity: Warning

Message: Invalid argument supplied for foreach()

Filename: helpers/events_helper.php

Line Number: 1768


File: /var/www/vhosts/
Line: 1768
Function: _error_handler

File: /var/www/vhosts/
Line: 76
Function: events_block_itens

File: /var/www/vhosts/
Line: 325
Function: include

File: /var/www/vhosts/
Line: 18
Function: _ci_load

File: /var/www/vhosts/
Line: 390
Function: view

File: /var/www/vhosts/
Line: 305
Function: require_once


COVID-19 Changes Consumer Patterns to Accelerate Warehousing

5 MIN READApril 28, 2020
Cities around the world are quarantined and are not allowed to go outside, pushing retail and hospitality into uncomfortable situations. Nevertheless, the warehousing and logistics sectors are more in demand than ever as companies rush to get their products and services online. 

India’s warehousing industry is no different, and it is by far one of the most prepared to manage the impact of COVID-19 and take advantage of rising opportunities. GRI Club Real Estate members discussed the sector’s pain points and opportunities that the pandemic has generated during our latest eMeeting.

This unprecedented scenario has created uncertainty throughout the entire market, and both developers and tenants will have to stick to their commitments to survive. But members see positive signs in the warehousing sector that could increase its demand in the future, and become a strong asset class. 

Main Discussion Takeaways

Warehousing is one of the more strategic asset classes in terms of its positioning for servicing the needs of tenants. When it comes to warehousing policies, GST is fully implemented in the sector and most states have mature policies for the approval and adoption of e-commerce. Overall the sector has quality capital, but the next 12 months will have soft demand balanced out with a soft supply due to labor issues in construction.

At the moment several warehousing plants across India continue operation with government support and continue to provide services to clients and customers. Members believe that since warehousing demand is driven entirely by domestic demand, the leakages will be fewer, and therefore the impact should be relatively less. Once the lockdown is lifted there is going to be a lot of pent-up demand to be catered to which affects warehousing positively. 

Looking ahead, automation in India’s warehousing is going to be looked at with more vigor as the overdependence on available cheaper labor and upskilling of labor remains a challenge. Especially as the market would like to start reducing the dependencies on labor. Also, more tech-driven solutions and digitization will impact this sector. Another trend likely to be seen in the warehousing is shift to Tier 2 and 3 cities, however this is still to be tested but some land correction would be required to aid the shift. 

The government has been active in the sector, permitting warehouses and essential goods space to continue operating, which provides a good middle ground for the landlord and tenant. In a discussion with the government, there has been a mention of land being made available alongside highway corridors in the future. This is a brilliant opportunity under work for the sector. The government is aware that maintaining a smoothly functioning supply chain is essential while we face this humanitarian crisis. Therefore, it has become essential that the government looks at its policy to facilitate logistics and make it more detailed evenly, certain regions are easy and certain are tough. Accordingly, government involvement in the sector has become crucial as the sector contributes to the economy sufficiently. There has been a development with the government to bring in place a representation body with the warehousing industry participants. 

What has been the immediate impact of COVID-19 on India’s warehousing sector? 

The global view on warehousing is extremely bullish. COVID-19 has accelerated the convergence between retail and warehousing. Overall members agreed that consumption may reduce this year, nonetheless, e-commerce and warehousing will substantially grow the market share. Something generating concern among members is the pricing power. When the tenant portafolio diversifies, the sector will thrive. Nevertheless, the consolidation of tenants at the moment is 25 percent of the total pool, moving the pricing power to the tenant. 

Warehousing sector, following the retail and office sector, is the sector most hit with the rental waivers. There are tenants who are asking for Force Majeure, rental waivers and reductions, as well as escalation deferrals, putting landlords under tremendous pressure. The government in certain countries, such as Australia, have stepped in to help mediate and generate a possible solution. Nevertheless, Australia is a developed market with the government being one of the biggest tenants, hence the comparison may not be adequate. The sector in India currently works with tight pricing, slimming profit margins. 

During a crisis, it is common that investors draw their money out of emerging markets first. Warehousing however has proven to be different. Members expect a little push and pull on the demand and supply dynamics and although the demand may not grow as it was forecasted, supply will also decrease as smaller developers will not have the capital necessary to build.  

Changes in Consumer Patterns to Accelerate Warehousing Sector

COVID-19 has accelerated e-commerce adoption rates, increasing online delivery demands for both essential and non-essential items. Nevertheless, there has been a displacement in demand in works due to the push in demand of hygiene and sanitation products, social distancing policies, resulting in tenants shifting to Grade A spaces. Apart from Hygiene and sanitation products there has not been an increase in real demand per se, but instead consumers are stocking up on food and groceries for the days to come. New businesses are also likely to enter the market with agro-warehousing being the clear winner leading to higher demand in cold storage and food supply chain solutions. Key Category Shifts
  • The current online behavior shows a clear pattern in the shift of the retail market from offline channels (80-85 percent of the market) to the online mediums. 
  • For every dollar that moves from offline to online, it will require three times as much warehouse space.  
  • The penetration of the internet expected to occur in the next few years, has occurred in the past six to eight weeks, greatly impacting buyer behavior.  
  • While the overall consumption is likely to drop subsequently in certain categories, basic demand is not going to stop, as the market is likely to see a category shift for instance the type of consumption in essentials moving online. 
  • The earlier norm for purchasing commodities was more of a touch and feel approach. Consumers are shifting their habits and are becoming more comfortable buying online, specifically groceries.
  • The trust level developed in e-commerce during the lockdown will help in building habits and maintaining the demand online, increasing the demand for the e-commerce players, and  in turn increasing the demand for warehousing space.
Demand Patterns for Warehousing Space
  • There has been an increase in demand for essential goods (food, groceries, hygiene) space due to the overflowing stocks. However this demand is temporary, lasting approximately 30- 60 days.
  • Non-essential goods companies are desperate to start operations and are keeping themselves stocked. 
  • Sales forecasts for most companies are unknown, making planning difficult. The rise in inventory levels for most consumer companies will also contribute to an increase in demand for space. 

Opportunities on the Horizon? 

This sector was predominantly managed by unorganized players and the shift alone from unorganized to organised will present a huge opportunity. Large global players, could have huge opportunities ahead. Members believe that warehousing is an easy model requiring one-time approvals and three to four months timelines for completion. The main concern is that the business is vulnerable to a herd mentality, resulting in excessive supply. 

Warehousing has been a recent area of interest for the banking sector. From the funding perspective, the bankers prefer short-term projects with immediate cash flows. In the past few years, the bankers struggled with factors such as leasing and location in the sector but the sector is becoming more organized now. The bankers are keen to get their hands in the sector. The key pros are that the turnaround time, and low execution challenges, and traditionally low land costs. 

In the long term, there may be some minor adjustments needed in the types of projects developed and the demand may be not as expected, but India’s 1.3 billion citizens will not stop consuming.  Companies will continue coming to India and inefficiencies in infrastructure will aid margins. Members see this as the right time to develop ideas and put capital to work in this sector. From an international perspective, of all the real estate classes warehousing is definitely the one to survive through this period the best. Investors looking at it will not be hurdled with the current scenario, distorting the potential they see in India. 

In the last 25 years, land valuation has been on the rise, but in the last couple of days prices have been slipping, presenting good opportunities for future development. There has been a 5-7 percent decline in rural land prices and urban areas have experienced a larger decline in land values, paving way for multi-story warehouses. It is important to get the right quantity and the right value as a starting point in this sector. However, land is not the biggest input factor as it makes up for 25-30 percent of the total project cost. Members believe that decreasing land prices will not move the needle much.  

India will see stress in its manufacturing segment due to the companies’ inability to produce. Overall, manufacturing in India has been quite slow, particularly in the auto sector. Internationally, countries are implementing protective policies which could make globalization take a few steps back. This will give local manufacturing a boost, and India could explore new opportunities. An additional trend that could arise is, India could become the market for foreign manufacturers to set up manufacturing units that are based in Japan, Korea and Taiwan as a result of the US-China trade war. India proves to be the best destination in Southeast Asian markets. However, the next 6-12 months will determine whether India will be able to take advantage of rising opportunities depending on the government policies. These policies are not in terms of financial incentives but certainty in terms of fixed timelines and laws to commence manufacturing operations.
Related News
Real Estate
Privacy policy and how we use cookies
We use cookies to give you the best experience on our website.
By continuing we'll assume you're on board with our privacy police
Accept and hide this message