Warehousing & Logistics Will Be The Fastest Sector To Recover
Aditya Virwani, COO Embassy Group & spokesperson Embassy Industrial Parks quotes,
The warehousing and logistics sector will be one of the fastest, most strategic asset classes to recover from the COVID 19 pandemic. All this credited to the sharp increase in domestic demand and a possible major manufacturing shift, making India the preferred destination for global manufacturers. India intends to take full advantage of the sentiments against China.
Multiple countries want to set up local manufacturing facilities, taking advantage of the domestic market and manpower capability available here. Fuelled by the government provided economic package and the upgraded FDI application, we will definitely see a boost in the manufacturing sector. GST has allowed for a unified market place in the country and made exports across sectors lucrative.
The government has come up with a reduced rate of corporate taxes to 15% for setting up a new manufacturing plant in India; more initiatives like this will help increase the manufacturing operations in India. Growth is expected in organized cold storage space for perishable goods near urban areas. Additionally, FMCG and Agri clients will also look for spaces for catering to high volume demand.
There has been a major shift in purchase behaviour with e-commerce and digital payment being the order of the day. Warehousing serves as the backbone for online grocers and e-commerce players who have to meet the heightened demands but also need to scale up as soon as possible. To survive in this environment, most commercial businesses are creating an online footprint.
Due to sanitation, safety, compliance, and social distancing norms, companies would prefer dealing with enabling Grade A warehousing. To avoid, shortage, there will be enough stock-piling going forward. Companies would also prefer having multiple warehouses to avoid dependency on any one location. We have recently also witnessed a new change in the decentralizing of the workforce, this will impact the geographical layout of businesses and create demand. Even though there will momentarily dips, in combining all the above factors there are clear indicators that the warehousing sector will witness a boom.
In the long term, the pandemic provides a greater opportunity for large Grade A warehouses which will ensure operational efficiency, safe and secure environment, statutory compliance, efficient warehouse designs, etc. In the short term also, we are witnessing additional storage space demand given that most e-commerce clients are dealing in essentials and they require additional space for the same.
The current storage space for the client is already full with non-essentials, thereby creating small storage space demand in the short term. There have been increased instances of short-term leases which are also triggering sub-leasing of the existing supply of warehouses space.
Further, in the long term, the space demand from e-commerce is set to increase given physical shopping experience would take a hit due to safety issues. Urban logistics should gain importance with growth for in-city warehouse space for faster deliveries to end-users due to restrictions on brick & mortar stores.
Retail players will need multi-level warehouses within city limits to service cities. Besides facilitating maximum land utilization in cities like Mumbai, multi-storey warehousing will also help companies to reduce transportation costs and improve delivery time — two keys to success for most retail businesses. This will also provide a saving on overall operational and occupancy costs. E-commerce players have started tweaking their inventory management plans and are planning stock for 30-40 days more than what they did pre COVID. Therefore, to keep additional inventory, more warehouse space would be required.
The warehousing and logistics sector is lucrative and viable for investments. The government of India has come up with manufacturing clusters, smart cities, industrial townships, special economic zones, investment regions and manufacturing clusters around major harbours with suitable roadways. Various government initiatives like the implementation of GST, provision of Infrastructure status, allowing 100% FDI has enabled the access and incentives to the sector.
There is lower credit risk in this segment as easier sourcing of funds, the presence of ample global PE players, and fewer processes of approvals compared to other sectors in real estate. Even the construction time is lesser so the turnaround time of projects allows faster execution making it safer and resilient for investments. There are multiple Private Equity players as well as foreign developers waiting to come and invest in India. With an increase in equity investment uptake of debt from domestic as well as foreign bank will also increase.