Warehousing Space

Indian warehouse leasing sector is on the cusp of experiencing unparalleled growth in the overall Indian economic landscape, seldom visible in other sectors. Largely driven by online e-commerce boom, positive technological disruptions and favourable governmental policy reforms, the warehousing construction and leasing market is fast becoming a major peripheral sector indispensable to contribute towards positive user experience. No wonder, developers don't want to lose out on this high yielding asset, and are tying up with global investors to capture a foothold in this exciting market. The magnitude of the sector's growth can be gauged from the fact that leasing of warehouses increased by a whopping 31% year-on-year in 8 major cities in first 6 months of 2019 alone, according to CBRE.

The race to acquire huge land spaces to build and maintain massive warehousing spaces is a phenomenon largely fuelled by technological advancements, with user demand and contemporary business models triggering demand for high quality spacious warehouses. This is a sunrise sector which even big conglomerates like Amazon invests in heavily, with 50 Fulfillment centres spanning 20 million cubic feet across India, only slated to grow more. Such built-to-suit facilities are only going to flourish more with commensurate growth in e-commerce model and B2C model implemented on full throttle only slated to grow. Roll out of government schemes which promote indigenous manufacturing and development have contributed towards building and leasing modern warehousing facilities.

Nondescript locations lying at major cities outskirts have started embracing business value propagation all year round, thanks to the warehouse leasing model adopted by corporates. Big international players like Warburg Pincus, Blackstone have evinced interest through investments to the tune of $10 billion. Knight Frank’s report ’India’s Warehousing Market 2019’ is a testament to the burgeoning demand for warehousing establishments, and the huge demand supply gap. According to three report, FY 2018-19 witnessed a 77% surge in warehouse space leasing demand, majority of which sourced from e-commerce, retail and manufacturing sectors.

An interesting feature is the development of large size warehousing facilities in Tier 2 cities as well. In addition to economic powerhouses like Delhi-NCR, Bengaluru, Hyderabad, cities like Ludhiana, Nagpur and Lucknow are now home to huge warehouses which are leased to corporates. Consolidation and expansion by occupiers has been cited as the reason for such exponential growth. Development of dedicated freight corridors spanning across the country has led to the establishment of modern warehouses, en route critical highway lanes connecting mega cities. This growth is further assisted by transformation in supply chain value and larger investments. This is likely to remain high on investor’s radar with private equity and infra firms expanding their realty portfolios to maintain high-quality warehousing facilities.

Insatiable consumer demand combined with competitive business model of same-day delivery has made it imperative for corporates to adopt decentralised warehousing facilities, optimally located at arterial locations. Leased facilities are advantageous in economic sense too, especially with the introduction of GST, which subsumes a number of state levies thus bringing down the total cost of maintaining warehouses. In all, warehouses have become vital pillars of the supply chain in literally every business model, and it is an absolute intelligent business sense to lease spaces rather than owning them.

You might be wondering why are we discussing co-warehousing? Are we talking about killing the business?

So, a ‘No’ for all your doubts. It is all about sustainable and affordable means of development. We were at the IWS Summit, where many panellists were discussing on agenda like land scarcity, resource scarcity, sustainable development. We were awestruck to find the buzz created by the concept of Co-warehousing. Every key player discussing the change in the picture of Warehousing once the idea of Co-warehousing infiltrates it. As usual, some favoring its relevance whereas others throwing points to counter it. Listening from a distance, it hit my senses that this question cannot be lost in the foggy air outside. Whatever goes below this is an outcome of the discussion.

Specifically talking about the E-commerce giants, co-warehousing played a vital role in their establishment.
With just hearing the word “Warehouse” there is an imaginary picture formed in our heads that is enormous in terms of space, but the fact is that the size of warehouse depends on the needs of the business.
Co-Warehousing made its space in today’s world of needs, the reason being feasibility and economical. The concept of Co-Warehousing flamed up with the raise in the Startup Industry. With individuals moving more towards running their own business, most of them being E-commerce and Ecommerce Logistics, Warehouses have been in most of the checklists.
One more factor that cannot be ignored is the movement of Shopping preference from Offline to Online.

Factors driving the future of Co-warehousing?

In countries like Australia, the concept of Co-Warehousing turned out successful to an extent where running a Co-Warehouse became the most opted Business, examples includeestore Logistics, PikPak, Warehouse Exchange, and many more. The most driving benefits of Co-warehousing are listed below :

• On-Demand Warehousing : Ups and downs are something that every business goes through, and Start-ups often face the phase. In situations when online sales drop down and the same continues for a long period, bearing the charges of the Warehouse becomes an additional expense for the business.

• Helps in Reducing Capital Expenditure : When you have an option to save on your expenses, there is no one who would not opt for it. Buying a Warehouse asks for heavy investment and not everyone can afford to have it. Rather than investing in acquiring the capital, the idea of renting one to fulfill your needs sounds like a better option. This even cuts down the Direct and Indirect costs of the business.

• Good for Small Players : It takes a lot of courage to start your own venture, and a good sum of investment too. With the ease of doing business offered by the governments of different nations, a sudden increase in the number of Startups has been observed. Being the small players, affording a Warehouse is a deal out of its boundaries. On the other hand, there are options available to share a Warehouse. The sharing option is undoubtedly the most economical for them and Startups always go for it.

• Rise of new innovative Concepts : Innovation has spread its roots to every corner, then how can it miss to flourish here. Innovative offers make the idea of Co-Warehousing even more successful. In Australia, the concept of Co-Working and Co-Warehousing has found ground to flourish together. Brands who made it big have come up with the idea of fusing their working space and the logistic place.

Even a major contributor in Sustainable Development, Co-warehousing is gradually acquiring markets in countries like India. Stating that there is much scope for Co-Warehousing will not at all be questionable because “Sharing is Caring”.

Warehouse management has become an integral business component to scale up businesses and ensuring customer satisfaction through state-of-the-art supply chain management and efficient inventorization. Warehouses ensure seamless and efficient product delivery framework, mapping logistics to a streamlined process ecosystem, spreading wings far and wide to satisfy customer requests from far flung regions. The big question then is: should entrepreneurs buy or lease warehouses? Seemingly a simple choice to make, but there are a variety of factors which go into making the decision. With the emergence of a massive real estate market, competitive pricing models, warehouse decentralization has become indispensable for companies, especially those in e-commerce logistics, to ensure enhanced customer experience and loyalty.

According to CBRE, leasing of warehouses spaces has grown by a massive 31% Y-o-Y to 13 million square feet across 8 Indian cities in the first half of 2019 alone, with a total investment of more than USD 200 million. This points towards the potential growth prospects of a planned leasing model and its benefits to economize business cash-flow and optimize risks.

Leasing costs is spread out over the time period of lease, rather than a lump sum amount. The businesses have a lot of flexible options to choose from, depending upon the business size, location, and those which are proximate to important infrastructural facilities for easier movement of goods. This also entails minimal/no repair and maintenance costs to be incurred by the lessee, and consequently minimal overhead expenditure. Since cost is often a critical deciding factor in sourcing assets, adopting the leasing route is often a profitable investment, especially with the wide-ranging business needs.

Let us look at some of the benefits your business value accrues as a result of leasing assets:

1. Leasing is generally less expensive than buying, if arranged in a cohesive, efficient and future-oriented arrangement. Lease agreements must be reviewed with respect to major parameters like logistical services, financial impact, customer satisfaction and flexible options to up-scale business.

2. Lesser liabilities and overheads – Instead of focusing on providing exquisite customer service through an efficient supply chain management and timely delivery of services, owning assets poses additional liabilities arising out of repair and damages, re-selling assets and their valuation. With a dynamic market, technology and equipment needs have rapidly evolved, and it makes less financial sense to buy these assets than leasing them. Businesses would be better off in investing more capital on enhancing product value and service efficiency.

3. Leverage complementary business aspects - Your business should be known for the value it provides to customers, and resource allocation should be accordingly mapped to those needs. Leasing is an effective way to build networks and relationships, by gaining access to a plethora of business opportunities with other clients.

4. Leasing is the best option to consider when your potential for future expansion is high, avail tax benefits arising out of leasing and invest more time in nurturing innovation rather than getting tangled in managing owned assets.

An integrated, flexible, dynamic business outlook requires businesses adopt leasing, rather than buying as their preferred mode of sourcing assets, and implement their business prospects in an efficient and economic manner without unnecessary overheads.
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