Growth In Industrial And Warehousing Sector: Transforming India's Economy Infrastructure has always been a key enabler to transform the economic situation of countries across the globe
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The industrial and warehousing sector constitute a critical link in the supply chain that connects the manufacturer to the ultimate consumer. Over the years, the warehousing industry in India has evolved from storage spaces to highly sophisticated warehousing and logistics systems. With evolving consumer behaviors, the sector has been witnessing an upward growth trajectory. Knight Frank India projects that warehousing transaction volumes for the eight primary markets are estimated to grow at a compounded growth rate of 19 per cent in the FY 2021-2026 period.
The warehousing and logistics sector emerged attractive and has been the largest beneficiary during the pandemic due to an increased shift to online shopping from discretionary to essentials. Present-day consumers need doorstep access to their required products, and they need them within a short period. As a result, the e-commerce sector has significantly boosted wherein the players are ramping up supply and expanding storage, thereby propelling the growth of new and modern warehousing spaces.
To cater to the rising demand, the booming e-commerce and quick commerce market, the last-mile and just-in-time deliveries, omnichannel operations, and the need for strengthening the supply chains across industries have steered the preference for Grade A warehousing facilities across the country. According to Knight Frank's 'India Warehousing Market Report 2022', the rising trend of Grade A development continued in FY22 with developers increasingly focusing on higher grade park development compliant with contemporary norms and the higher throughput requirements of businesses today. Around 52 per cent of the supply coming online in FY22 across the eight primary markets was in Grade A properties.
Owing to the increased Internet penetration, the government's push for Digital India, rising levels of disposable incomes, a young population that is cognizant of brands, and a desire for an upgraded lifestyle, there is a massive consumer base emerging from tier II and III cities. Businesses are accordingly redesigning their supply chains and moving closer to the consumption centers. This demand for in-city warehouses has prompted developers to move beyond tier I cities and increase the storage space in tier II and III cities as well.
Resultant of the e-commerce boom, warehouses and distribution centers are turning into mega fulfillment centers. Larger warehouses also provide space and opportunity to improve operations via automation, resulting in quicker turnarounds. India witnessed instances of global e-commerce transactions with box sizes of more than 2 lakhs sq. ft. going up to 1 million sq. ft. in tier 1 cities, as per JLL India.
Along with e-commerce, third-party logistics (3PL) has been another major accelerator of the sector's rise. 3PL and e-commerce have become the fastest-growing segments in the warehousing space and are contributing the highest to the total net absorption. Demand from 3PL has increased as sectors such as e-commerce, engineering, electronics and white goods are routing through 3PL. Demand from the retail sector has also increased significantly with the increasing disposable incomes and consumption. FMCG and pharmaceuticals too became active sectors during the pandemic, and they will continue to expand over the long term.
The growth of the Indian economy, favorable industrial developments, and supportive government announcements have attracted multinational corporations to set up or expand their manufacturing hubs in the country. India's quest to become a global manufacturing hub has thus garnered huge interest in the warehouse market from global and domestic institutional investors. In markets with a stronger economic recovery, sectors such as logistics and industrial have scaled up the investors' wish lists of diversifying their portfolios. The 'Make in India' initiative along with systematic reforms like the GST rollout, tax benefits to FDI investments, and accordance of infrastructure status to the sector has also gathered investors' interest towards this asset class. Other key drivers include the production- linked incentives, Model Tenancy Act, National Infrastructure Pipeline, and GatiShakti multi-modal connectivity plan that signify continuous policy push at a national level.
The recently announced National Logistics Policy also seeks to complement the PM Gati Shakti National Master Plan and proposes a framework to set up MMLPs in key markets to ensure faster first and last-mile connectivity. This will help cater to the present-day consumer requisites of online purchases and the need for quick deliveries. Moreover, the unified and digitized approach will not only usher efficiency in logistics operations but also attract investments into the sector and strengthen India as a preferred manufacturing destination.
Infrastructure has always been a key enabler to transform the economic situation of countries across the globe. India is on the path of a similar economic transformation. To achieve India's vision of becoming a $5 trillion economy by FY25, warehousing, industrial, and logistics sectors will play a pivotal role. With the favorable market dynamics and immense untapped potential, the sector is only envisaged to increase at a healthy rate and emerge as a sunrise sector of the national economy.