Warehousing & Logistics sector shows resilience amidst Investment drought – Vestian

New Delhi, 14th Feb 2024: The year 2023 reported absorption of 37.8 Mn sq ft, 21% higher, compared to the previous year. Absorption has been on the rise since 2021, increasing gradually year over year. Despite dried-up investments in 2023, absorption surpassed pre-pandemic level of 2019 by 15%.

The sector received investments worth USD 646 Mn in 2023, accounting for 15% of the total institutional investment received in the real estate sector. However, investments declined by 65% in 2023 over the previous year as investors opted for wait-and-watch mode amid global macroeconomic uncertainty.

Yearly Absorption Trend

Year Absorption (Mn sq ft)
2019 33.0
2020 21.0
2021 30.2
2022 31.2
2023 37.8

In the past decade, 3PL companies emerged as a preferred choice for several businesses as these companies can optimize cost along with providing flexibility to their clients in case of demand uncertainty. As a result, the share of 3PL companies increased over the years and reached 44% of the overall absorption in 2023, followed by Engineering and Manufacturing companies with 18% share. Retail accounted for 11% of the overall absorption in 2023.

Sector-Wise Absorption (Mn sq ft)

Sectors 2023 2022
3PL 16.5 14.0
Engineering & Manufacturing 6.8 4.8
Retail 4.0 3.7

Source: Vestian Research

Mumbai contributed the highest to the overall absorption in 2023 with 27% share. Its share has increased from 19% a year earlier. In absolute terms, absorption increased by 69% in the city, reaching 10.2 Mn sq ft in 2023. Heightened real estate activities during the year resulted in an annual appreciation of 4% in rentals.

On the other hand, Kolkata witnessed the highest annual decline of 23%, reaching 1.6 Mn sq ft in 2023. Its share has also declined from 7% in 2022 to 4% in 2023. Limited availability of Grade A warehouses in the city posed a challenge in meeting growing demand, leading to a decrease in absorption. Moreover, restricted absorption activities in the city during 2023 exerted pressure on rentals, resulting in an annual decline of 5%.

Absorption increased by 21% in NCR compared to the previous year, however, its share in the total absorption remained constant. The city’s strategic location and thriving e-commerce markets were major demand drivers. Robust demand for warehouses in the city resulted in an annual appreciation of 2% in rentals.

Pune registered a substantial annual growth of 35% in 2023, reaching an absorption of 7.0 Mn sq ft. This growth can be attributed to the presence of trade hub of Chakan MIDC, which hosts large manufacturing and logistics parks.

The southern cities (Bengaluru, Chennai, and Hyderabad) collectively contributed 27% to the total absorption in 2023, after reporting a decline from 34% share in 2022. In absolute terms, absorption decreased by 5% in these cities, reaching 10.2 Mn sq ft in 2023.

City-Wise Absorption (Mn sq ft)
City 2023 2022
Mumbai 10.2 6
NCR 8.8 7.3
Pune 7 5.2
Bengaluru 3.6 4.1
Chennai 3.5 2.9
Hyderabad 3.1 3.7
Kolkata 1.6 2.1
Source: Vestian Research

Shrinivas Rao, FRICS, CEO, Vestian said, “The Union Budget 2024-25 is expected to set the tone for next couple of years. Recent announcements of infrastructure development in the interim budget may have a positive impact on the sector. However, 2024 can be a challenging year for Indian warehousing sector as investments were on a downward trend in 2023.”

The sector is expected to expand at a CAGR of 10%-13% for next couple of years, predominated by third-party logistics and e-commerce enterprises. Grade A facilities are likely to be in demand due to their efficient and cost-effective methods.

Logistics Sector Investing Billions to prep for festive E-Commerce Bonanza

Bengaluru India 25th October 2023- Speaking on the festive preparations Venu Kondur CEO of Bengaluru-based Lobb Logistics in an interaction gives a detailed reply to a few interesting questions on festive spirit.

LOBB TEAM

1. With the festival season around the corner, how much more demand (orders placed) than usual is expected by e-commerce companies? Does it differ region-wise? In what ways?

A) During the festival season, both e-commerce companies and retailers typically witness a significant surge in demand, often ranging from 20% to 100% or even more, compared to non-festive periods. The exact increase can differ regionally based on cultural significance. Region-specific promotions, discounts, and the cultural relevance of the festival play a significant role in driving this demand.

2. How has the festival demand pattern changed after the pandemic? Is there any difference? If yes, what contributed to it? If no, why none?

A) Post-pandemic, we have observed an even greater surge during festival seasons. The reasons include:
• A shift in consumer behaviour towards online shopping due to health concerns and lockdowns.
• Physical retail stores faced restrictions, leading to more people resorting to online platforms.
• E-commerce platforms offered aggressive promotions and discounts to capitalize on this trend.

3. Online shopping creates demand for logistics in a big way. How are the e-commerce companies sorting their logistics in this regard? How strong are the supply chains?

A) Logistics giants have been bolstering their operations in multiple ways:
• Predicting demand and optimize inventory placement.
• Partnering with logistics providers to ensure timely deliveries.
• Strengthening supply chains by working closely with suppliers and vendors, ensuring stock availability, and reducing lead times.

4. In such instances of a peak demand, how do e-commerce companies create the infra to balance the demand and supply? By what percentage does this infra expansion happen, and what kind of investments would a company like yourself put in for this?

A) Logistics companies often scale up their infrastructure, both in terms of warehousing and technology. Investments typically go into:
• Renting additional warehouse space.
• Upgrading IT systems to handle increased traffic.
• Hiring temporary staff.
For us, the focus is about 50% on operational efficiency and 40% on enabling our matchmaking technology to help prioritise express trips. And 10% to focus more on the vendor relationship to be able to better forecast supply-side impacts if any.

5. Any latest tech applications- such as AI, ML etc.? What is the use case of such tech in handling online shopping/delivery of goods?

A) AI and ML have become pivotal. Use-cases include:
• For us machine learning-driven matchmaking is key to help the goods match with the right truck and get it moving sooner.
• Predictive analytics for demand forecasting.
• Optimising the delivery routes.
• WhatsApp-based Chatbots for customer service.

6. Could you tell us more about what are the costs involved behind the infra push, going beyond labour cost and tech upgrade cost?

A) Apart from labour and tech, costs involve:
• Transportation and fuel costs.
• Additional packaging materials.
• Marketing and promotions.
• Costs associated with returns and reverse logistics.

7. What’s the measure of delivery efficiency? How do you try to maintain/ensure it in cases of such peak demand?

A) Delivery efficiency can be measured by metrics like:
• On-time delivery rate.
• Demand to fulfilment time.
• Average delivery time.

Maintaining efficiency involves:
• Accurate demand forecasting.
• Efficient Supply and Demand Visibility
• Proper training of operational personnel.
• Stocking products closer to demand hubs.

8. To cater to demand in smaller cities and towns, there is an obvious increase in the hiring of delivery agents and other logistics support people. By what % has this gone up in recent years? How does the hiring pattern vary from those in bigger cities? Any % / numbers to quantify that?

A) The hiring in smaller cities has seen an uptick as both e-commerce and retailers penetrates these markets. It might have increased by around 15% or more in recent years. The pattern in smaller cities might be more contractual or seasonal compared to bigger cities. Precise numbers would vary by company and region.

Issued by Social Amplifiers
Bengaluru