India’s Warehousing Challenge Set To Get Aggravated By 2020
India will need 54 million square feet of warehousing space annually over next four years.
India’s demand for warehousing space is expected to grow to 839 million square feet by 2020 from 621 million square feet in 2016, according to a report by real estate consultant Knight Frank India on the country’s warehousing market in 2016.
According to the report, India transacts 17 million square feet of space annually. In order to meet the growing demand for warehouses 54 million square feet of area needs to be added annually over the next four years. The manufacturing sector alone will need an additional 42 million square feet space every year.
Demand Drivers
Auto and auto ancillary, and chemical and pharmaceutical sectors are the largest demand drivers for warehousing space currently, the report said.
With the entry of e-commerce and single and multi-brand retail, the warehousing industry has seen enormous volume growth in the past few years, said Pirojshaw Sarkari, chief executive officer of Mahindra Logistics.
The e-commerce sector and implementation of the Goods and Services Tax (GST) will drive the demand for warehousing by 20-25 percent annually, said Nirav Kothary, National Director-Industrial Services of real estate consultancy firm, JLL India.
In fact, the e-commerce sector’s demand for warehousing is expected to more than double to 29 million square feet by 2020 from 14 million square feet in 2016, according to the Knight Frank India Report.
Mahindra Logistics which has warehouses across the country, said they are looking at a 20-25 percent year-on-year growth by developing new warehouses at major locations.
We plan to have four large format warehouses across the country that will help provide the flexibility our customers desire. This will constitute a major part of our growth leading to 12 million square feet by 2020.Pirojshaw Sarkari, CEO, Mahindra Logistics
Which Cities Will Lead Demand?
The biggest demand for warehousing space will come from the National Capital – 223 million square feet over the next four years, largely driven by manufacturing sector, which alone will need 187 million square feet.
Mumbai will require 155 million square feet of warehousing space, led by the manufacturing sector (120 million square feet) followed by retail (34 million square feet).
Hyderabad’s warehousing requirement stands at 61 million square feet of which 69 percent or 42 million square feet will be demand from the manufacturing sector. Hyderabad is the hub of pharmaceutical and biotechnology companies which account for 25 percent of the manufacturing-led output.
Challenges In The Sector
The biggest challenge in India’s warehousing market currently is the availability of feasible land parcels. Land costs constitute the largest component of a warehousing project and is driven by multiple factors, and not just demand and supply. As a result, there is often a mismatch between the return expectations of a warehouse developer and the ongoing market value of land.
According to the Knight Frank India report, the current land rates in Bhiwandi and Panvel in Maharashtra range from Rs 1-5 crore per acre while rentals account for Rs 10-25 per square feet per month. Periyapalayam, a warehousing hub near Chennai has a land rate of Rs 1.2-10 crore per acre, while rentals account for Rs 14-22 per square feet per month.
Availability and procurement of land with clear title and proper approvals in a strategic location is a key challenge in the development of new warehouses. And with land values shooting up in the last few years, the availability of affordable land is another concern. Moreover, the land acquisition rules differ from state to state creating entry barriers and have serious cost and time implications.Pirojshaw Sarkari, CEO, Mahindra Logistics
Other challenges include having a clear title of land which could result in legal repercussions for developers and investors, and the lack of availability of aggregated land for a decent sized warehouse, added according to JLL India’s Kothary.
In India the land holdings are so small that aggregating those land parcels on a scale of 30-40 acres is a challenge.Nirav Kothary, National Director Industrial Services, JLL India
Despite the challenges, Kothary said there is enormous supply of land which will enable warehouse developers to meet rising demand.
Currently, there is a 2-year lag in the availability of warehouse space but in the next 2-3 years we will definitely meet the demand on tab, meaning there will be ready supply available whenever the demand arises.Nirav Kothary, National Director Industrial Services, JLL India