With online shopping booming and e-commerce platforms continuing to gather momentum, the warehousing sector keeps growing all the time. As the Indian consumer becomes used to doorstep deliveries for their entire shopping list, from consumer durables to garments to books and music, a failproof supply chain and a robust warehousing backbone with efficient logistics have become absolute necessities.
Under the circumstances, realty experts predict that the warehousing market will grow at a CAGR of over 15% between now and 2027. This is based on the assumption that the Indian e-commerce segment will become a $120-billion behemoth in the next three years. This scenario presents a unique opportunity to invest in the warehousing segment of commercial real estate, both for the individual and institutions.
What are the tailwinds in favour of investment in warehousing?
# Spurt in spending: Rapid urbanization and an ever-expanding middle class have combined to drive consumer spending up and up in recent times, with the main beneficiaries being e-commerce, FMCG and the retail segment. This in turn is fuelling the demand for more warehousing space and infrastructure through the length and breadth of the country.
# Migration to cities: As more and more Indians migrate to cities, the urban consumer base keeps swelling, leading to rising traffic on e-commerce platforms. This shifting dynamic means real estate developers are scrambling for more warehousing space to cater to last-mile connectivity in the vast online retail ecosystem.
# Govt catalyses growth: The authorities have been proactive and taken a clutch of initiatives to promote growth in the warehousing sector by improving ease of doing business. Another shot in the arm for the industry and potential investors has been allowing direct FDI in logistics.
What are the headwinds one should be mindful of?
# Knotty regulations: The regulatory mechanism in our country is extremely convoluted and stipulations can change virtually overnight. This makes it doubly difficult to grasp the full picture pertaining to taxation, labour laws, environmental riders and FDI policies, all of which are crucial to making an informed decision on warehousing investment.
# Acquiring land: Getting hold of the requisite landbank for your warehouse development can be a real tricky proposition here, thanks to a plethora of issues like fragmented holdings, lack of reliable titles, ownership wrangles, etc which could potentially throw a spanner in the works. Hence, before taking the plunge, it is advisable to appoint a reliable lawyer and carry out proper due diligence and verify deeds to avoid needless legal hassles later.
# Crowded space: As more and more potential investors, both domestic and international, enter the market, the competition hots up and the marketplace becomes crowded. In such a highly competitive business scenario, what can give you an edge over the competition is a combination of killer location, hi-tech and customized solutions and walking the extra mile in terms of services.
# Poor infrastructure: The warehousing sector in India is still plagued by inadequate infrastructure in many places, including poor transportation network and last-mile delivery bandwidth. Such challenges can be mitigated by investing in a location with good connectivity to principal transportation channels and the most prominent consumer markets.
To sum up
In the warehousing business, you can either lease out existing warehouses in key locations to third-party operators, or you can develop warehouses from the ground up, customizing facilities and features according to the requirements of the tenant/s. While returns on investment in warehouses would be tied to location, size, construction cost, lease/sale price, etc, rental income in the segment normally varies between 7 and 10%.
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