Warehouse industry likely to reorganise their business strategy post COVID-19

At a time when the Indian real estate industry has been facing headwinds on account of a difficult residential market, the warehousing property segment has emerged as a investment opportunity for institutional investors. Though the Covid-19 induced lockdown has led to slowdown in the warehousing industry with both occupier leasing and investment activity being subdued in Q1 2020.

The rationale is that if a particular area is locked down due to Covid-19 or any other event in the future, they can still operate through other warehouses. This will increase the demand for warehouses.

The implementation of GST, the continued government focus on building industrial corridors, the infrastructure status to logistics industry including warehousing, thrust on manufacturing and the promise of the Indian consumption market has whipped up the investment prospects of the country’s warehouse sector. The sector has attracted investments over $6.5 billion in the last 3 years from 2016 to 2019. The warehousing demand or the leasing activity has also has grown rapidly in the same period, increasing from 13.9 mn sq ft in 2016 to around 40 mn sq ft in 2019.

Covid-19 is making occupiers to rethink their strategy. The concept of consolidating warehouses at a single location is getting challenged.E-commerce segments catering to grocery and daily essential have seen spurt in retail demand owing to the Covid-19 induced lockdown of malls and retail spaces.

Warehousing industry is also likely to benefit from the shift in manufacturing units outside China. Various companies are looking for alternatives to reduce their dependence on one particular country (presently China) for the entire manufacturing needs and are planning to shift certain part of the activity elsewhere. There are 5-6 countries which are competing directly with India to attract these companies. Each country offers its own set of advantages and challenges. However, even if 1/6th of them come to India, the gains for the nation and the industrial and warehousing sector would be immense.