BENGALURU: India’s warehousing sector is reaching an inflection point and is expected to take a leap once the goods and services tax (GST) is introduced, according to JLL India, a real estate consultancy firm.
Apart from GST, ecommerce is expected to significantly drive demand for warehouses in the near future. The ecommerce industry itself is expected to invest an additional $2-3 billion into warehousing over the next two-three years, JLL India said in a report.
“With nearly 25% of all warehousing absorption being driven by ecommerce players, it is currently the biggest demand driver for the sector. Online, time-bound approvals are expected to further improve the ease of doing business in India,” said Nirav Kothary, head, industrial services, JLL India.
Ecommerce retail giants Amazon and Flipkart have recently opened their largest warehouses in Telangana. While Amazon’s fulfillment centre is 280,000 sqft, Flipkart’s covers 2.2 lakh sqft. Flipkart’s total number of its warehouses in the country has risen to 17.
According to JLL India, Maharashtra, Gujarat and Andhra Pradesh have historically been front-runners in attracting industrial investments. Under the ‘Make in India’ initiative, states like Punjab, Haryana and Karnataka are also taking bold steps towards better industrial policies.
Investments in warehousing business is slowly picking up in India as companies expect a surge in business in the logistics space once GST comes into play, as it will remove the various indirect taxes and replace them with a single tax at the national level. This is expected to facilitate efficient cross-state transportation and bring down logistics costs.
Real estate developer Embassy Group recently created a new business vertical to set up warehouses and industrial parks. Global private equity firm Warburg Pincus and real estate developer Embassy Group have entered into a $200-million joint venture for setting up warehouses across major cities in the country.
“GST will simplify taxation across the entire supply chain from vendors to marketplaces, allowing for more efficient integration. Under the present tax regime, companies are forced to have individual warehouses in each state. GST will allow for greater consolidation into large fulfilment centres that enjoy economies of scale and drive efficiencies and cost saving across the supply chain,” said Anshul Singhal, CEO, Embassy Industrial Parks.
Prestige Estates Projects, India’s second largest real estate company by market capitalisation after DLF, is also exploring opportunities in the segment. The company has launched a pilot project on a 15 acre plot in Malur, a suburb of Mumbai.
“One needs to enter the segment at the land acquisition stage as the rental for logistic space can never be more than Rs 25 per sq ft,” said Suresh Sunagaravelu, executive director retail, hospitality and new business of the company.
According to JLL India, warehousing is seeing higher supply of organised Grade-A and B warehouses. In 2015, the cumulative warehousing supply (Grade-A and B) across eight cities stood at about 97 million sq ft compared with 79 million sq ft last year. This supply is expected to reach 116 million sq ft in 2016. With industrial corridors like Delhi-Mumbai industrial corridor (DMIC) and the expansion and improvement of road network, things are indeed looking up for the industrial and warehousing sectors.