Top 5 Emerging Trends in Industrial Warehousing Sector of Real Estate

The warehousing sector is fast changing and is witnessing some very interesting trends that are emerging in recent times. The warehousing sector has been undergoing a change since the roll-out of Goods & Service Tax (GST) in the country in the year 2017. 

However, the warehousing activity is dependent on the logistics industry. The logistics industry has been witnessing challenging times witnessing disruption of supply chain owing to onset of covid19pandemic , new rules and regulations and every changing consumer demand pattern.

The warehousing sector has emerged as one of the most resilient real estate sectors and the demand for the same remains strong and the outlook is positive for the short to medium term. 

While none could have done any crystal ball gazing about a pandemic back in the day, we can clearly understand that logistics is one industry that needs to keep ticking and is vital to keep the economy running. This was quite evident during the onset of pandemic and even during its peak. While we tend to believe that worst is behind us and mass vaccination programs providing respite the warehousing sector by itself is witnessing some advancements to keep pace with the ever-changing global situation. 

Some of the trends that we are witnessing in this sector are as follows:

1.Last Mile Delivery Augmentation – more penetration to Tier II cities: 

There have been several strategies that are adopted today by corporates to compete on building last mile delivery to reach customers who are spread across vast geographies and unique terrains. Companies are more and more understanding that wider reach and more penetration are key to augmenting their revenues and hence companies are relying on Third Party Logistics players to invest in warehousing sector in Tier II and Tier III towns across India. Cities that offer a good consumer base with internet penetration are the immediate target of the e-commerce companies and there are certain cities witnessing faster growth than the others due to its latent demand. 

Unorganised nature of realty markets and the lack of superior Grade- A warehousing is some of the initial challenges that are faced while expanding in Tier II cities. However, with some of the leading warehouse developers in the country are addressing this situation with their expansion plans focused on Tier II and Tier III cities. 

2.Drone Deliveries – becoming a reality: 

We are in the tipping point of some interesting experiments that are happening on the last mile delivery by deployment of autonomous drones for deliveries. The Central government has released updated Drone Rules 2021 which enables airborne deliveries to be rolled out sooner than anticipated. The new rules have made the procedure smoother for drone operations and introduced simplified forms and fee structure for the registration of drones. 

Speedy deliveries are a “must have” these days and is key to attracting wallet share of an e-commerce shopper. Drone deliveries primarily shall focus on medicines, food, groceries and agri-commodity logistics. Warehousing infrastructure would also require modifications to support these new developments.

3. Sustainability to be a key focus:

Green warehousing and logistics are no more a novel ideas or concepts that are in theory. There is a renewed focus and growing impetus towards the process of reducing environmental impact of delivery and logistics processes, green warehousing is a trend that is emerging. There is an increasing trend of adopting IGBC rating and EDGE certification for industrial and warehousing projects (Till November 2021, 25 pilot projects were registered under the IGBC green logistics park and warehouses rating system, amounting to a total green footprint of over 31.21 million square feet).

While warehousing occupiers are increasingly becoming aware of their own firm’s environmental, social and governance (ESG) goals, warehouse developers are adopting newer construction techniques right from design stages and making improvements to existing warehousing specifications to make existing warehouses more energy efficient. 

Some key improvements in warehousing developments include production of energy from renewable sources like solar, wind etc., waste management that includes recycling, efficient disposal and conversion to energy, etc, solar lighting and introduction of LED lighting. The desire to cut carbon emissions and adopting green practices will play a key role in the years to come.

4. Introduction of more and more Automation: 

One of the key lessons learnt in warehousing sector during the onset of pandemic is the major physical labour dependence for all activities as far as India goes in comparison to developed nations. Post pandemic relaxations, labour has become expensive and there is a huge cost involvement to maintain hygiene and safety protocols for workers given the social distancing guidelines that need to be implemented. 

Also, there is an urgent need to reduce accidents within warehouses. Automation would solve a lot of these burning issues and develop capability to handle a higher number of stock-keeping units with limited errors and minimal accidents as there is a human-machine interfacing that happens within warehouses. 

Warehousing sector is now introducing automated solutions such as bar-coding, Radio Frequency Identification (RFID), order picking technologies (pick-to-light technology, voice technology, sortation systems, etc.), and Automated Storage and Retrieval Systems (ASRS). The key to introduction of automation is saving time, reducing errors and using human capital more wisely and efficiently for tasks that are related to planning better and robust supply chains. 

Reducing the time spent by warehouse labour employees travelling inside warehouses naturally lead to higher productivity levels and thereby achieve saving in cost. The new age warehouses keep in perspective the design elements to incorporate Automated Storage and Retrieval Systems (ASRS) systems and come with advanced firefighting and deduction systems to address safety of both men and machinery. This is a new trend that is witnessed and expected to gain momentum. 

Given increasing warehouse rents, warehouse occupiers are now going vertical and the heights have increased from 6 to 8-meter at eaves (prevailing in legacy warehouses) to clear 12-meter heights in newer warehouses that are being built across India. This increased height shall provide good racking options for storage of material and brings down enormous footprint of warehousing that may otherwise be required. As heights increase, automation would become a necessity for ensuring seamless operations. 

5. Rise of the Quick Commerce:

Quick commerce driven demand is going to be a fast growth segment as all the major e-com companies are introducing 15–20-minute delivery. The trend has picked up as consumers are now used to the convenience and unplanned buying behaviour is on the rise shows various studies. The challenge for this segment remains the high cost of delivery and low margins. However, given that there are models in the market that have invested millions of dollars to implement faster turnaround deliveries the trend is here to stay. 

As more and more customers tend to adopt on-line purchasing from traditional kirana store purchase, there is more need to develop micro warehousing within the city as close to the customers. Neighbourhood dark-stores are now mushrooming across the city residential areas that are densely populated. 

This sector has seen tremendous growth as well as there is a lot of innovation that has been on the rise. This is only the beginning I must say as there will be a lot of newer technologies that would disrupt the sector. On the development side, warehouse developers are constantly looking to evolve and concepts such as green financing are already a reality in India. The construction of warehouses is on the rise to keep pace with demand irrespective of the spike in input cost related to construction and escalating land prices within preferred markets. 

The warehousing sector must always maintain a fine balance between being cost effective as well as improve efficiencies of day-to-day operations. Automation, safety and sustainability are buzzwords that are taking the forefront in the new age world of warehouse developments. Keen investor interest and given there is enough headroom for growth the next two to three years are going to be interesting times to watch out for this sector.