From aligning upcoming projects with the government’s infrastructure plan to understanding the needs of the various industries from e-commerce and third-party logistics to FMCG and retail, the warehousing industry needs experienced developers who are able to find the right balance between rentals per square foot and profitability, says Darshan Govindaraju, Director, Vaishnavi Group. After witnessing an inflow of scores of landowners-turned-developers and new operators in the warehousing space for more than half a decade, the warehousing landscape is now becoming a playground for serious players. This comes on the back of surging land prices and unavailability of prime land parcels coupled with increasing competition, clearing the path for serious and seasoned developers with professional experience of managing this emerging sector. This assumes significance as the cost of logistics in India is 13 per cent to the GDP as compared to 8 per cent globally and an interplay of policy initiatives by governments and close coordination by the industry is necessary to sustain growth and expansion of the industry. International property consultant Jones Lang LaSalle (JLL) says the total supply in India’s warehousing and industrial sector is expected to reach 516 million square feet by 2026 from 344 million square feet in the first half of 2023. However, this will be possible when the industry is able to manoeuvre around the market forces while maintaining profitability, something seasoned developers are equipped to handle. Challenges and opportunities galore in near future The last decade has witnessed the rise of modern warehousing infrastructure from the traditional godowns in India. However, this has led to the challenges of increasing land rates and lack of prime land parcels, low availability of Grade A properties and lack of industry-specific warehouses among many others, thereby increasing the cost of operations for occupiers. In order to tackle these challenges for a developer, it requires a nuanced approach through a judicious mix of industry expertise and historical knowledge of land use in India to offer a compelling and profitable proposition to the occupiers. Famously said by former Roman dictator Julias Caesar in De Bello Civili, the war commentaries of the Civil War, ‘Experience is the teacher of all things’. This, viewed in the context of the Indian warehousing industry, becomes important to make the industry ready to fulfil the needs of a fast-growing country looking to become the factory of the world and support large-scale movement of goods. From aligning upcoming projects with the government’s infrastructure plan to understanding the needs of the various industries from e-commerce and third-party logistics to FMCG and retail, the warehousing industry needs experienced developers who are able to find the right balance between rentals per square foot and profitability. According to Knight Frank’s India Warehousing report 2023, real estate is being increasingly viewed as a productivity enabler at the workplace, be it an office space or the warehouse. However, its efficacy as a productivity enabler demands a certain level of expertise or specialisation that businesses are increasingly cognizant of. Therefore, a key focus on core competence which includes judicious use of resources on primary operations and optimising returns in the right proportion will play a pivotal role in a project’s long-term success. This will help attract and retain occupiers while being a long-term partner in their growth, an important aspect to be considered while developing warehousing or industrial projects. Also, warehousing assets take less time to build (12 to 18 months) in comparison to office and retail assets if undertaken by an experienced developer with focus on sustainability and aesthetics. After expansion, industry to head towards consolidation As the above factors are going to drive a tectonic shift in the warehousing industry over the next 5 years, it is expected to witness a consolidation in the near term led by the market forces. Furthermore, the demand for warehousing in the country is expected to grow significantly on the back of policies such as Gati Shakti, National Logistics Policy and industrial policies by several state governments, necessitating the need for quality warehousing in the country. This coupled with the changing mix of occupiers will require a re-think of strategies for developers to ensure optimum utilisation of their projects. In this scenario, seasoned developers will be able to identify new growth pillars and contribute to the growth of the industry. This will result in fewer but seasoned players in the market, thereby increasing the organised share of the industry and resulting in significant improvement in the industry’s performance metrics. Furthermore, emerging trends such as sustainable warehousing led by India and the world’s commitment to eliminating carbon from the atmosphere offer a billion-dollar opportunity but require high expertise and significant investments. Similarly, cold chain warehousing will emerge as an important segment given the country’s focus in plugging food chain supply gaps in order to ensure food security. In addition to this, the growing demand for products and services in secondary markets such as Lucknow, Coimbatore, Indore and Jaipur is leading to the proliferation of warehouses in these regions, giving a fillip to the industry, which is largely unorganised. Data by Knight Frank says the share of secondary markets in the total transactions recorded in the country has grown consistently from just 11 per cent in FY 2019 to 21 per cent in FY 2023 with secondary markets accounting for 1.3 million square feet of warehousing transactions this year. These trends will attract significant investor interest in the warehousing segment from both domestic and international institutional investors and elevate the level of services offered by the warehousing industry. Knight Frank says investments in logistics and industrial segments witnessed a robust growth in 2022 with private equity investors (including real estate funds, alternate investment funds (AIF), sovereign funds, pension funds, sector specific funds, and traditional private equity funds) have collectively invested over $1.9 billion in 2022, with an average investment per deal of $272 million. In Q1 2023 investments of $216 million have already been received in the warehousing sector, highest among all other sectors with $200 million received from one single deal. These investments by institutional players are focused on developers with a demonstrated history in establishing and managing large-scale projects, leaving little room for non-serious players further contributing to the sector’s consolidation. This will lead to India taking firm steps in building a world-class warehousing infrastructure, supporting the supply chain industry and fast track its journey towards a $5 trillion economy by 2030. About the author: Darshan Govindaraju is a Director at Vaishnavi Group. He is spearheading the residential sales, marketing, CRM and the rapid expansion of Vaishnavi’s commercial portfolio. Having graduated ‘Cum Laude’ from the prestigious Babson College in Boston, Darshan brings his international education background and exposure in charting Vaishnavi’s growth story.