Warehousing and Logistics Sector Well Positioned to Tide Over COVID-19 Pandemic

Supply chain and distribution of non-essential items have suffered as the country reeled under stringent lockdown. However, the demand for household essentials in such difficult times has not seen a slowdown.

On the contrary, the pandemic has pushed e-commerce, fast-moving consumer goods, pharmaceutical, and other third-party logistics firms to either enhance manufacturing or distribution of these products.

Developers and investors are rushing to support this demand spurt even as they stay committed to their long-term investment strategies into the sector.

What we observe currently is a delay in incremental leasing transactions as companies scramble to look for ways to continue business amid the lockdown. As of March 2020, over 10 million sq. ft of warehouses were waiting to be transacted across 15 cities including Pune, Bengaluru, Chennai Delhi-National Capital, and multiple Tier-II cities. 

Given that the growth plans for many large companies are long-term in nature, we firmly believe that the lockdown has only pushed these transactions for a later date. We expect the downturn in some of the sectors like automobiles, textiles, and Oil & Gas industry will only lead to increased storage space in the coming months.

Until the end of 2019, warehousing and logistics real estate enjoyed a robust growth with the absorption level touching 40 million sq. ft in the country with a vacancy of less than 10%. 

Leasing of warehousing space was expected to grow by another 20% this year, driven by the manufacturing sector and 3PL and e-commerce firms, particularly in Tier-II cities. Post the implementations of Goods and Services Tax (GST), India’s warehousing real estate industry has only gained traction from large institutional funds given the country’s growth potential to house large manufacturing clusters, warehouses, and logistic parks. 

So far, close to 20 million sq. ft of warehousing space are under various stages of development with an overall pipeline of over 3,000 acres of land purchases for the purpose. The majority of the land buys have been outright purchases.

There may be some short-term challenges with few companies in troubled sectors already seeking rent moratorium to mitigate the impact of the pandemic. However, strong demand for grade A warehousing space in the country will offset such temporary disruptions.

Meanwhile, the reforms announced by the government in recent years have so far had a positive impact on the sector. A series of policy changes including tax reductions, SEZ amendments, and establishing electronic and medical devices clusters will further lead to boosting demand for large warehousing spaces in the country.

These reforms are in its early stages and just the beginning of a new cycle of growth for the logistics industry. These reforms also put India in a favorable position to attract companies looking to move to India.

Several leaders around the world are already in discussions to reduce the dependency of raw materials and finished goods from one destination and we may see India as one of the new supply chain hubs for the globe.

Further, the government has stepped in with necessary monetary and fiscal stimulus measures to mitigate the economic fallout from the pandemic and keep cash-starved businesses afloat, giving much-needed hope and assurance to tide over this challenging times.

However, we expect that the government continues to work towards creating more manufacturing clusters and logistics hubs, introduce policies and focus on developing new technology, automation and planning different distribution models to cater to increasing consumer demand in the country.

Read also the detailed research on Unlocking The Growth Potential of Indian Manufacturing Sector