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Real Estate

The Indian Warehousing Industry’s standing in the post-Covid World

September 24, 2021

There is a feeling among a certain class of investors that India is behind in the post-pandemic absorption trend, compared to the western world. While this fact remains true, it is also critical to analyse that most of the countries are heavily driven by Ecommerce and industrial activities and the penetration in India is not as big compared to China, Hongkong or Japan Etc. While there is an exponential growth of Ecommerce in India, the quantum is low.

Anshul Singhal (Managing Director, Welspun One Logistics Park) discussed the status quo of the Indian warehousing industry in the post-Covid scenario with his industry peers and discussion co-chairs: Abhijit Malkani (CEO, ESR India), Alok Jain (Principal, Blackstone), Aditya Sikri (President, IndoSpace), Ajith Pai (Chief Operating Officer, Delhivery) & Atul Anand (Director - New Initiatives, Real Estate Development & Special Project, FM Logistic India) and members of the GRI Club.

  • There is formidable demand coming in not only from the warehousing side but also from the industrial side owing to exponential growth in the Ecommerce industry. It has gained the reputation of the poster boy of the warehousing sector and will continue to remain so for a long time. On the manufacturing front, thanks to PLI and Aatmanirbar, companies are now using China alternate strategies and exploring in-house manufacturing options. This trend is gaining prominence in the consumer durables sector and a few others.
  • In 2020, warehousing companies have actually leased the maximum compared to the last 4 years. Leasing has been good, no ready Grade-A space has been left un-leased and everything is getting absorbed even in markets that were originally challenging.
  • Large organizations that were aiming to put up their base in India and consolidate warehouses have delayed it to further time. One reason is a delay in the decision making process due to Covid and the other is the anticipation of a third wave. These are two predominant reasons that are bringing in a slow reaction. But the expectation is that two quarters from now the sector will be steady on the recovery track. 

High rentals bogging down the sector?

  • Steel prices are up 40% this year and are further expected to move up. Everything else falls under the umbrella of the rising input cost. Additionally, the land prices aren’t going south nor are labour costs. The result of all this is that the rents have to go up. The only way to bring in sanity is to factor in input cost and spread it across your entire portfolio.
  • Additionally, the sector is also maturing. There is now the benefit of experience, data, a lifecycle to an extent where all the basic decisions that are needed to get the ball rolling are out of the system. There is a mutual understanding between players and there lies a healthy competition which adds to the maturity of the existing market that will further add to the increase in rentals.
  • For consumers, rentals are just another operating number and it depends on the overall profitability of that warehouse or the warehousing PNL which they are trying to solve for. While for developers, these numbers are their source of revenue because they are not only selling spaces but also solutions. With higher rentals, there certainly is value addition in terms of a convenient layout, labour, automation and other improvements.
  • Consumers and developers are together adapting to the era where the country is moving towards better logistic infrastructure irrespective of the absorption cost.

Next wave of demand in warehousing

  • Apart from E-commerce and 3PL, the next wave of demand in warehousing will arise from the manufacturing, FMCG & FMCD, electronics, engineering sectors.
  • In terms of general investor sentiment towards India as a marketplace for even Ecommerce and 3PL companies globally, the kind of dollars being allocated to India indicate that these are the sectors that are going to be primarily driving the business forward.

Funding of the New Portfolio Creations - Domestic Money Vs. International Funds

  • Most of the new portfolio creations have been facilitated by offshore capital and then there is competition coming in from the regional developers, the city-based developers, or from HNI money backing an EPC company.
  • Singhal explains how he built a 500cr fund in India in 7 months - raising it all virtually, thus, reinforcing the fact that one can build a 3000cr or a 5000cr Indian fund provided that steady performance in the sector is maintained.
  • The beauty of domestic money is that it is very matured money. It is very well-thought-through money. These are good Indian-bred businessmen who have come from the ground up, so they also bring a network effect to the developers. They have the capacity to activate a network more interestingly than a broker would or an IPC would.

Industry Forecast for the next 3-5 years

Looking ahead, there is a need to capitalize on the ‘Make In India’ program to power steer the sector. While there are concerns regarding uncertainty in case of stunted expansion of E-commerce biggies, rental growth, competition and cap rate compression, opportunities will come in tier 2 cities alongside e-commerce penetration across all the pin-codes in the country. There will be increased demand witnessed in tier 2 as well as tier 3 cities.

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