Warehousing is an indispensable pillar of the logistics industry, playing a vital role in ensuring supply chain efficiency and effectiveness. According to industry estimates, warehousing contributes to approximately 30 per cent of the total logistics expenditure in the third-party logistics (3PL) space, making it one of the most significant cost centers.
According to a report by JLL, in India and Miebach Consulting, India, the demand for warehouse space is projected to reach approximately 1.2 billion sqft by 2027 across Grade A, B & C warehouses across all cities as supply chains continue to evolve.
However, the sector faces mounting cost pressures. Urban areas, particularly Tier 1 cities, are experiencing an acute shortage of warehousing space. The lack of availability has driven rents to record levels, with annual lease escalations ranging between 5–8 per cent in some logistics hubs. Even in the outskirts, where large-scale logistics parks are emerging, rental prices have surged by 10–15 per cent in the last couple of years.
Additionally, the cost of constructing new warehousing facilities has risen due to increasing land prices, higher construction material costs, and compliance with modern safety and environmental standards.
This confluence of challenges has placed substantial financial strain on service providers, who in turn pass on the cost increases to businesses and ultimately consumers. To counter these pressures, companies across sectors—ranging from consumer goods manufacturers to 3PL players and automation solution providers—are focusing on optimising existing spaces.
The emphasis is on maximising storage density and enhancing revenue potential per square foot. Modern automation technologies such as robotic storage systems, warehouse management software, and advanced conveyor systems are increasingly being adopted. These solutions not only boost efficiency but also help minimise errors and reduce operational costs, enabling companies to achieve higher profitability despite rising real estate expenses.
Logistics Outlook hosted a virtual roundtable on the topic “Warehouse Space Optimisation: Improving Efficiency Through Automation!” to understand from experts how warehouse efficiency can be achieved amid rising logistics costs.
The webinar had eminent industry players including Surya Kanta Dash, VP-SCM – Product Business Group, Reliance Retail, Rishabh Jain – VP, Falcon Autotech, Snehil Singhai, Head of Business Development, KSH Integrated Logistics, and Devender Singh Manhas, Head – Commercial Supply Chain for the Greater India Market, Socomec. Subhabrata Sengupta – Partner, Avalon Consulting, was the moderator for the webinar.
Dealing with space crunch price pressure
The growth in the demand for warehousing space emphasises not only the scale but also the quality of warehousing infrastructure.
According to the report, a notable trend is the shift towards Grade A warehouses, with stock projected to rise significantly from 290 million sqft in 2023 to 400 million sqft by 2027, reflecting a growing preference for modern, high-quality facilities.
Setting the context for the webinar, Sengupta noted that warehousing, a critical component of logistics, accounts for about 30 per cent of overall logistics costs. “However, it is under growing cost pressures due to the limited availability of space in major cities. Even on the outskirts, where logistics parks offer some relief, rents are rising sharply, increasing costs for providers and, ultimately, consumers. New constructions are becoming increasingly expensive, prompting companies—including 3PL players and automation providers—to focus on maximising storage and revenue potential per square foot,” he added.
Seconding the thoughts shared by Sengupta, Dash said, “Yes, there is a warehouse space crunch, but its intensity varies based on demand and supply across locations. The biggest crunch is observed in metro cities, followed by A-Class cities. Post-GST, many expected warehouse consolidation, but that hasn’t materialised as anticipated. Initially, businesses opted to maintain their existing warehouses on an “as-is-where-is” basis. However, the trend is now shifting towards consolidation in metro and A-Class cities, further intensifying the demand in these areas.”
He further stated that this crunch is compounded by cost pressures, as users demand high-quality warehouses designed for long-term use. “This puts a strain on developers, 3PL providers, and users alike, making cost optimisation a significant challenge,” Dash added.
Compliance is a challenge
Asserting that there is a space crunch, Singhai noted that the issue lies in the demand-supply gap for compliant warehouses. “Companies are now seeking facilities that meet both land compliance and fire safety standards, highlighting a shift towards stricter adherence to regulatory requirements,” he noted.
Explaining further Singhai said, “When we talk about compliance, it includes both land and fire safety standards. Recent changes in government regulations, driven by multiple fire incidents in warehouses, have created a strong push for compliant facilities. This has led to increased demand for such warehouses, resulting in a supply crunch. To address this, we are focusing on larger warehouses and offering multi-client facilities to optimise space utilisation.”
Sharing similar views, Manhas said, “There’s undoubtedly a crunch in warehouse availability, prompting companies to move operations to the outskirts of cities where space is less constrained. For us, we are focusing on outskirts to mitigate the challenges. Cost remains a major factor influencing decisions, but compliance is equally critical. Companies now demand warehouses that meet not just fire compliance but also stringent safety and security standards. For multinational corporations, the expectations go further, emphasising employee safety and training to create a secure working environment.”
Shared warehouses gaining momentum
Singhai noted that shared warehouses or multi-client facilities are gaining traction as customers, including larger ones who previously relied on dedicated warehouses, are now exploring shared options.
“These facilities offer greater flexibility and scalability, making them an attractive choice for future growth. Smaller players, such as new 3PL entrants selling on platforms like Amazon and Flipkart, as well as suppliers to OEMs in the engineering and automobile sectors, are increasingly seeking storage solutions near their plants or markets,” he said.
To tackle the challenge of space constraints, companies are implementing vertical storage solutions and integrating automation to optimise space utilisation effectively, Manhas noted.
“To address space constraints, the industry is increasingly adopting vertical storage and efficient space utilisation. Even factories with in-house warehouses are exploring ways to optimise available space. Technology and automation play a pivotal role in this transformation, though they come with significant costs,” he added.
Manhas further stated that the level of automation required depends on the company’s scale and operational volume. “Companies like Amazon and Flipkart, which handle millions of shipments daily, benefit greatly from high-end automation. Conversely, smaller companies with lower volumes can opt for cost-effective, low-end automation solutions. Selecting the right level of automation is crucial to balancing efficiency and cost,” he added. Automation for space optimisationSharing his views, Jain stated that with advancements in technology, improved resource availability, skilled manpower, and government incentives, automation has become far more accessible and affordable in India.
Jain said that with the rise of Q-commerce, companies are realising the need to be closer to their customers. Quick replenishment cycles—sometimes twice a day—demand proximity to urban centers. However, being closer to cities comes with high rental costs, making it essential to maximise vertical storage. Rather than focusing on square feet, the emphasis shifts to cubic feet utilisation.
“This creates a challenge, particularly with civil investments in short-term leases, typically lasting three to five years due to business uncertainties. Facilities must balance minimal civil costs with automation needs, such as appropriate surface finishes for technologies like AGVs (Automated Guided Vehicles) and AMRs (Autonomous Mobile Robots), as well as adequate electrical and utility drop points, which add expenses. To address these challenges, advanced automation technologies like ASRS (Automated Storage and Retrieval Systems) combined with goods-to-person solutions are key. These systems reduce non-value-added activities like searching for goods—where operators traditionally spend 60 per cent of their time—and transform them into efficient value-added tasks,” Jain noted.
Stating that traditional storage solutions in Indian warehouses, which typically max out at heights of 3-4 meters, underutilise the available space, he said the company has developed a solution that leverages the full vertical capacity of warehouses, which usually have clear heights of 9-12 meters. “Our system includes modular staggered racking that is flexible and allows complete vertical utilisation. Robots can climb these racks, retrieve items, and deliver them to operators for picking. By deploying such automation, storage areas become no-man zones, improving safety and efficiency. This approach is especially effective for multi-client facilities, as operator workstations can be allocated flexibly to various end-users, enhancing overall utility and scalability.”
Cost is a concern
According to Dash, automation plays a crucial role in enhancing efficiency, especially in large-scale warehouses. By leveraging vertical storage and advanced technologies, automation ensures faster throughput, error-free operations, and accurate deliveries, resulting in improved customer satisfaction.
“However, cost optimisation remains a key challenge. To address this, businesses are transitioning fixed costs like warehousing into variable costs, making multi-client facilities with high-density storage and modular designs increasingly attractive. Such setups allow scalability, better resource utilisation, and cost flexibility—critical for managing seasonal demands or fluctuating volumes within the same facility,” he said.
Dash noted that such facilities, supported by modular racking systems and automation, help manage fluctuating demands within a single address, crucial for regulatory and operational efficiency. “Automation, including technologies like auto-box packing, stacking, and strapping machines, delivers both tangible and intangible benefits. However, its adoption depends on industry needs and ROI. Fundamental practices, like ABC stock categorisation, space utilisation calculations, dynamic slotting and zone management, are essential for effective warehouse operations. Combining these strategies with automation optimises space, improves material flow, and ensures cost-efficient operations tailored to business requirements,” he added.
Echoing similar views, Manhas said that automation is directly tied to the scale and criticality of operations. “While high-volume industries like Amazon or Flipkart demand specific solutions, in my experience, the focus has been on critical volume management. We have implemented automation like auto-box packing, stacking, strapping, and shrink-wrap machines to improve efficiency and resource utilisation. However, optimising warehouse basics is equally important. This includes employing the ABC method for stock categorisation, ensuring efficient space utilisation, and defining dynamic or static slotting based on product types. Properly calculating available space, allocating it for packing, storage, and operations, and managing material flow are key factors,” he said.
Manhas further noted that techniques like “golden zone management”—prioritising storage for fast movers—and clearly defined fast, slow, and non-moving zones further enhance efficiency. Combining such foundational practices with automation maximises warehouse utility and ensures cost-effective, streamlined operations, he added.
Singhai noted that while automation adoption in shared warehouses is selective due to client diversity and varying packaging standards, automation is leveraged where it makes sense from an ROI perspective. Technologies like racking systems, Warehouse Management Systems (WMS), and Performance Management Systems (PMS) are widely used to enhance efficiency. The plug-and-play model of shared warehousing offers clients flexibility and cost efficiency.
“Regarding automation trends, solutions such as conveyor systems, robotic sortation, and advanced inventory management tools are increasingly gaining traction. These innovations improve operational efficiency, reduce errors, and optimise space utilisation,” Singhai noted.
Jain however noted that customers are achieving ROI within 2-3 years, which is an ideal benchmark. “For specific operations, this period can extend up to 5 years, but that’s still reasonable for long-term gains. Another key aspect to consider is that while automation costs are ultimately absorbed by the end consumer, it’s important to account for both tangible and intangible benefits. Assessing the true value of these combined elements helps justify the investment and align the numbers effectively,” he added.
Conclusion
Warehousing remains a cornerstone of the logistics industry, contributing significantly to overall supply chain efficiency while facing challenges from rising costs and space constraints. As the demand for warehouse space in India is set to grow exponentially, driven by evolving supply chains and increasing compliance requirements, the industry must embrace innovative strategies to overcome these hurdles.
Automation, with its potential to optimise space utilisation, reduce errors, and enhance operational efficiency, is becoming a critical enabler. While cost concerns and ROI considerations persist, the adoption of advanced technologies like ASRS, robotics, and intelligent warehouse management systems is proving transformative.
As highlighted by industry leaders, a combination of strategic warehouse practices—such as dynamic slotting, vertical storage solutions, and multi-client facilities—paired with automation, offers a path to navigate these challenges effectively. By integrating modern technologies with foundational best practices, the warehousing sector can achieve scalable, cost-effective, and sustainable growth, ensuring its pivotal role in supporting the broader logistics ecosystem.
