2019 Warehousing in India – The favourite child

by Deepak Varghese

An expert analyses the drastic changes in the Indian warehouse market in 2017-2019 and how these trends will further evolve in the coming year.

Highlights:

  • The competitiveness of the online market has made it necessary for logistic companies to facilitate faster delivery to customers.
  • Warehouses are being delivered and being automated to reach the markets even faster than their competitors.
  • 2020 looks like a year where the realty sector will more than make up with quality A-grade warehouse demand.

Historically, with a regime of state and federal taxes, warehouses in India were primarily located near borders in states where the taxes were lesser than the neighbouring ones. The key was to be close to the market but not having to pay the tax of the more expensive state until the order was confirmed. It was the Indian version of “just in time” to market space without locking up liquidity unnecessarily in taxes. Because there were many such warehouses across borders of nearly 12 key states, the quantities stored were also a few days’/weeks’ requirement of stock depending on the nature of the commodity that was being stored.

Come 2016, the passing of a unified GST code changed the landscape immediately. As it is with the advent of online shopping lead by Flipkart and Amazon besides Snapchat and others, the Indian consumer was becoming a voracious online consumer with demanding deadlines. As the goods had to move between states and taxes being variable, the delays at the Commercial tax offices could run for days. In the earlier part of the decade, the government spent massive sums in upgrading the national highway network and one could travel between Delhi and Trivandrum in four days but goods took at least eight days given the halts they had to make at check posts and establish the goods travelling had the right paperwork. Crossing six states meant at least four days added to travel time.

Given the sheer competitiveness of the online market, the providers pressed the logistic companies for faster delivery to customers where a typical three-four-day delivery in 2016 came down to 24 hours. This spurred a new breed of logistics companies which in turn gave rise to new warehouse parks as the earlier ones were typically built on five to 10 acres of land with larger structures being 50,000 sq ft and a typical one being 20,000 sq ft. Warehouses in the past era came up in congested areas near borders with poor access roads. Even with the site/park, the infrastructure was of the lowest grade. With better roads, the trucks were getting bigger and better with larger quantities getting hauled but the warehouses remained to be a bottleneck with loading and bulk breaking being a seriously painful and manual exercise.

Larger corporate players found an opportunity with this change – where typically it was a local player with clout in the stat that had an advantage of tax. Indo Space led the charge as a national player, beginning with the acquisition of warehouses from local players and upgrading the infrastructure. This was followed by Embassy Industrial parks and Assetz-Logos combined setting up greenfield warehouse projects with a minimum of 50 acres – a size and scale that was unheard of in the past. Even local players like Musaddilal & Co upped their game given the landbank that they possessed and had access to.  While these players spent 2017 and 2018 building world-class warehouse facilities – sellers like Amazon and Flipkart besides logistics players like DHL, TVS logistics consumed these spaces even before they were being built. All the PE players were watching this space as it was only a chosen few who really had the risk appetite or policy to stomach the greenfield process of dealing with land aggregators and the risks associated.

By the third quarter of 2018, the warehouses were being delivered and tenants were moving in by the droves to A-grade amenities. Some started automating the warehouses to reach the markets even faster than their competitors. It is said that Amazon has a world-standard high-security warehouse in Hyderabad that is operated by robots and AI with cutting edge work being done to crash delivery timelines for many product lines to 12 hours, in Bangalore, Hyderabad and Chennai and surrounding postcodes.

By the end of 2018, PE Institutions had assets that were built, leased and many parks had additional land to expand. Between Blackstone, Warburg Pincus, GIC, Logos, Morgan Stanley and others, over a billion dollars went into this sector in the early part of 2019 and this seems to be only the beginning of the ascendancy of this sector with more PEs scouting the market for assets going on lease and more warehouse development companies like Hiranandani Industrial, KSH Logistics, ESR, Gokuldas and others jumping into the space. While the overall economy grew slowly in 2019 and key sectors like automobile that drove the rise of the new avatar of warehouses in India witnessed slower leasing activity, other sectors like FMCG, infra have happily jumped on to this bandwagon and 2020 looks like a year where the sector will more than make up with quality A-grade warehouse demand still remaining greater than the area that will be delivered.

Deepak Varghese is Chief Business Officer at Puravankara Ltd.

About the Author: Deepak Varghese