Decoding growing demand for warehouse leasing in India

Driven by rapid industrialisation, increasing consumer demand and the rise of e-commerce, India’s warehousing sector has been undergoing significant changes. The warehousing sector is experiencing majority of demand from the Third-Party Logistics (3PL) and automobile industries, which collectively represented around 53% of the total leased warehousing space, as per a report by real estate consultancy firm JLL.

In effect, increasing Foreign Direct Investment (FDI), government reforms and technological advancement have led to a changing logistics landscape in India, which is reflected in the growing appetite for business space leasing.

Source: Knight-Frank research

The trend from FY17 to FY23 indicates a growing demand for warehouse leasing, except for FY20 and FY21, due to impact of COVID-19 pandemic. In the post-pandemic period, there has been an increased demand from the supply chain and logistics industry, which rely heavily on the warehousing space. This has been reflected in the warehouse leasing volume as it peaked at 4.8 million sq. metres in FY22 and sustained the momentum in FY23.

The rise of e-commerce and consumer demand

One of the drivers of increased warehousing demand in India is the rapid expansion of e-commerce. The COVID-19 pandemic has fuelled online shopping, leading to an increased demand for storage and distribution facilities. Online commerce giants such as Amazon and Flipkart, have aggressively expanded their warehouse capacities to cope up with the rising consumer demands.

Top e-commerce companies warehouse capacity in India:

• Amazon India
  • Warehouse Capacity: Over 43 million cubic feet.
  • Number of fulfilment Centres: More than 60+.
  • Coverage: Spread across 15 states, major hubs include cities like Mumbai, Delhi, Bengaluru, Hyderabad, and Chennai. Amazon has been actively expanding its warehousing capacity to support its growing e-commerce operations which now includes the grocery segment as well (Amazon Pantry and Amazon Fresh).
• Flipkart
  • Warehouse capacity: Over 35 million cubic feet.
  • Number of fulfilment centres: 70+
  • Coverage: Across 13 states, with major hubs in Bengaluru, Kolkata, and Hyderabad. Flipkart has also been expanding its capacity with new fulfilment centres to support its grocery business, which is a growing segment for the company.

Government reforms and policy support

Through the introduction of the Goods and Services Tax (GST) in 2017, the country’s logistics industry changed with dismantling of many state-wise warehouse taxes, fostering consolidation.

Moreover, cargo terminal development under the National Logistics Policy (NLP) and industrial corridor schemes, such as ‘Bharatmala’, have further increased demand for warehousing leases, while improving Indian logistics infrastructure by reducing logistics costs and creating efficient supply chains on which manufacturers can rely.

The establishment of dedicated freight corridors and multimodal logistic parks provides a conducive environment for growth of warehouse facilities thereby attracting both local and international investors.

Foreign direct investment and private equity inflows

The Indian warehousing market holds immense prospects for global investors given the country’s growing economy and continued growth of organised retail. In recent years, there has been a notable increase in Foreign Direct Investment (FDI) and Private Equity (PE) funding in India’s warehousing sector. As per JLL India report 2020, more than US$ 1 billion had been invested in private equity in this warehousing sector alone, a trend that has continued to gain momentum. These investments have enabled the construction of contemporary big warehouses with modern infrastructure.

In areas such as design, building and running of warehouses, foreign investors have been collaborating with local players, which has helped to shape up global practices of warehousing. Consequently, these initiatives are not only meant to improve the availability of high-quality storage space but also to raise the bar for industry standards making warehouse leasing an attractive option for businesses seeking to optimise their supply chain activities.

The shift towards organised warehousing with technological advancements

Traditionally, India’s warehousing sector has been related to the unorganised small-scale operating players which have limited access to infrastructure and technology. Due to increased demand for efficient supply chain solutions, there has been a transition from unorganised warehousing to organised warehousing. This transition has attracted different stakeholders, including real estate developers, logistics companies and international investors, among others. These parties have entered this space to provide modern warehouses which meet the demands of the current market.

The use of technology in warehouse activities has contributed to the need for modern premises. Warehouses are transforming through the integration of automation and IoT. To remain competitive in a fast-changing market, firms adopt these technological advancements. Furthermore, omnichannel retailing, where businesses sell through multiple channels, has led to a demand for adaptable and scalable warehousing options.

Companies are increasingly searching for storage spaces that can facilitate seamlessly combine online platforms with offline ones, hence making it easier to meet their customers’ orders and manage their inventories well. This has necessitated growing inclination towards adaptive techno-enabled logistics solutions that can respond to shifting marketing forces.

The road ahead

The warehousing market in India is likely to grow to 516 million sq. feet in 2026 as compared to 344 million sq. feet in 2023, which is fuelled by consumption and e-commerce booming along with concentration of the industry in tier-I and tier-II cities. It has also been noted that the growth of e-commerce necessitates growth in different types of warehouse structures, which implies a shift in warehouse design. In order to set all processes and achieve operational efficiency with accurate inventory, the companies now aim to obtain improved warehousing facilities with the help of automation, robotics, and internet of things solutions, leading to growth in the warehouse leasing space.