INDUSTRIAL MARKET RESEARCH INDIA WAREHOUSING MARKET REPORT 2018 INSIGHT SERIES #2 THE NEW FACE OF INDIAN WAREHOUSING: A TRANSFORMATION TOWARDS AN ORGANISED PLAY A warehouse is a key component of logistics This mindset limited automation in Further, large warehouses come with the which defines the efficiency of the supply warehousing and thrust on warehouse design promise of achieving economies of scale and chain. In India, the logistics cost as a and management. This long-standing attitude efficiency in operations and safety and percentage of the Gross Domestic Product of occupiers is slowly mitigating as the sector security of goods. Amid this changing (GDP) is almost double that of the logistics is getting organised. The introduction of the scenario, we have also observed the foray of cost to GDP ratio in developed countries. Goods and Services Tax (GST) primarily set many international businesses and With warehousing accounting for as much as the ball rolling. At the same time, inherent emergence of e-commerce players who 25% of the logistics cost, as an asset class it changes in the overall regulatory environment prefer to establish their warehousing footprint has been mired with challenges such as courtesy compliance regulations in place only through legally compliant warehouses. occupiers' preference for multiple but small (mainly in pharmaceutical industry), quality warehouses. The trend worked as a counter parameters of regulators and clients and risks mechanism to avoid inter-state taxes that and penalties associated with non-compliant were applicable on sale of goods and not on warehouses are making a world of difference. stock transfer. Structural reforms changing the warehousing ball game The government has introduced many • The roll-out of Goods and Services Tax from India Infrastructure Financing reforms which have brought the warehousing (GST) has only acted as a catalyst for Company Limited (IIFCL). sector under limelight and stirred interest of organised warehousing. • The Make in India programme was various participants globally. • The recent grant of infrastructure status launched, with an objective to increase • 100% Foreign Direct Investment (FDI) is to the logistics sector including manufacturing sector growth to 12-14% already permitted in the warehousing warehousing is likely to propel the need per annum in medium term and whip up and storage sector under the automatic for integrated logistics sector its share from 16% now to 25% of GDP route. development and boost domestic and by 2022. Thrust on enhancing global external demand leading to spur in competiveness of the Indian manufacturing and job creation. This will manufacturing sector, creating 100 The recent grant of infrastructure status to have a ripple effect on warehousing million jobs by 2022, setting up the logistics sector including warehousing is development. The recognition would also multimodal logistics parks and industrial likely to propel the need for integrated help the logistics sector access corridors will translate into more logistics sector development and boost infrastructure lending at easier terms and warehousing demand as both the domestic and external demand leading to enhanced limits, access to external sectors closely complement each other. spur in manufacturing and job creation. This commercial borrowings, longer tenor will have a ripple effect on warehousing funds from insurance companies and development. pension funds and be eligible to borrow Organised warehouses experience a near double leasing volume in 2017 Though the Indian warehousing sector largely cusp of exponential growth which is already Hyderabad, Kolkata, Mumbai, NCR and Pune) remains unorganised, some organised players visible in the growth in annual leasing volume. in 2017 stood at 25.7 million sq ft recording have recently ventured into warehousing The total leasing volume in the organised an 85% year-on-year (YoY) growth over 2016. activities. The recent government initiatives warehousing segment across the top eight have brought the warehousing sector at the cities (Ahmedabad, Bengaluru, Chennai, Warehouse transaction volume INDIA NCR 2.8 6.5 129% Ahmedabad Kolkata 1.7 1.4 3.3 1.6 86% 15% Mumbai 1.6 Pune 5.2 2.0 231% 2.5 Hyderabad 22% 1.2 2.1 68% Chennai Bengaluru 1.9 1.3 2.4 2.5 24% 90% Total 2016 (in mn sq ft) 13.9 2017 (in mn sq ft) 25.7 Growth (YoY) 85% Source: Knight Frank Research • In 2017, Mumbai, NCR and Bengaluru warehousing space concentrated on providers (3PLPs). witnessed maximum increase in leasing NH-48, NH-19 and NH-24. Post GST • Ahmedabad which accounted for 13% volume over 2016 as these three cities implementation, many occupiers who share in leasing volume has also seen a along with their peripheries constitute the were sitting on the fence, expanded their surge in warehousing demand in Asali- vital hubs on the industrial corridors warehousing footprint in NCR robustly. Kheda and Changodar-Bagodara belts. envisaged by the government which • Mumbai accounted for 20% or the • Whilst Bengaluru and Pune each incentivised warehousing activities. second-highest share of 2017 leasing contributed 10% to the leasing volume, • Of the total leasing volume in 2017, NCR volume. The growth in warehousing the share of other cities remained in accounted for the maximum 25% share leasing volume in Mumbai was single digits. or 6.5 million sq ft on the back of strong predominantly led by e-commerce, big demand for manufacturing-led box retailers and third party logistics TABLE 1 Major warehousing clusters City Major Warehousing cluster Major Occupiers Ahmedabad Changodar - Bagodara DHL, Flipkart, MRF Tyres Aslali - Kheda HUL, DMart Bengaluru Hoskote-Narsapura Volvo, Medreich Nelamangala-Dabaspete Hitachi, Pepsico, DB Schenker Chennai Sriperumbudur-Oragadam cluster Indev Logistics, Apollo, Indutch Hyderabad Jeedimetla - Medchal Flipkart, DHL, Nestle, Delhivery, Ratnadeep Mumbai Bhiwandi Allcargo Logistics, Amazon, H&M, DHL, Myntra Panvel Aramex Logistics, Exide Batteries, Jaguar Sanitary ware, Apollo Tyres NCR NH – 48 Cluster Amazon, Decathlon, Subros Ghaziabad Cluster Amazon Pune Chakan - Talegaon IKEA, Mahindra Logistics, Ericcson Wagholi - Ranjangaon Haier Source: Knight Frank Research Warehouse supply transforms to keep pace with its most sophisticated occupiers Such transformation into organised recent government initiatives have opened in warehousing sector will vary depending warehouse supply got accentuated in the the floodgates for warehouse development. upon the industries involved, some industries recent period mainly by the sophisticated GST implementation has catalysed many have emerged a frontrunner in warehouse occupiers namely 3PL and e-commerce, industries to re-think their warehouse occupancy. In 2017, the top three occupier which thrive on efficient business model. The strategies. Though the extent of consolidation industries were third party logistics (3PL) followed by manufacturing and retail. 3PL – From a 16% share of total transactions All India Industry wise share of transactions in 2016 and 2017 in 2016, the share of 3PL increased to 29% of 2017's leasing volume. 3PLPs which provide transportation, warehousing and administration services have become an integral part of the supply chain process as businesses realize the importance of outsourcing logistics and complete logistics management. Factors such as India's rapidly growing consumption base, last-mile delivery capabilities, increasing trade and increasing push for technology operations have made 3PLPs more or less indispensable for The recent government initiatives have opened the floodgates for warehouse development. GST implementation has catalysed many industries to re-think their warehouse strategies. Though the extent of consolidation in warehousing sector will vary depending upon the industries involved, some industries have emerged a frontrunner in warehouse occupancy. In 2017, the top three occupier industries were third party logistics (3PL) followed by manufacturing and retail. Source: Knight Frank Research businesses today. With 3PLPs bringing in the biggest occupiers for warehouse space 2017. With the Indian e-commerce sector cost efficiencies and logistics consumption, these positive reforms will help rapidly increasing its sales performance, competitiveness, demand for specialized 3PL increase warehousing space requirements shrinking delivery timelines of major online is only set to increase manifold. Going from major manufacturing industries. marketplaces only highlights the need to have forward, we anticipate the spending on 3PL Retail – The retail industry's share increased distribution centres and storage facilities providers to increase further which should substantially from only 9% of warehouse closer to consumption hubs. As the translate into more warehousing demand by transaction volume in 2016 to 16% of e-commerce players expand the market in 3PLPs. transaction volume in 2017 excluding the e- terms of size, demand for compliant Manufacturing – In 2017, manufacturing commerce segment. Per our earlier studies, warehouses is only set to increase in future. sector accounted for a 21% share in the brick-and-mortar retail industry's Knight Frank studies forecast a 19% CAGR warehousing transaction volume. Though the warehousing space requirement in India's top for the warehouse space requirement share of manufacturing was 30% of seven markets (Ahmedabad, Bengaluru, emanating from the e-commerce industry transaction volume in 2016, the actual volume Chennai,