Despite the downturn of the Indian real estate industry owing to the present situation, the warehousing segment in India is emerging as a strong contender and a promising opportunity. Experts are of the view that once the dust of the pandemic starts settling, investors would return to the warehousing sector with renewed vigour.
There are several factors that could be attributed to the renewed prosperity of the nation’s warehousing sector. Be it the implementation of GST, infrastructure status to the logistics industry, focus on the development of industrial corridors, changing customer sentiments, Grade A warehousing, the impetus on manufacturing and the promise of the Indian consumption market.
The Covid-19 induced lockdown has led to a slowdown in the warehousing industry with both occupier leasing and investment activity being subdued in Q1 2020.
India’s warehousing sector, that is driven by new supply in eight major metros including Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, Delhi NCR and Pune witnessed an approximately 15% contraction (in mn sq. ft.) during January-March.
JLL India expects restricted leasing activities during the second quarter of 2020. New supply will also get deferred because of the lockdown to control the spread of COVID-19.
Economist across the globe have forecast India’s GDP growth to slow down significantly in 2020, affecting businesses across the board and reducing their aggregate demand for warehouses.
However, it seems that despite contraction in demand, the warehousing sector is on the road to recovery.
“The quarterly new supply addition is higher than the average quarterly new supply addition of first quarter in the last three years (between 2017–2019) which demonstrates that the impact of lockdown has likely not set in yet,” JLL’s report COVID-19: Industrial & Logistics Sector in India stated.
The prospects of the warehousing industry are not very grim, unlike most other sectors. Due to COVID-19, certain new trends are likely to emerge which can drive warehousing growth:
Reduced dependence on China:
Many companies globally are in talks to reduce their dependence on one particular country (presently China) for the entire manufacturing needs and are planning to shift certain part of the activity elsewhere. There are 5-6 countries which are competing directly with India to attract these companies. Each country offers its own set of advantages and challenges. However, even if 1/6th of them come to India, the gains for the nation and the industrial and warehousing sector would be immense.
Ecommerce to boost demand:
This lockdown may bring about a behavioral change and increase the acceptability of buying groceries and daily essentials online. Some of the big organized retailers have identified this trend and have started strengthening their e-commerce and home delivery infrastructure which was not their focus earlier. Such a shift, if it were to happen, would give a significant fillip to the strong fundamentals of warehousing industry and increase demand from the e-commerce segments.
Skepticism over Just-in-Time:
As corporate India braces for a post Covid-19 world, many CEOs are pressing ahead with fundamental changes in the factory and its supply chains, the most pertinent of them being ending just-in-time production. The Covid-19 induced lockdown of China had jolted manufacturing chains across the globe and caused significant problems to companies employing JIT. Going forward, companies would prefer keeping higher inventories over JIT, thereby increasing the demand for warehousing space.
Growing demand in Tier-II and Tier-III cities:
The concept of consolidation that was one of the major outcome of GST has been challenged in the present situation. Occupiers and supply chain managers are now rethinking their supply chain strategy and are starting to think that it is better to own multiple warehouses at different locations instead of a single large mother warehouse. With lockdown being a national reality now, with the movement of people becoming restricted, smaller cities or the hinterland of the country could be the mini warehousing hubs or focal points