Warehousing is a key pillar of any organization’s value chain. In the advanced economies, the warehousing quality & delivery efficiency scaled-up & transitioned due to the combined push from modern industrial growth and advancement of technology. The quality of the warehouse has severe impacts on the movement of goods, on storage and retrieval of materials and achieving sustainability in safe and healthy environment in the warehouse. However, in the developing economies, this scenario is still evolving. Though the principles of warehousing have not changed much over the years, warehousing solutions have evolved a few notches higher especially in the last decade. The major contributors of this change are changing customer dynamics, advancement in technology, demographic changes in demand and supply, and proliferation of e-commerce, just to mention a few. Organizations like Amazon have revolutionized the concept of warehousing from a STORAGE function to FULFILMENT function, contributing significantly to an organization’s efficiency in delighting their customers. All such intriguing insights & more were part of our recently held webinar on the future & fortunes of Grade A Warehousing in India where industry leaders shared and deliberated upon what lies ahead and how solution providers can make the BIG DIFFERENCE in realizing the dream of an organized warehousing segment.
Since the global pandemic sent supply chains into a tailspin, delivery delays have affected everything from toilet paper to bicycle parts. Wary of continued disruption, logistics and manufacturing businesses are hunting for larger warehouses, where bigger inventories can provide greater resilience during difficult times. Globally, business demand for larger warehouses is expected to be significantly higher over the next three years, according to JLL’s Future of Global Logistics Real Estate survey, particularly for warehouses between 10,000 to 50,000 sqm. Though demand for more space has prevailed over the past decade, COVID-19 emphasized the need to transform supply chain models. The pandemic has reversed the trend of streamlining inventories, adopting a 'just-in-case’, rather than the traditional ‘just-in-time’ delivery method.
Big box and mega box (100,000 sqm and over) warehouses are playing crucial role to the supply chain response. Often, they are complemented with smaller suburban delivery stations, a model referred to as ‘hub & spoke’. While this was an evident global scenario, back home too the scenario is pretty much the same with the warehousing stock in India expected to touch 380 million sqft by 2024, due to increased logistics and storage requirements particularly in urban settings. The covid-19 pandemic has caused a paradigm shift in consumer behaviour from offline to online shopping, leading to an increased activity in sectors like e-commerce and third party logistics. About 27 million sqft of warehousing stock was added during the January-September period, bringing the total stock to 265 million sqft in the year 2021. The total stock of Grade A and B warehousing space in the top 8 cities increased at CAGR 16% from 2018 to September 2021.
India has a per capita warehousing stock of just 0.02 sqm compared to the USA, China and the United Kingdom that have 4.4 sqm, 0.8 sqm and 1.09 sqm respectively. Even in terms of transaction volumes, USA's industrial and warehousing market saw 20.4 mn sqm (220 mn sq ft) transacted during 2020, 7 times that of India in FY 2021.
The story of modern Indian warehousing is a little over a decade old when logistics companies such as Future Value chain built the first Grade A warehouses in the country. The entry of institutions, lured by the vast opportunity presented by a growing economy with a consumption base of over 1.3 bn people, made the Indian warehousing market a compelling investment proposition. The introduction of the GST and the prolific growth seen in the e-commerce and 3PL sectors caused warehousing demand to grow at a CAGR of 44% in the FY 2017 - 2020 period. While the pandemic in FY 2021 has caused demand to drop during the year, the longer-term demand potential for warehousing properties continues to remain strong.
According to a recent Knight Frank report, while transaction volumes were subdued in FY 2021, occupiers showed a marked preference for Grade A properties as they are much better geared toward tackling exigencies such as those posed by the pandemic. The inherent operational efficiencies, adherence to safety standards and better contingency planning because of greater expertise of personnel due to higher institutional participation are some of the factors that drew occupier interest even during the challenging environment of FY 2021. E-commerce players have always coveted the value additions that Grade A properties bring into their supply chain operations and the increase in their share of total transaction volumes also had a significant role to play in the increased take-up seen in Grade A properties. Around 64% of the area transacted during FY 2021 was located in Grade A properties. Except for Bengaluru and Ahmedabad, more than half the area transacted in all the top markets occurred in Grade A properties.
The development of Grade A warehousing facilities has been increasing in recent years, currently constituting 35% of the total stock compared to 34% in FY 2020. The larger warehousing markets of Mumbai and NCR have a significantly lower proportion of Grade A warehouses as they are much older markets and a bulk of their stock had been built before the demand for Grade A warehousing gathered momentum. Pune and Chennai have the highest concentration of Grade A stock due to their primary demand base of auto and auto ancillary occupiers. Notably, Mumbai, NCR, Bengaluru, and Ahmedabad have more than a 50% share of Grade B properties. Interestingly, despite having a high proportion (82%) of Grade B stock, the fact that Mumbai still enjoys market level occupancy of close to 87% underscores the strength of the market and need for quality supply.
Vacancy in Grade A properties is significantly less than the total vacancy for the eight primary markets under coverage. In fact, Grade A vacancy has also reduced or stayed the same YoY for all markets except Ahmedabad which saw a significant speculative development during FY 2021.
Growth in supply of Grade A spaces over the years is due to high demand for spaces with high specifications, citing increased inclination for high-grade structures and introduction of new players in the market. The Indian market has now firmly established itself for a more predominant position in Grade A space as opposed to Grade B spaces. Net absorption was hit in 2020 due to the pandemic but started recovering in 2021 especially for Grade A spaces – from 56% last year to 73% in this year. JLL said this shift is due to the high demand for quality spaces complying with covid-19 norms. Of the total absorption till the September quarter, more than half the share is taken up by third-party logistics and e-commerce (55%).
More than $6.5 bn have been committed by private equity players in the warehousing market since the GST reforms were applied in 2017. However, the relative dearth of supply of high quality warehousing facilities that conforms to contemporary compliance norms, continues to be a challenge. The availability of suitable land is the biggest impediment in creating supply as lands with clear title continue to be scarce and digitisation of land records which can address this issue is still a long way from becoming a reality. Bhiwandi and the Nashik Highway in the Mumbai market are a case in point where there is very strong occupier demand but issues with land titling curtail institutional interest. Additionally, persistently high land prices and the complexity and time taken for acquiring regulatory approvals continue to impact the viability of warehouse projects and are significant impediments in creating warehousing capacity.
It is estimated that the e-commerce sector will consume the most space in the next five year block of FY 2022 – 2026 at 9.1 mn sqm (98 mn sqft), 165% more than the preceding period of FY 2017 – 2021. Similarly, 3PL and Other Sector companies are expected to take up 56% and 43% more space in the next five years compared to the preceding period. These three occupier groups are expected to account for 86% of the total transacted space in the next five years compared to 78% of the transacted space earlier.
Market traction was seen improving toward the end of FY 2021 as vaccine availability improved and occupiers looked to revive expansion plans. However, the second wave of COVID-19 infections in FY 2021 slowed the momentum again. Occupier activity in FY 2022 will clearly be dictated by the intensity of the pandemic and should regain lost momentum as vaccine deployment improves and restores normalcy to economic activity. The Indian Government's focus on manufacturing with the Make in India initiative and Production Linked Incentive (PLI) scheme among others, and with India being among the possible beneficiaries of global companies looking to disperse manufacturing capacity from China across Asia, should enable warehousing demand from other sectors to grow at a CAGR of 16% in the next five years compared to 15% in the preceding period.
James Anderson, Head of Development, LOGOS India
"Speed of execution and shortening the timeline for the construction of a warehouse is critical for a developer while maintaining fundamental performance standards of safety and quality."
What is a Grade A warehouse? How is Logos aiming to transform the landscape?
It is a simple but a complex question because the devil is always in the detail. In Grade A, we look at it in two components (1) functional and then (2) Estate level (external development and infrastructure) provisions, which we aptly call “beyond the building” at Logos. There are two facets on what transpires in the Indian market – one is what we perceive as Grade A and the other is what is actually Grade A. Perceived Grade A warehouse is regulatory compliant, adequate floor loading and fire protection system and suitable docking and road access for serviceability of that facility.
From a global perspective, grade A strictly adheres to regulatory compliance, the performance characteristics of warehouse facilities being building height, floor quality, docking depth and internal road width are consistently upheld and defined in the market as Grade A parameters. Materiality selection, quality of construction and Estate level design are further defining quality parameters distinguishing the standard of Grade A warehousing.
Grade A is upgrading with the advancement in water and energy management, greater feasibility of battery technology will enable renewable power generation during the day extend to night usage. The provision of electrical vehicle charging stations is becoming standardized, this will further evolve as cars, trucks etc., convert to EV. Water treatment, recycle and capture are enhancing sustainability parameters.
Safety in design in both the construction (methodology used to build the facility) and in operation for users and employees at the Industrial Estate has vastly improved, ensuring segregation of people and vehicles. Monitoring platforms at an Estate level provide live tracking and feedback on aspects such a vehicle movement and mapping, temperature monitoring, energy and water usage enabling live performance monitoring of the Estate. This further enables evaluative analysis of the effectiveness of initial design and planning parameters, and to derive learnings to factor into the design for future industrial Estates. In a competitive landscape park level amenity such as landscape, illumination and transportation facilities or provision creates an environment that people enjoy working in or “want” to work in which is important when warehouses require high amounts of staff. Considered landscaping further counteracts ‘heat island effect’ which is a direct effect from largescale industrial development. Logos has adopted the ‘Miyawaki Plantation Scheme’, which adopts the methodology of the maximum efficiency of tree plantation in a given area, we have further devoted a higher apportionment to green space.
What are the peculiarities between warehouses in the western countries vs. warehouses in Asia?
The defining differentiators constitute:
Regulatory compliance and adherence,
Extent of automation,
Singapore & Hongkong have the best entrepôt trading. India is not a very strong entrepôt trading country. Can this be the reason for the lack of Grade A warehouses in the country?
I don’t think India has promoted its ports in Chennai or Kochi well enough, the Government could further support the development of infrastructure to enhance port facilities. Singapore and Hong Kong geographically very well located with strong regulatory enforcement, which derived the benchmark for Grade A warehousing to be defined far earlier. Coupled with a limitation on land availability, buoyant demand has enhanced the level of technology and quality of development being produced in these entrepot trading posts.
Don’t you think it is the right time for the companies and the government to invest in Grade A warehouses?
Absolutely it’s the right time. There is such a need for Grade A warehouses with an inherent undersupply and the demand of the huge and growing Indian market. Anomalies associated with land acquisition make it difficult to develop Grade A warehousing at the required speed which the market needs, henceforth demand will remain robust over the next decade.
With the growing traction in Grade-A warehousing, quality and time would be the major contributors. What technological changes would be likely in coming years?
Speed of execution and shortening this timeline for the construction of a warehouse is critical for a developer while maintaining fundamental performance standards of safety and quality. Coupled with a push towards sustainability and waste minimization offsite prefabrication and “assembly” at the construction site enables achievement of all these facets. The pre-engineered building process for warehousing is highly efficient as the above ground structure is made entirely offsite and assembled at the site. Contrastingly precast concrete can produce the same for the below ground structure “substructure” i.e., footings/ pedestals, plinth beams, etc., and further superstructure (above ground) components of walls panels etc., enabling most of the building to be fabricated offsite under controlled conditions and arrive in site as a ‘plug and play’ solution.
This reduces construction timelines significantly as materials are fabricated in parallel, improves quality, minimizes waste, and inherently makes the site safer taking activities offsite into controlled environments and reducing workforce numbers. Precast concrete and further developing material advancements will evolve that will continue to improve both functionality and durability of warehouses.
Sanjay Desai - Co-founder & Regional Director, Humana International (S) Pte. Ltd.
"Grade A warehouses offer tangible benefits such as 50% additional floor-load capacity, 40% more operational efficiency, efficient material handling space, safety & security of employees, etc."
What is Grade A Warehouse? Can you briefly cover few technical details?
Grade-A warehouses are facilities, which offer efficient operations to organizations in a synchronized manner regardless of customers or industry segments. These facilities are designed for additional height and better floor quality. Innovative materials handling equipment can be used as the flooring allows for such implementation. Better time management is achieved due to provision of better loading & unloading docks with wider dock aprons. Overall, a planned and systematic infrastructure ensures a compliant and safe and secure movement of men and materials. In most cases, the true, technical design and basic specs for Grade-A warehouses are standardized, major ones are identified below…
Minimum height at an eave of 11m
The building aspect ratio of a Grade-A Park would range from 1:1.5-1:3
The number of docks in such a park is 1 in 10000 SF on plinth area or lesser
The warehouse flooring is at a level of FM2 with a minimum floor load (UDL) of 5T/SQM
An apron length of a minimum of 25.5 m in concrete
Support movement of 40 FT trailers including internal roads will support such trailers
The number of lanes in total should be 2-4, depending on the size of the warehouse
Amenities (i.e.) fire-fighting systems, CCTV surveillance, building insulations, LED lights, security system, Fire alarm and Sprinkler system will be part of this infrastructure
An adequate number of entry / exit gates and parking slots based on traffic study.
Which factors are responsible to drive this growth in Grade A warehousing demand in India?
There are several factors that are responsible for driving the shift in demand from Grade B and Grade C warehouses to Grade-A Warehouse. Primary factors responsible to drive this demand growth are customer expectations on the last mile delivery, the scale & complexity in fulfilment operations, EHS of employees housed in the facility, advancing compliance scenario and lastly proliferation e-commerce. For any large, emerging e-commerce, modern retail or food grocery business, the scale and complexity will assume greater importance in the next 2-3 years. These few factors alone are crucial to increase the demand of using Grade-A warehouses in India and a cardinal shift from C & B Grade to A Grade Warehousing.
What is the scenario in India with reference to demand supply of Grade A warehousing?
In general, it can be said at 30,000 feet, that it is a combined play with real estate availability and strategic thinking ability of an organization. It is estimated that India's current quality Grade A warehousing stock in top eight cities (ONLY) will be close to 180~190 mn sqft, which is expected to grow to 250 mn sqft by year 2024. This spurt in demand has led to real estate prices as well as rentals on escalated path in regions like Maharashtra and Bengaluru.
The demand for quality warehouses is far outstripping supply at the moment. While new warehouses are coming online every month, the supply scenario is not going to change anytime soon. According to industry watchers, it could take nearly two-three years for the market to be flooded with enough 'Grade A' warehouses.
India has 504 million active internet users, of which 50% (230 mn) are based in rural areas. What this means is companies need to develop an efficient backend supply chain / fulfilment infrastructure in rural or tier II / III cities in the next couple of years, very similar to the one that is available in urban India. For example, mall cities like Coimbatore, Ambala, Siliguri, Visakhapatnam, Kochi, Indore, Jaipur, Vijayawada, Nagpur, Guwahati are projected to emerge as warehousing clusters.
Added to this is the ‘Make in India’ – manufacturing initiatives hasten their scale; tier II and III cities will see emergence of smaller / nodular warehousing clusters. Presence in more locations for warehousing gives them the flexibility to create value chains, which will ensure higher productivity, optimized operations and a seamless supply chain network that will work like clockwork. Finally, with the various initiatives taken by the Indian Government, the warehousing and logistics sector is now steadily marching towards growth. Granting infrastructure status to the logistics industry along with GST, National Logistics Policy have created a favourable regulatory ecosystem.
What is the value that Grade A Warehousing brings to the table in the value chain?
There are huge opportunities for Grade A Warehousing in India given the growth that we will see in next 3-4 years across many industry segments. Companies are looking at warehouses with international standards, which ensure efficient operations of the supply chain and a lower Total Cost of Ownership. Grade A warehouses offer tangible benefits such as 50% additional floor-load capacity, 40% more operational efficiency, efficient material handling space, safety & security of employees and adherence to international standard compliance. Companies can align their operational requirements to warehouse availability, while also having flexibility as they build a robust supply chain.
Is there a role for e-commerce in this shift?
In a recent survey, KPMG India mentioned that the “Online” market in India is close to US$20 bn in transactions value. COVID pushed Indian population off-the-cliff and forced them to embrace new ordering patterns using increased internet enabled platforms. Customer satisfaction is critical and a key differentiator when ordering via online platform. Most online customers are reluctant to reorder in case there was a problem with their last order. e-commerce platforms will become increasingly demanding of their logistics supplier in an increasingly competitive landscape. It is important to establish a new ecosystem to address three interconnected components: out of town storage, smaller advanced stock locations nearer the city centre and intracity last mile delivery. Supply chain organizations need to integrate a more sustainable long-term approach from order to customer delivery bringing together all the elements required to develop a coordinated end-to-end customer delivery system.
Hemaraju Vasanthakumar, Leader, Udaan
"As the country readies itself for the global players to set shops, they need to have warehouses which are compliant with the global benchmarks."
As a user, is there a real advantage in using Grade A warehouse? How do you weigh the cost component while selecting a grade A warehouse?
Grade A warehousing holds promise from an end user viewpoint. In India, the way warehousing has grown in the last two decades, people earlier never understood the real meaning and importance of a warehouse. In the early 2000, the first warehousing revolution happened where the cube utilization came into picture. That was the time when PEB vendors started coming to India and set up their bases. As an end user, it’s a trade-off because ultimately most of the facilities are leased. When it is leased, the developer always looks for optimizing his profits while as an end user, I will try to optimize my throughput per square feet. One can have low cost of construction and bad quality of building, and you can get it at cheaper rent, but it will have long-term negative implications – be it maintenance issue with respect to floor, roof, availability of the adequate apron space, truck maneuverability, etc. Thanks to institutional players, last 5-6 years have set the ball rolling for organized warehousing in the country as the new age players understand the market demands. They bring global best practices and as the country readies itself for the global players to set shops, they need to have warehouses which are compliant with the global benchmarks. An ideal warehouse should always aim at reducing truck turnaround time, which ultimately results in better throughput as same dock can churn more trucks from the same dock door. Developers also need to address the ideal plinth height. Building interior should have good column spacing of 16 x 24 m. The most important thing that everyone neglects is the right flooring. Flooring is the heart of warehouse, and it can’t be changed throughout the life cycle of a warehouse. The quality of the floor and the roof must be so high that it can withstand any wear & tear for at least over 50 years. There are constant material handling equipment working round the clock in the modern warehouse. Equipment performance depends on the quality of the floor. Unfortunately, in India, we don’t have set standards for warehouse flooring. Hence, we have borrowed it from Europeans.
In warehouses and logistics buildings, the concrete slab and flooring are critical to the effective functioning of the operations. However, it is often the perception that the concrete floor is one of the most straight forward elements of the project, and many times the overall attention paid to design and construction detail is less than proportional to its ultimate importance in the efficient operation of the facility. To ensure that the concrete floor will continue to carry its design loading successfully, it is vital to design and construct the subgrade as carefully as the floor itself. Pressures exerted on the subgrade due to loading are usually low because of the rigidity of concrete floor slabs and loads from forklifts wheels or high rack legs are spread over large areas. However, subgrade support must be reasonably compacted to 95% proctor density which can be confirmed by plate load test.
Is this view specific to any industry such as e-commerce or FMCG?
The requirement of such advanced and sustainable warehouse is paramount across the industry. If you look at the e-commerce industry, automation is quite prevalent there. In that case, quality of the floor or levelling is not that important, whereas for FMCG players or other manufacturers, quality of floor is extremely important because they use pallet trucks. The moment they start using industrial pallet trucks of 17m height, quality of floor becomes crucial. Otherwise, throughout the life of the warehouse, occupiers of the warehouse suffer due to suboptimal quality. That’s the reason we have to educate investors who are getting into warehousing as a developer. They need to build warehouses as per special industrial needs. What used to be the scenario two decades back has completely transformed today and we need to move ahead and not behind if we want to be in the race to survive and sustain our market share.
What impact do you envisage on the quality of warehousing? Are there any benchmarks that companies follow?