Sep 2021 , by , in Realty+ Connect

Factors like the country’s changing tax regime, growth across manufacturing sector, e-commerce and the emergence of organized retail along with technological advancements in the sector are driving the investor’s interest in Indian warehousing.

At present, warehousing in India is mostly concentrated around tier-I cities, such as Bengaluru, Chennai, Kolkata, Mumbai, Delhi-NCR, Ahmedabad, Pune, and Hyderabad. However, the rising e-commerce activities in the tier-II and tier-III cities present future growth potential for the warehousing sector in the coming years. Also, the organized warehousing space per capita in India is significantly less at present and thus, presents an opportunity of expansion and demand from the burgeoning industries, e-retail and cold chain segment in the post-lockdown period.

The industry players predicted a bright future of the segment going by the rise in online shopping during the pandemic and stated it will soon catch up with the commercial real estate and will see large scale developments and investments.

According to Colliers India’s industrial and logistics warehousing sectors are garnering significant interest from institutional investors. Led by robust demand from e-commerce and other consumer-led occupiers, Colliers expect the industrial and logistics sectors demand to be stronger than other asset classes. Piyush Gupta, Managing Director, Capital Markets & Investment Services, Colliers stated, “During 2021, we expect increased formation of joint ventures between developers and investment funds to expand and develop industrial parks, and fulfilment centres in Tier I and II locations. Therefore, demand for core assets located in strategic locations and enjoy easy connectivity to ports, national highways and airports will likely remain strong.”

Rajat Garg, Head of Investment ESR India sharing his views said, “Our business at ESR is driven by end-user consumption and the demand from industries and manufacturing. With the phasing out of the lockdown and restrictions on transport activities, manufacturing activities are picking up in Tamil Nadu and Maharashtra. E-commerce companies, Electronic engineering, Telecom, Renewable energy companies are looking for huge warehousing spaces for expanding their operations across India.”

Yash Ravel, Executive Director, Fund Management & Corporate Strategy, Welspun One shared that demand from cold chain segments is growing as it needs temperature controlled warehouses. “One can expect to see a significant demand for fully mechanized and automated warehouses from this vertical in the coming days. However, rising price of raw materials especially steel is becoming a big challenge for the segment as most of warehousing construction involves steel.”

R K Narayan, Chief Operating Officer, Allcargo Logistics and Industrial Parks agreed that in the warehousing sector there is a lot of demand coming from manufacturing sector and institutional investors continue to be bullish on warehouses to deploy their existing dry powder. He said, “apart from the rising construction cost, the challenge also includes delay in land acquisition and obsolete labour laws. The government should adopt investor friendly measures like tax incentives, capital subsidy and transparent land acquisition regulations to bring India at par with global warehousing segment.”

Rajani Sinha, Chief Economist & National Director – Research, Knight Frank (India) Pvt. Ltd. points out that primarily lack of integration with global supply chain is where India is losing out to other countries. For instance, Vietnam has trade agreements with all the major multinational companies as they have investor friendly trade policies. India itself has a huge consumption market and we also need to focus on our own market otherwise other countries are waiting to get into the micro markets of India. Furthermore, technology adoption in the warehousing segment is still very low in comparison with other developed countries. Institutionalization of this segment and automation in warehouse management is a must.”

Knight Frank India projects that annual warehousing transactions for top eight Indian cities (primary markets) will grow at a compound annual growth rate (CAGR) of 19% to 76.2 mn sq ft (7.08 mn sq m) by FY26 from 31.7 mn sq ft (2.95 mn sq m) in FY21. As per the projections for the next 5 years, e-commerce segment is expected to take up significant space estimated to be 98 mn sq ft (9.1 mn sq m) approximately registering an increase of 165% from the preceding period of FY 2017 – 2021. Third party logistics (3PL) and other sector companies are expected to take up 56% (83 mn sq ft) and 43% (53 mn sq ft) more space respectively, over the same reference period. 

Occupiers have showed a marked preference for Grade A properties. 65% of all transactions during FY 2021 were in Grade A properties with the exception of Bengaluru and Ahmedabad, more than half the area transacted in all the top markets occurred in Grade A properties. 


Till recently, the warehouses were mostly labour intensive. However, the pharmaceutical, cold chain, and fulfilment centres by E-commerce majors, the biggest warehousing clients as well as the safety protocols brought by the pandemic have pushed the warehouses to accelerate automation and modernization of facilities.

Rajat Garg concurred, “Warehousing is a very standardized product in comparison to hotels or shopping malls and developers and operators need to focus more on adopting technology. For instance, ESR India Smart App monitors movement of every truck which enters the vicinity and thus guides them to where to park. It also directs the driver where to unload goods in which warehouse. Facility or warehousing operators use this app because it simplifies a lot of work.”

Yash Ravel added, “Technology definitely is the need of the time. We use cutting edge technology for the industrial park management to provide better facilities to our tenants. Amazon brings in a lot of high end technology with them wherever they set up their facility. Prop-tech start-ups too are coming in this sector to implement their technology to create an efficient and sustainable work environment.” 

R K Narayan said, “As operators we try to provide tenants with good facilities such as installing solar panels to reduce energy cost, monitoring water and electrical consumption and installing smart devices to track people and goods movement inside the facility. On the development side, we are building facilities at many locations and bringing in efficiency in development and facility.”

Rajani Sinha expressed, “India has a huge population residing in tier 2, 3 and 4 cities and they share an aspiration to buy popular products same as in bigger cities. These consumption patterns will enhance the warehousing sector. The strong domestic consumer base and supply chain disruptions from the pandemic have intensified the need for more institutional players in the warehousing segment which will lead to greater advancement in technology and automation of facilities as well as processes.”

Piyush Gupta stated that he year 2021 has fast-tracked the adoption of digital technologies in real estate. “In the warehousing business, focus on productivity, efficiency, and digital technology deployment with a rationalised profit and cash-flow model will be what will define the successful players.”

Office assets accounted for 35% of the total investments in H1 2021, followed by industrial and warehousing assets with a share of 27%. Investors are viewing the current scenario as an opportunity to snap up properties at attractive valuations. 


The warehousing and logistics sector has been the biggest beneficiary during the pandemic and attracted total investments of over $1 billion during Q2 2021. Warehousing accounted for 55% share, while retail formed 20% of total investments during the quarter. The key trigger for the institutional interest in the sector is the consolidation of assets due to implementation of GST, industrial sector boost and third party logistics players looking to scale up

Rajani Sinha expressed, “Participation from investors has come mostly in the form of operational assets owned by them or in the land banks available with them. The other way in which strategic investors have been participating in the sector is by contributing towards land acquisition and construction capabilities where financial investors form platforms with strategics such as Embassy Group and Assetz Property Group. REIT is an efficient vehicle for holding such assets, but for it to become viable in India we still lack large scale commercial assets that can be monetized through REIT. It will take more than three to five years to reach the stage where REITs would be possible in this market.”

According to Rajat Garg, institutional investors are looking at this segment as a three to five years reallocation of capital. “Industry players who think they were underweight in terms of having warehousing assets are trying to allocate their money in the warehousing segment. Land acquisition remains difficult and challenging in tier 1 or 2 cities. We are very bullish on the warehousing market. A lot of investors want 16-18 percent post tax returns. They want to also focus on pension funds, insurance funds, and long term core asset ownership. In the next three to five years we will see a shift from development to core long term asset ownership. I’m fundamentally confident that in the coming two to four years two large REIT’s will enter this market. I think Industrial listed REIT’s will give more than 70 percent profit.” 

Yash Ravel stated. “Whether you are raising capital from local or institutions, I think the expectation of returns from the real estate sector continues to be 20-30 percent. However high land prices create a difficult situation for operators as tenants ask for affordable pricing and operators have already invested so much money in finding the right land parcel in the right location. Having said that, Welspun One Logistics Parks report estimates an increase of 10% in Y-O-Y demand for Grade A facilities to a new total of 35% to meet additional unmet demands, as opposed to the earlier predicted industry demand of 25%. This trend makes warehousing sector a lucrative investment avenue for the investors. Moreover, in comparison with other asset class warehousing has evolved faster into a matured market. Development cycle for warehousing is shorter than the commercial office and retail asset classes.”

R K Narayan added, “It is true that return expectation from a prime location warehousing is difficult to match due to land price but those in tier-2 or 3 cities offer better returns. Also, presently the sector provides better returns than residential or office segments. We still have a lot of penetration to achieve from the e-commerce side. It’s up to the operators how we can improve our management skills and provide better technology driven facilities. Major global funds have invested with warehousing developers and operators as scale and regional footprint are key differentiators in the sector.”

Piyush Gupta on a positive note shared that the confidence of investors to invest in Indian real estate has strengthened in the past few months. “The investment trends reflect an interest in broader classes of assets and structures. This includes formation of platforms and acquisitions with development risks and development financing in warehousing as this asset classes reflects long-term stability, and sustainability. Furthermore, as companies based in China look to expand their operations outside, India is emerging as an attractive manufacturing destinations which will further boost demand for warehousing n the country/”, 

Indeed, the warehousing sector is expected to grow manifold, despite the challenges. Most companies are now focussing on core business products and prefer to outsource warehousing operations as also maintain “Asset Light” model. This gives a huge opportunity to third-party logistics (3PL) companies that can provide them with complete solution. Also, in the pandemic they have realized that a single large warehouse can be risky to their supply chain. They are plan to cover key micro-locations from a consumer perspective with smaller or multilevel warehouses. 

As per experts, given that the country still has a very limited number of technologically advanced warehouses, it will be one of the first to recover from Coronavirus impact, attracting huge capital, as investors shift to this resilient asset class.

Warehousing and logistics emerged as the most preferred real estate asset class for institutional investors, pipping the all-time favourite commercial office segment for the first time during April-June 2021. The segment attracted an all-time high of $743 million (more than Rs 5,500 crore) in investments, accounting for more than half of the $1.36 billion attracted during the second quarter.


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