The year 2021 has brought many positives for the warehousing sector, particularly in terms of investments. However, being in its nascent stage, the sector has just begun to tackle some of the major challenges that are withholding the sector from making a leap due to the increased demand from the e-commerce sector.
Warehousing and logistics firm Shiprocket, which though on the warehousing side was able to double the business in the festive rush over the last few months, is facing the challenge of meeting the rapidly increasing demand.
Vishesh Khurana, Co-Founder, Shiprocket said, “While we have a lot of land space, completely constructed warehousing spaces are still a challenge. With growing e-commerce, we have received a lot of demand but still don’t have enough warehouses constructed, I think that is the biggest challenge that everyone is facing.”
Inadequately skilled labor, inefficient material handling with outdated handling equipment, limited technology penetration and innovation, and lack of world-class standards and specifications are other major challenges faced by warehousing players. Consequently, the investment funds set up should be expected to target those challenges.
Recently, investment firm Landmark Capital launched the ‘Landmark Warehousing and Logistics Fund’, an alternative investment fund (AIF), with a target corpus of Rs 500 crore warehousing and logistics opportunities. Firms like Landmark Capital clearly understand the potential the warehousing space holds. (AIF means any fund which is a privately pooled investment vehicle that collects funds for investing it as per a defined investment policy.)
“Warehousing asset-class is a long term asset class,” said Ashish Joshi, Founder and CEO, Landmark Capital Advisors. He added that given the sector has been getting increasing demand because of the online channels, the expectation is that the sector is going to grow rapidly.
Earlier this year, industrial real estate platform Welspun One Logistics Parks introduced India’s maiden warehousing AIF (Alternate Investment Fund) exclusively for domestic investors, who can directly invest in warehouses. This too is a Rs 500 crore fund (two major AIF are set up in 2021 for warehousing) which was launched in January 2021 where the investor can reap the benefits of the returns by owning units of a fund, instead of an asset. The plans are already in motion on where to allocate the funds.
“From a future perspective, post the fund close, along with associated bank financing, we plan to deploy over Rs 2,000 crore to deliver a portfolio with an estimated leasable area of 7/ 8 million square feet by 2025 in pre-identified high growth markets such as Mumbai, Pune, Bangalore, NCR, Chennai, Kolkata and Lucknow,” said Anshul Singhal, Managing Director, Welspun One Logistics Parks.
The company has also set the target to offer high-impact sustainable warehousing solutions that incorporate green infrastructure, industry-leading technology and ecosystem-based approaches. On the other hand, a lot of start-ups have been working on innovative solutions in the warehousing space, and most of the funds to be used by those companies will go into acquiring new technologies.
In fact, the warehousing segment has received a record Rs 5,500 crore from investors in Q2 2021, making it the most active quarter for the sector in the last couple of years. The major one is the $700 million Blackstone deal with Embassy Industrial Parks. Such developments only suggest a boom that is awaiting the segment.
However, in spite of that, the common consensus from the industry is that a lot more funds are expected from the warehousing space, which will be released as more and more firms realize the potential that this sector holds.
“The investment funds, for now, the opportunity is big. So, everyone is trying to now set up funds and invest into the warehousing start-ups/companies rather than setting it up themselves,” Khurana said. “Every big warehousing conglomerate will follow the same line as Landmark because it is an obvious opportunity because it is obviously going to grow.”
“The sector needs huge investments moving on,” Joshi said resonating the same thoughts.
However, given the scale of the work to be done to get India's warehousing sector on track, a lot of execution is needed which will take time.
At present, the warehousing market in India is expected to grow at a rate of 35 to 40 percent annually, displaying high potential for growth over the next few years, according to a report by consulting firm PwC. The sector is highly fragmented with small players holding small units distributed across states.
Looking at globally, there is a massive gap between the size of the Indian warehousing market and more mature markets of the USA, China and the United Kingdom. Specifically, India has a per capita warehousing stock of just 0.02 sq m compared to the USA, China and the United Kingdom that have 4.4 sq m, 0.8 sq m and 1.09 sq m respectively.
Thus, given the current situation of India's warehousing sector, a lot of work has to be done by industry players along with massive support from investors in order to propel the industry forward.