Most of the people around the world are quarantined and are not allowed to go outside, pushing retail and hospitality into uncomfortable situations. Nevertheless, they are more in demand than ever as companies rush to get their products and services online. The warehousing property segment has emerged as a promising investment opportunity for institutional investors.
At a time when the Indian real estate industry has been facing a tough time on account of a difficult residential market, the warehousing property segment has emerged as a promising investment opportunity for institutional investors. However, the Covid-19 induced lockdown has led to a slowdown in the warehousing industry with both occupier leasing and investment activity.
Due to Covid-19, certain new trends are likely to emerge which can help the warehousing growth:
Consolidation to dissipation
Covid-19 is making occupiers rethink their strategy. The concept of consolidating warehouses at a single location is getting challenged. Instead of having a single large regional warehouse, the supply chain managers and occupiers are now contemplating owning multiple warehouses at different locations, so that if a particular area is locked down due to crisis they can operate through other warehouses. And, this will create an increase in the demand for warehouses.
Time to stock up over Just-In-Time
To reduce the inventory cost, manufacturing companies across the globe were following or moving towards a just-in-time system or inventory management. The Covid-19 induced lockdown of China had jolted manufacturing chains across the globe and caused significant problems for companies employing JIT. For example, in India, many pharmaceutical companies had faced challenges due to the disruption in the supply of Active Pharmaceutical Ingredients (APIs) which is a key input item for pharmaceutical products, and the majority of which is manufactured in China. Going forward, companies would prefer keeping higher inventories over JIT, thereby increasing the demand for warehousing space.
E-commerce to spread its wings wider
E-commerce segments relating to grocery and daily essentials saw a rise in retail demand owing to the Covid-19 induced lockdown of malls and retail spaces. For the perishable nature of items and quality of the product not being standardized, many used to resist ordering online.
Also, now by having the ease of convenience in e-commerce offers and the restrictions of COVID-19, people will not move out for grocery shopping at malls. And, thus there will be an increase in buying groceries and daily essentials online.
Moving out of China
Many companies are now planning to shift their dependence from one particular country (presently China) for their entire manufacturing needs and are planning to shift certain parts of the activity elsewhere. 5-6 countries are competing directly with India to attract these companies. Each country offers its own set of advantages and challenges. However, even if 1/6th of them come to India, the gains for the nation and the industrial and warehousing sector would be immense.