India | December 2021

An Industry Outlook by the Indian Business Council

© Indian Business Council

 Contrary to the grim picture that the COVID-19
pandemic has painted on the other industries, the
Warehousing and Logistics segment has grown
exponentially. The reason for this sharp rise is due to
the growing demand of goods and delivery services,
and this momentum is likely to continue in the near
future. The sector is amongst the best performing
assets as e-commerce, FMCG and pharmaceutical
entities look to penetrate deeper into tier II and III
cities.
India is well-positioned to be on the path of growth in
terms of warehousing and logistics, primarily boosted
by digitization and surge of e-commerce. An increase
in the production of indigenous products, the demand
for larger and more organized distribution centers
along with location specific warehousing will be the
need of the hour.
On the policy front, the government has made
multiple reforms to mitigate the perceived challenges.
Implementation of GST, Infrastructure status to
logistics sector, 100% FDI, low credit risk, shorter
construction cycles, and warehousing policies for
most states are already in place.
As part of the Atmanirbhar Bharat pursuit for self-
reliant India, the central government announced an
INR 20 trillion (USD267 billion) package of collateral
free loans and equity financing to build manufacturing
© Indian Business Council
capacities across sectors, and to promote local
products in for FY2021.
Segments such as cold storage, agri and industrial
warehouses have received attention from
government and stakeholders alike. It is estimated
that Industrial and warehousing space absorption will
grow 83% y-o-y to 47.7 m sq. ft. in 2021, driven by
robust growth in ecommerce and manufacturing. The
chemical storage and logistics market has also been
driven by urbanization, rise in demand for
modernized green warehouses in chemical industry,
followed by growth in demand for energy
conservation and increase in shifting of chemical
manufacturers from its traditional centers.
The co-warehousing segment is also witnessing swift
growth at the start of this decade on the back of rising
demand for last mile connectivity and increased
preference amongst manufacturers and logistics
companies as it gives them better operational control
and provides scalability to their businesses. Another
aspect that is still at a nascent stage, but is expected
to gather momentum is the REIT market.
Warehousing is backed by institutional investments
making it an attractive asset class that has not yet
seen participation by the retail segment. Once this
gains eminence in the coming decade we will see the
sector realizing its potential in entirety.
Traditionally, India has struggled with sufficiency of infrastructure that could boost the growth of multi modal
transport solutions. Consequently, we witness a lop-sided multi modal mix with roads being the preferred means
of transportation. 60% of freight movement in India happens via road which is significantly higher than
most developed countries. Globally, rail cargo has a higher share than roads. As a result of this, logistics cost
in India are higher in comparison to most countries.
However, India is making significant progress by
building logistics infrastructure and carrying out various
regulatory and structural reforms. One landmark policy
move was the ‘Infrastructure’ status that was granted to
the entire logistics sector, and hence, by extension to
warehousing. In addition, the Bharatmala program of
the government is accelerating the growth of the sector
in multiple ways as show in the infographic below.
Warehousing, which comprises approximately 25%
of the overall logistics cost has a significant impact
on optimizing the remaining 90% of the logistics pie
which includes transportation, inventory
management, material handling, packaging etc.

About 80 percent of the demand for warehousing is

generated by e-commerce firms, third-party logistics
firms who move the goods for many fast-moving
consumer goods (FMCG) brands, besides
engineering firms.

BharatMala: Boon for Warehousing in India

 Economic Corridors (9000 km): To unlock full economic potential

 Inter Corridor and Feeder Route (6000 km): Ensuring holistic
connectivity
 National Corridors Efficiency Improvement (5000 km): Enhancing
Efficiency
34,800 km of roads to be
 Border Roads and International Connectivity (2000 km): Boosting
constructed
Border Connectivity
 Coastal Roads and Port Connectivity (2000 km): Leveraging Ports
for Progress
 Greenfield Expressways (800 km): Express Speeds for Express
Gains
 Balance NHDP works (10,000 km): Boosting All-Round
INR 5,35,000 crores to be Connectivity
invested

© Indian Business Council

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Based on the above set of benefits for occupiers, the eight state logistics policies
can be ranked as follows:

Based on the above set of benefits for developers, the eight state logistics policies
can be ranked as follows:

© Indian Business Council

 Demand for industrial and logistics parks will grow further due to the
inherent domestic demands, adequate government support and the ‘Alternative
to China’ strategy that global manufacturers are following.

Investment firms with a long-term focus may look out for Greenfield assets as
they yield higher returns than Brownfield assets.

Institutional Investors may also be attracted to Tier 3 and Tier 4 DC asset class
that can provide a net yield per annum that is higher than other operating assets.

Over the next decade, a developer’s strong DC portfolio can also be

converted into a REIT, led by a strong appetite for income-yielding assets.

Owing to the potential growth opportunities for organized segments, private

equity investors have collectively invested over USD 6.5 billion since 2017.

Since 2017, the warehousing industry has garnered second highest share in
equity investments after office. Office segments witnessed the highest equity
investments at USD 9.3 billion, followed by warehousing at USD 6.5 billion and
retail at USD 1.9 billion.

2021 may be a year of consolidation and portfolio optimization in the

warehousing space perhaps as it may take more time to gain confidence in the
economy amid the recent rise in COVID-19 cases.

© Indian Business Council

 Between 2021 and 2025,
market growth is poised to
accelerate at a CAGR of
about 15%

Cold storage industry to grow at

a CAGR of 13-15% between
2019-23,driven by rising
demand for processed food, and
bio-pharmaceuticals.

The Market sentiment with regards to the growth of the

With the growing online warehousing industry in India is definitely encouraging
consumer base, owing to the factors highlighted in the infographic above.
Moreover, there are several other areas that will witness a
improved standard of significant boost in terms of warehousing demand.

living and the Tier 2 and 3 cities will garner impetus and witness more
pull due to the ecommerce and 3PL firms which are
availability of multiple leveraging the consumption driven demand in these micro
markets. Cities like Coimbatore, Vapi, Guwahati,
Indian and global Ludhiana, Surat, Patna, Bhubaneshwar, Siliguri and
Lucknow have and will continue to witness increase in
brands, the need for a demand from warehousing players. Furthermore, 2021
would also lead to the growth of the Cold Chain industry.
seamless supply chain Currently, the costs to develop cold storages is higher
will drive future growth! than a traditional warehouse. The growth of organized
food retail, processed food market, government initiatives
for agriculture supply chain, and rise in nutraceuticals and
bio-pharma, will aid in accelerated growth of cold storage
and cold supply chain.

© Indian Business Council

Grade A Warehouse Demand (M Sq. Ft.) Top 6 Cities – Warehousing Stock and
Potential (M Sq. Ft.)

Mumbai NCR

Grade B Warehouse Demand (M Sq. Ft.)

Chennai Bengaluru

Pune Ahmedabad
 As per records, across eight Indian cities—
NCR, Mumbai, Bengaluru, Pune, Kolkata,
Chennai, Hyderabad Ahmedabad and
Nagpur—quality warehousing stock totaled
211 million sq. ft. in FY2019 and 307
million sq. ft. in FY2020.

While the warehousing space taken up in

FY 2020 has fallen by 11% YoY, it has still
grown by a robust 44% CAGR in the FY
2017-20 period. The relatively limited
supply of Grade A warehouses in the right
locations has also been a contributing
factor to subdued transaction levels in FY
2020, especially in Bengaluru and
Hyderabad.

The top eight markets of India held an estimated 28 mn sq m (307 mn sq ft) of warehousing stock at the end of
FY 2020. The Mumbai market accounts for a massive 40% of this stock which along with NCR houses nearly
58% of the same. Strong warehousing demand in the Mumbai and NCR markets have kept vacancy levels low
at 10.7% and 13.9% compared to other markets such as Bengaluru and Pune that have vacancy of 29.7% and
21.8% respectively. The high weightage of Mumbai and NCR in the total stock keeps the combined vacancy
level of all eight cities at a relatively healthy 15.5%.

The eight markets have a total development potential of 1.63 times the warehousing stock that is currently
operational in these markets. Compared to other property types, warehousing development takes relatively
lesser time. A high-quality warehousing facility can be fully developed from the ground-up within a period of
one year, depending on the extent of treatment such as filling and levelling that the land requires.

© Indian Business Council

 While the development of Grade A warehousing facilities has been increasing in recent years, Grade B still
constitutes around 64% of total stock. The larger warehousing markets of Mumbai and NCR have a
significantly lower proportion of Grade A warehouses as they are much older markets and bulk of their stock
had been built before the demand for Grade A warehousing gathered momentum. Pune and Chennai have
the highest concentrations of Grade A stock due to their primary demand base of auto and auto ancillary
occupiers. Notably, only Mumbai, NCR and Ahmedabad have more than a 50% share of Grade B properties.
Interestingly, Mumbai, even with a high proportion (83%) of Grade B stock still enjoys market level
occupancy of around 90%. This underscores the strong potential that this market offers for the upcoming
Grade A spaces.

Considering the need for high quality warehousing facilities, close to $6.5 bn have been committed by private
equity players in the warehousing market since the GST reforms were applied in 2017. At different stages of
capital deployment and project development cycle, this is equivalent of an estimated 28 mn sq m (300 mn sq
ft) of Grade A warehousing space.

The warehousing market in India has been comparatively less impacted by the recent economic upheavals
caused by the pandemic. While the current warehousing land seems adequate to accommodate close to 5
years' demand at a static rate of demand, the need for fully compliant Grade A properties that increase the
efficiency of the supply chain continues to gain momentum.

© Indian Business Council

Currently, 95% of the cold storages are owned by the private sector, 3% by cooperatives and the remaining
2% by the public sector undertakings. Since, bulk of the capacity is owned by the private sector, there is
greater need for the central and state governments to rise up to the occasion and support the stressed but
potentially profitable industry sector.

The food processing industry is one of the largest sectors in India in terms of production, growth,
consumption, and export. The cold chain is the backbone for sustaining this scale of food production and
processing. The primary development focus for agricultural post-production infrastructure, has been in the form
of warehousing and cold stores, for holding inventory for extended durations. However, despite the growing
focus on post-harvest management, the cold chain industry in India is still at a nascent stage.

Crisil Research has estimated that investment of Rs 16,000-21,000 crore is being lined up in the sector
between 2019 and 2023 for optimising the domestic post-harvest value chain and to feed the
downstream food processing industry. The Cold Storage industry is expected to grow at a CAGR of 13-
15% over fiscals 2019-23, mainly driven by rising demand for processed food, fresh fruits & vegetables,
seafood and bio-pharmaceuticals in exports markets.

There are 8186 number of cold storages with capacity of 374.25 Lakh MT
available in the country for storing perishable horticulture produce like fruits and
vegetables.

One of the major reasons for the food waste is the lack of an efficient cold
chain infrastructure that includes refrigerated transport, pack houses, collection
centers, and cold storage.

India’s cold storage capacity is unorganized and dominated by traditional cold

storage facilities.

The distribution of cold storages is highly uneven with majority of the cold
storages located in Uttar Pradesh, Gujarat, Punjab and Maharashtra.

Close to 15%-16% of fruits and vegetables perish as cold storages are located
near consumption centres rather than farms.

© Indian Business Council

 The e-commerce market in India as well as globally is one of the fastest growing markets today. Driven by the
fast pace of digitization in the country, Indian e-commerce market has been growing rapidly and is expected
to surpass the US to become the second largest e-commerce market in the world by 2034, with China
being the largest market.

At present, the pan-India footprint of e-commerce warehousing is estimated to be around 4.6 mn sq m (50 mn
sq ft) and more than half of it is occupied by a single player, Amazon. Flipkart comes next with around 15%
share and the total occupancy of these two players is estimated to be around 70-75%. As the market grows,
more and more players will continue to enter the market and the demand for warehousing space will continue
to grow.

Going forward, as internet penetration in India continues to grow, consumer base of the e-commerce industry
will continue to rise. Along with business, the pan-India reach and presence of e-commerce players is also
growing and this can be seen in their increased warehousing transaction activity. The sector's appetite for
warehousing grew at 55% CAGR during the FY 2017-20 period, culminating in over 0.8 mn sq m (8.5 mn
sq ft) absorbed during FY 2020.

Another trend that the Covid-19 pandemic could bring in the warehousing consumption of e-commerce players
is increased presence in smaller towns and cities. While e-commerce presence in tier-II cities and towns
was already being driven by demand, the crisis is most likely to have accelerated this process by introducing a
wider population base to e-retail and therefore increasing demand further.

E-commerce warehousing demand had been recording healthy growth in the last few years and we saw
its share in warehousing demand increasing from 15% in FY18 to 23% in FY20.

© Indian Business Council

  Traditionally, there is limited automation in India  Retail and e-commerce giants are leveraging the
because the labour in India is a lot cheaper. power of artificial intelligence for various
functions including product assortment and
 Automated management has only been
inventory management. Big Data is the driving
implemented in 20 percent of the world’s
force for logistics.
warehouses.
 In India, the foremost change that has been
 The demand for regulatory compliance, security
adopted is Digital Process Automation, since
and quality assurance has however increased the
the benefits are faster to achieve and witness.
demand for modern warehousing where organized
Digital Automation involves application of cloud-
players have an essential role. Technology
based hosting, API/EDI Integration, RFID
adoption in warehousing is deemed as an
tagging, QR coding, process mapping and use
imperative for efficient business processes.
of handheld terminals.
 India has come a long way from basic godowns to
 Meanwhile, warehouses are adopting Physical
smart distribution centres. However, a lot of
Process Automation slowly at present, which is
improvement in warehousing is essential since
expected to pick up pace over the next five
warehousing accounts for 25 percent of the
years.
overall logistics costs.
 The strong institutional interest in warehouse
 Though a large part of warehousing operations
development and operations over the last few
are still manual, some of the latest technologies
years has transformed the warehouse from
including cloud software, drones, Internet of
being just a large storage room to a facility that
Things (IoT) and wearable devices are gaining
adds value in packaging, inventory
popularity.
management, and extraction of products.
 The decision-making factor in such scenarios has
been the ROI of automation vis-à-vis the cost of
manual labour. However, due to the pandemic,
the discussion has evolved from just ROI to safety
of people, workforce availability and ecommerce
needs.

The technological interventions

mentioned in the infographic have
already materialized in the western
markets. In India, the warehouses aren't
completely devoid of the technological
aspect, but its presence is minimal, and
limited technology is used by just a
select few industry warehouses viz., e-
commerce and Third Party Logistics
(3PL) players. However, with increased
activity by institutional players,
organised and tech-enabled
warehouses will become more
commonplace. It is projected that
autonomous transport solutions can
save as much as 20% of the fuel costs
by supporting transportation,
warehousing operations, and last-mile
deliveries.

© Indian Business Council

Supply chain networks must transform to support
e-commerce growth
Both online and traditional retailers, along with a
growing number of direct-to-consumer manufacturers,
are facing increased pressure to deliver products at the
promised time and at the desired cost. Meeting this
demand is going to require investment in a scalable
distribution network and last mile operations—one
which provides reliable order and tracking visibility.
Some organizations may also want to consider
consumer pick-up points to eliminate last mile delivery
roadblocks.
Labor and technology investments must be
balanced
Implementation of automated systems and robots
along with other technology-enabled tools are
increasing the level of competition among employers to
attract highly skilled workers. Most experts agree that
improving technology will not replace human workers,
but rather require them to have new and advanced
skills. On the other hand, there is a growing deficit of
low skill labor available to operate these same logistics
facilities. Organizations must carefully consider this
trade-off between labor and technology to ensure long-
term success and profitability.
Leveraging favorable transport policy changes
GST, Dedicated Freight Corridors (DFC), and the
recent push to develop an extensive network of inland
and coastal waterways shall help in expediting
intermodal options. These policies are creating new
opportunities to optimize transport strategy and
generate cost savings.
© Indian Business Council
Optimizing inventory and assets
Industries and market segments which are tied more
loosely to consumers are undergoing demand dip. As
a result, these businesses are being forced to seek
innovative ways to extract value out of their existing
tools and infrastructure. Heavy investment in this area
over the past decade should pay off as data from
advanced planning software can be used to improve
planning performance and capture operational
efficiencies. Those facing pressure to improve service
levels should focus on inventory deployment and asset
optimization.
Operational Efficiency
Warehouse operational efficiency metrics may range
from internal KPIs, supplier KPIs as well as customer
KPIs. For these key components, there is a continuous
need to monitor, measure and analyze data so that the
processes can be continuously improved.
• Optimize Receiving Area: Dedicating a sufficient
area for receiving stock helps in improving the
accuracy and efficiency of activities such as;
unloading, checking, unpacking or repackaging and
quality control.
• Order Refinement: Experts recommend checking
each order twice before final dispatch; such filters
enhance operations as costs of re-processing
orders are eliminated.
• Resource Management: It is important to
anticipate future requirement, and management
must utilize learning & development activities which
improve skill set and productivity of resources.
• Cycle Count: Cycle count ensures inventory
accuracy by reducing mixing of items as well as
smooth stock rotation. Cycle count should be
included in SOPs for all warehouses.
Despite the opportunities there Entry
Barriers
are numerous challenges that
confront the sector. Availability of The entry barriers are
high with sizeable capital
good land parcels with clear title requirements upfront, a
large pan-India capability,
and approvals continues to be a and deep understanding
key challenge. of the customer
requirement and their
dynamic needs.

Land Costly
Infrastructure
acquisition Cityspaces

The industry is still Land acquisition City-centric micro

quite fragmented and
unorganized and is
dominated by small
players with small
capacities.
remains the difficult for markets make specific
warehousing pieces of land sought-
development, requiring after and overvalued,
large parcels of whereas tenanted land is
contiguous land with not readily available for
clear legal title. undertaking in metros and
Tier-I cities

Lack of Grade Logistical

Credit Issues
A Warehousing Challenges

India faces a fundamental Access to adequate and Protocols differ from

lack of Grade A timely credit at a state to state and
warehousing with only reasonable cost is one of experience of delivering
approximately 100 million the most critical problems unique requirements for
square feet (Sq. Ft.) of faced by this sector diverse customer base
modern Grade A is a logistical challenge
warehousing stock.

© Indian Business Council

Decentralization of Warehousing
Covid crisis has caught the Centralised Warehousing
model off-guard for being absolutely incapable of
addressing emergencies. Decentralized warehouses
are being used to ensure that the goods are close to
the customer, that enables flexibility and faster
delivery.
Consolidation of warehouses to accelerate
GST led to the restructuring of supply chain since
warehouse location and size strategy were based on
efficiency rather than tax saving. Consequently,
fragmented small warehouses paved way for larger
supply centers around key markets.
Stocking levels to increase
Owing to the pandemic experience, many businesses
are considering increasing the level of inventory in the
short to medium term. This will result in higher
demand for Warehousing facilities.
Cold storage warehousing to gain momentum as
essential supplies garner demand
Essential supplies segment has emerged as a ray of
hope with its sustained business performance even
during the pandemic and peak of lockdown. With
increasing category focus, supply shock and
consequent price inflation concerns, cold storage
segment will receive greater attention from
government and stakeholders alike.
© Indian Business Council
Third party logistics (3PL) segment to be the
torchbearer for warehouse demand
In addition to the flexibility and cost efficiencies
achieved by outsourcing to 3PL, input tax credit on
GST also played a role in increasing consideration for
3PL services and this trend is likely to continue.
Institutionalization of warehousing segment to
accelerate
Demanding occupiers and key policy interventions
have ensured a push towards institutionalization of the
warehousing segment in the country. We expect that
in the current uncertain environment, institutional
abilities will be valued even more and lead to
participation of bigger developers and investors in the
country's warehousing segment.
Warehouse footprint to expand in smaller cities
Rising consumerism and the emergence of e-
commerce has created a need for faster deliveries
even in markets beyond the top 8 cities. We expect
this trend to further strengthen, as e-commerce and
3PL players capitalize on this consumption driven
demand in smaller cities.
Increased Focus on Supply Chain Optimization
A key determinant that can help in reducing this cost of
logistics and demand gap is through proper Supply
Chain mechanism (explained below).
1. CIRIL Warehousing Report
2. Media Reports by Business Today, Forbes India, Mint, Moneycontrol
3. Venture Intelligence
4. Knightfrank Research 2020
5. InvestIndia.Gov.In
6. PRAXIS Global Alliance Report
7. India Brand Equity Foundation
8. InvestableUniverse.com

This report is for information purpose only. It is not intended to constitute, and should not be taken as legal
advice, or a communication intended to solicit or establish commercial motives with any. The firm shall not have
any obligations or liabilities towards any acts or omission of any reader(s) consequent to any information
contained herein. The readers are advised to consult competent professionals in their own judgment before
acting on the basis of any information provided hereby.

The data reflected in the charts of the report are approximate representation of the primary and secondary
research done by professionals.

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