India's Warehousing Sector Set for Explosive Growth, Surpassing 300 Million Sq. Ft by 2025

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India's Warehousing Sector Set for Explosive Growth, Surpassing 300 Million Sq. Ft by 2025

Team Finance Saathi

14/Jun/2024

Key Points:

India’s warehousing sector is projected to surpass 300 million sq. ft by 2025, up from 216 million sq. ft currently.
Pune and NCR lead in Grade A/A+ warehousing demand, accounting for 45% of nationwide demand.
The sector benefits from government initiatives, expanding e-commerce, and substantial global investments, driving growth and investor confidence.

India’s warehousing sector is on the brink of a substantial expansion, projected to exceed 300 million square feet by 2025 from its current 216 million square feet. This significant growth trajectory is detailed in a report by CREDAI and CRE Matrix, which also notes a 5% increase in warehousing rentals during the March quarter. The primary drivers of this rental growth are Pune and the National Capital Region (NCR), which together represent 45% of the total demand for Grade A/A+ warehousing space across the country. Additionally, the Mumbai Metropolitan Region (MMR) has demonstrated remarkable progress, with a 52% year-on-year increase in supply.

President of CREDAI, Mr. Boman Irani, emphasizes that this growth is largely fueled by the expanding e-commerce and retail sectors, along with substantial global corporate investments in India. He identifies Pune, NCR, and MMR as the leading hubs in this booming sector. Irani attributes the sector's robust expansion to several key factors, including favorable government policies, competitive manufacturing costs, and a plentiful labor supply.

The report further identifies that third-party logistics (3PL) entities are the largest contributors to warehousing demand, accounting for 27% of the total. Following closely are the manufacturing sector at 20% and the e-commerce sector at 12%. Despite a minor 1.2% decline in vacancy levels for Grade A/A+ warehouses in major cities, the sector remains resilient and attractive to investors.

Mr. Abhishek Kiran Gupta, CEO & Co-Founder of CRE Matrix & IndexTap, underscores the rapid infrastructural development and streamlined regulatory environment in India, which are pivotal to the warehousing sector's growth. Gupta also highlights India’s burgeoning middle-class population and increasing income levels, which are outpacing China's growth rates. This positions India as a key player in the global economic landscape. He predicts that India will achieve Grade A warehousing space completion of 85 million square feet by 2025, reinforcing the sector’s appeal due to its high yield potential and reduced real estate portfolio risks.

The Indian government’s initiatives play a crucial role in this sector's robust growth. The logistics sector has been granted infrastructure status, the implementation of the Goods and Services Tax (GST) has streamlined tax processes, and 100% Foreign Direct Investment (FDI) allowance has further bolstered investor confidence.

Detailed Analysis:

1. Expansion Drivers: The primary forces behind the warehousing sector’s rapid growth are the expanding e-commerce and retail sectors, along with significant global corporate investments. The digital transformation and rising online shopping trends have led to a surge in demand for warehousing spaces. The retail sector, particularly the organized retail segment, has also been a major contributor, necessitating efficient storage and distribution networks.

2. Key Regional Hubs: Pune, NCR, and MMR are identified as the leading hubs for warehousing. These regions benefit from strategic locations, well-developed infrastructure, and robust connectivity, making them ideal for warehousing operations. Pune and NCR together account for 45% of the Grade A/A+ warehousing demand, reflecting their strategic importance.

3. Third-Party Logistics (3PL) Dominance: The 3PL sector is the largest contributor to warehousing demand, with a 27% share. 3PL providers offer various services, including transportation, warehousing, and logistics solutions, which are crucial for businesses looking to optimize their supply chains. The manufacturing sector contributes 20% to the demand, driven by India’s growing industrial base. The e-commerce sector, contributing 12%, continues to expand rapidly, necessitating substantial warehousing space to manage inventory and distribution.

4. Resilient Market Dynamics: Despite a slight decline in vacancy levels for Grade A/A+ warehousing spaces, the market remains robust. This resilience is attributed to the strong demand from various sectors and the strategic importance of warehousing in supply chain management. The steady decline in vacancy levels indicates a healthy absorption rate and a balanced supply-demand scenario.

5. Government Initiatives: Government policies have significantly contributed to the sector's growth. The granting of infrastructure status to the logistics sector has facilitated easier access to funding and incentives. The implementation of GST has simplified tax structures, promoting a more efficient supply chain. Moreover, the allowance of 100% FDI in the sector has attracted substantial foreign investments, boosting growth and development.

6. Future Projections: The report projects that India will complete 85 million square feet of Grade A warehousing space by 2025. This expansion is crucial to accommodate the growing demand from e-commerce, retail, manufacturing, and 3PL sectors. The high yield potential and reduced risks associated with warehousing investments make it an attractive option for investors.

7. Infrastructure and Regulatory Environment: India's rapid infrastructural development and streamlined regulatory environment are pivotal to the sector’s growth. Improved road, rail, and port connectivity enhance the efficiency of warehousing operations. The regulatory environment, characterized by policies favoring ease of doing business, further supports the sector's expansion.

8. Rising Middle-Class Population: India’s burgeoning middle-class population and increasing income levels are significant drivers of warehousing demand. The growing purchasing power and consumption levels necessitate efficient storage and distribution networks, further boosting the warehousing sector.

In conclusion, India's warehousing sector is poised for substantial growth, driven by the expanding e-commerce and retail sectors, significant global investments, and favorable government policies. The strategic importance of Pune, NCR, and MMR as key warehousing hubs underscores the sector's robust growth trajectory. With a projected completion of 85 million square feet of Grade A warehousing space by 2025, the sector offers high yield potential and reduced risks, making it an attractive investment option. The rapid infrastructural development, streamlined regulatory environment, and rising middle-class population further bolster the sector’s growth prospects, positioning India as a pivotal player in the global warehousing landscape.

Also Read : India's Strategic Shift: Cutting Coal Imports to Boost Domestic Production

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India's Warehousing Sector Set for Explosive Growth, Surpassing 300 Million Sq. Ft by 2025

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