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Real Estate Trends: Warehousing and logistics leasing on high growth trajectory in India

real estate, real estate in India, Warehousing and logistics leasing, real estate trends, Mumbai, Bengaluru, Chennai, NCR, Noida

The warehousing and logistics sector in the country is witnessing an unprecedented growth for the past three years concurrent with a huge demand by corporates for quality space that is replete with state-of-the-art modern technologies. Large and modern logistics facilities are being demanded as can be witnessed from the growth figures of logistics and warehousing leasing across top cities of the country over the past few years.

With the government leaving no stone unturned in initiating policy reforms in the sector and in undertaking various infrastructure measures, India might soon emerge as the most preferred logistics and warehouse destination across the globe. The logistics segment is already on a high in the country and is projected to beat conventional sectors, including housing.

The Union government granted the logistics sector an infrastructure sector in the year 2017 following which there has been no looking back in its growth. Other factors that simultaneously ensured the robust growth of the industry was the implementation of the Goods and Services Tax Act in the year 2017.

The Central government runs an exclusive logistics division under the department of commerce within the Union Ministry of Commerce and Industry. This division works with the mandate to develop an action plan for the integrated development of the logistics sector in India. The division is responsible for bringing about changes in policy and for streamlining existing procedures and processes. The division also works with the industry to identify various bottlenecks with an aim to ameliorate them for seamless delivery of services. Another mandate of this division is to scout for ways to better implement modern technology in the sector.

A separate department altogether for trade facilitation and logistics within the ministry has been further proposed by the Central government.

Given these factors, India has already emerged as a leading business destination for the logistics industry.

As per a report, logistics leasing in India crossed a record 13 million sq ft in the first half of the calendar year 2019. This figure corresponds to a 31 per cent year-on-year growth. Around 60 per cent of the space leased was in major Tier I cities of Mumbai, Bengaluru and Chennai. Demand in the sector was largely pushed by third-party logistics companies and firms involved in engineering and manufacturing. The report says supply addition in the logistics and warehousing sector recorded a growth of 54 per cent in the first half of 2019 as compared to the previous year.

More than 11 million sq ft of logistics space was added to the inventory during the first half of 2019 owing to timely completion and delivery of projects across all segments of the real estate industry. Leading real estate players, several among them having presence in the global market, have already entered the sector and as per an estimate, around 60 million sq ft of logistics space will be in various stages of handover in the next two years.

Yet another report estimates that the projected stock of warehousing space in the country is expected to cross 300 million square feet over the next four years in eight major cities alone.

In the near future, demand for logistics and warehousing space is largely expected from Tier II cities including Coimbatore, Ludhiana, Lucknow, Jaipur and Guwahati. NCR towns of Noida, Ghaziabad and Gurugram are also expected to be key drivers of demand in the logistics leasing market.

The thrust in demand for warehousing facilities is further expected to rise as key players in the e-commerce, wholesale and retail segments make a gradual entry to various Tier II cities of the country. Absorption of inventory is also likely from the large automobile and engineering firms.

In the near future, older and substandard logistics and warehousing facilities are also going to be pushed out of the market as custom-made facilities suited to the specific needs of clients emerge.

Improvement of supply chain facilities and enhancing better connectivity between cities are still some of the areas in which the government could pitch in for further strengthening the growth of the sector. On the other hand, emergence of technologies like machine learning, artificial intelligence and internet of things is perceived to change operational requirements of clients which will pose a real challenge for real estate players in this sector in tackling the complexities.

Employment opportunities in the logistics and real estate sector, which currently provides jobs to over 20 million people, are expected to rise too with growth in the industry.

(By Pankaj Jain, Managing Director, Realistic Realtors)