How promising is the warehousing sector in India, and what factors are contributing to its growth?
The warehousing sector in India is on the rise, driven by the e-commerce boom and the growth of third-party logistics (3PL) services. These changes are boosting the need for better supply and storage solutions to meet increasing customer demands swiftly.
Investor sentiment towards the Indian warehousing sector is highly positive. Recognising the sector’s potential, major institutional investors have made substantial investments in Indian industrial real estate and warehousing. Government initiatives like the Make in India program and the National Logistics Policy have been pivotal in supporting this growth.
According to Research and Markets, the Indian warehousing sector is projected to reach Rs 2,872.10 billion by 2027. This expansion is fuelled by consumer preferences in high-growth industries such as quick commerce, 3PL, automotive, FMCG, modern retail, and manufacturing. These industries are increasingly seeking modern and organised warehousing solutions.
Supportive government policies, such as the National Logistics Policy, Make in India, GST implementation, and infrastructure development programs, have created a favourable investment environment. Advanced technologies like automation, AI, and data analytics are revolutionising warehousing operations, boosting efficiency and productivity.
The sector is also expanding geographically, with increased investor capital flowing into Tier-2 and Tier-3 cities. This expansion caters to rising demand and aims to establish efficient supply chains across the country, presenting lucrative growth opportunities.
Investor sentiment remains exceptionally positive, with both domestic and international investors actively seeking opportunities in this thriving market. The warehousing sector’s potential for strong returns, driven by increasing demand and consistent rental yields, makes it a prime investment choice. This sector is set to play a pivotal role in India’s economic growth by transforming the logistics landscape and supporting the expansion of various industries.
Grade A warehouses are incorporating advanced technologies that demand substantial initial investments. What are your thoughts on this approach?
Investing in advanced technologies for Grade A warehouses is crucial for enhancing operational efficiency and productivity. Although the initial investment is significant, the long-term benefits far outweigh the costs. Technologies like AI, automated guided vehicles (AGVs), and the Internet of Things (IoT) improve inventory management, reduce human errors, and streamline operations.
These technologies handle repetitive and physically demanding tasks, allowing human workers to focus on more complex and strategic aspects of operations. The efficiency, accuracy, and innovation they bring are undeniable.
The upfront costs of deploying these technologies might be high, but they should be seen as a strategic investment. Automation, AI-driven analytics, and robotics reduce errors, optimise inventory management, and streamline processes, leading to significant cost reductions over time, particularly in labour and energy consumption.
Advanced warehouses offer a competitive edge by processing orders quickly and accurately with real-time inventory visibility. This attracts more clients and allows companies to command premium pricing for their services. The scalability of these technologies ensures that warehouses can handle increased volumes as businesses grow without major infrastructure changes.
Moreover, technologically advanced warehouses support the e-commerce boom and expand efficient warehousing beyond major cities. This modernisation of India’s logistics sector fosters economic development and improves the country’s supply chain capabilities.
How are rising land costs affecting the expansion of the warehousing footprint in India?
Rising land costs are a significant challenge for expanding warehousing in India. Higher prices increase the overall cost of developing new facilities, creating barriers for many businesses. Careful planning and investment strategies are necessary to ensure the benefits of new projects justify the costs.
The limited availability of suitable plots, especially in prime locations, intensifies competition and drives up acquisition costs. This often forces businesses to invest heavily in land or opt for smaller, multi-story facilities to maximise space. According to JLL India Research, rents for warehousing space grew by 6% year-on-year from 2021 to 2023, partly due to rising land prices.
This trend necessitates trade-offs between proximity to demand centers and affordability, sometimes pushing warehouses to relocate further from urban hubs. To mitigate these impacts, companies are adopting innovative solutions like automation and vertical storage to optimise space. Additionally, the government is promoting industrial zones and logistics parks to address land cost challenges and support sustainable growth in the warehousing sector.
Is greenfield development the future of warehousing, or is there potential for brownfield expansion as well?
Both greenfield and brownfield developments play crucial roles in the future of warehousing. Greenfield projects, built on undeveloped land, allow for innovative designs and customisation but come with higher costs and risks.
Brownfield projects, involving the redevelopment of existing sites, can be more cost-effective, especially when retrofitted with modern technologies. They offer the advantage of utilising existing infrastructure, provided the costs of upgrades are manageable.
In India, the future of warehousing will likely involve a mix of both approaches. Greenfield projects offer long-term scalability but require substantial investment. Brownfield projects can be attractive due to their cost-effectiveness and existing infrastructure, though they may need additional investments for modernisation.
Ultimately, the choice between greenfield and brownfield development depends on the specific project, the availability of suitable sites, and the company’s vision, risk tolerance, and long-term goals.
In recent years, rental income and long-term lease agreements have steadily increased. What is the potential for capital appreciation?
The potential for capital appreciation in the warehousing sector is promising, driven by a surge in demand from the growing e-commerce, manufacturing, and organised retail sectors. This heightened demand is coupled with a limited supply of suitable land, particularly in prime locations, which further increases the value of existing properties.
Additionally, the prevalence of long-term lease agreements with built-in rental escalations ensures a stable income stream and the potential for future value appreciation. Government initiatives aimed at improving connectivity and infrastructure are also enhancing the attractiveness of warehouse locations, thus driving up values.
However, it’s crucial to remember that capital appreciation is not guaranteed. Various factors such as location, economic conditions, and unforeseen events can influence the market.
We have seen REITs emerging in the warehousing sector. How do you envision the future of REITs in the coming days?
The outlook for REITs in India’s warehousing sector is extremely positive. The booming growth in quick-commerce, organised retail, and enhanced logistics infrastructure driven by proactive government initiatives has spiked the demand for quality warehouse spaces. This surge in demand is a perfect match for what REITs offer.
Warehousing REITs provide investors with a stable income stream through long-term leases with reputable tenants and the potential for capital appreciation. This blend of stability and growth potential is very attractive for investors seeking diversification.
Furthermore, the Indian government’s favorable regulations and tax incentives are encouraging more REIT listings in this sector, bolstering the prospects for warehousing REITs even further.
What are CapitaLand’s investment plans in India?
CapitaLand is committed to expanding its footprint in India through significant investments in the warehousing and logistics sector. We are looking at both greenfield and brownfield developments to strategically enhance our portfolio. Funding these expansions will involve a mix of internal accruals, strategic partnerships, and leveraging capital market instruments, including REITs.
The establishment of our REIT is certainly on the horizon. This move will not only provide a robust funding mechanism but also offer investors a transparent and regulated avenue to participate in the growth of the warehousing sector in India.
CapitaLand and Ascendas Firstspace are actively expanding their presence in India’s industrial and logistics sector, focusing on both greenfield and brownfield development projects at strategically located key locations like MMR (Bhiwandi), Bangalore, NCR, Kolkata, Chennai, etc. We have allocated substantial capital for initial investments and plans to develop a cumulative of 25 million sqft within the next 5-6 years.
What is the revenue outlook for the next 2-3 years?
The outlook on revenues for the next 2-3 years is highly optimistic. With the continuous demand for modern warehousing driven by e-commerce growth, the implementation of GST, and rising consumption, we anticipate strong revenue growth. Our focus on high-quality, sustainable, and strategically located logistics parks will further enhance our revenue streams.
Additionally, the steady increase in rental incomes, coupled with capital appreciation and the potential introduction of REITs, will contribute to a robust financial performance. We are confident that our strategic initiatives and investments will drive significant value creation for our stakeholders.
