India has an incredible opportunity to enter the $1-trillion global manufacturing club.

Touchless logistics with robots working in warehouses could be the way forward.

- Chandranath Dey, Head - Industrial Operations, Business Development, Industrial Consulting, JLL

Powered by an entrepreneurial spirit, JLL, a Fortune 500 company with annual revenue of $18.0 billion in 2019 is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for its clients. Chandranath Dey, Head - Industrial Operations, Business Development, Industrial Consulting, JLL shares his views on the changing trends in the logistics eco system.  Excerpts from the interview…

How do you assess the transformation of the Indian logistics ecosystem with the emergence of Logistics 4.0 and what are the factors driving this transformation?

India's logistics sector is forecasted to grow at a CAGR of 10.5% between 2019 and 2025 with an underlying objective to bring in more efficiencies and reduce cost. Much of this can be achieved through adoption of technology in the sector. The recent pandemic is also expected to catalyse Logistics 4.0 (Advanced / Smart logistics) as technology adoption is seen one of the most important ways to mitigate risk and improve efficiency. The transformation is experienced across the entire supply chain including but not limited to transportation, inventory management and warehousing. The Indian warehouse market is now at a pivotal point in the evolution from manual warehouses to automated warehouses. We are positioned to take the leap from mechanized warehouses to automated warehouses.

In manual warehouses, workers move to a pickup location, pick the goods and move to the delivery dock.

In mechanised warehouses, machines could substitute some of the muscle power involved in manual warehouses.

In contrast, automated warehouses extensively use conveyors, sortation equipment, automated storage and retrieval systems (AS/RS), and other material handling.

In the recent past, some companies have started moving towards automation, and we expect that the trend would increase in the upcoming period post-Covid-19. Some of the cases are as follows:

-  Commerce companies are considering warehouses of high specifications and heights of warehouses under construction to make room for higher implementation of technology during operations.

-  Asian Paints has expanded warehouse facility in Rohtak with pallet conveyors, fully automated and controlled warehouse control systems as well as ASRS systems.

-  Marico Ltd. has adopted fully-managed, highly-elastic, warehouse-as-a-service cloud-based relational database, which has helped the company to increase its data processing speed by over 150%. This has given Marico more agility in business decision-making during critical times.

Greater automation (touchless logistics) with robots working in warehouses could be the way forward in the long term. The whole process of shifting to entirely automated warehouses may take some time considering the cost and time required for implementation.

Could you brief us on the growth trends of Indian warehousing sector in terms value, stock, and warehousing space in the last couple of years?

Source: JLL Industrial Services. Note: Includes warehousing and light manufacturing. This does not include captive manufacturing and logistics spaces.

The warehousing total stock in top 8 cities has increased from 118 mn. sft. In 2016 to 211 Mn. sft. by end of 2019. Furthermore, the supply seems to be with increasing share of Grade A / high quality warehousing spaces.

Source: JLL Industrial Services. Note: Includes warehousing and light manufacturing. This does not include captive manufacturing and logistics spaces.

On the demand / absorption front, India's warehousing sector has shown substantial growth with absorption moving up to 36 mn sq. ft. in 2019 from 20mn sq. ft. in 2017. Steep growth of Grade A absorptions / demand clearly defines that the sector going through a transformation to move to efficient infrastructure and greater efficiencies.

Interestingly, top eight cities namely Delhi NCR, Mumbai, Bengaluru, Kolkata, Pune, Hyderabad, Chennai and Ahmedabad remains the warehousing hot beds, warehousing absorption is gradually increasing in the Tier II cities as well driven by higher e-commerce penetration, 3PL and FMCG occupiers. Some of the key Tier II cities include Guwahati, Lucknow, Jaipur, Rajpura, Indore, Hosur, Coimbatore just to name a few.

On the Industrial / light manufacturing front, built manufacturing spaces is expected to grow in near to medium term due to the following advantages of which include;

-  Higher CAPEX Savings: Conversion of CAPEX (land & building) to OPEX (rent) | Rented factories for lease tenure of 9 years and above

-  Ready Built Factories on Rent -  Ready- to- occupy built industrial space for faster entry.

-  Higher Specifications:  13 Mts.+ height | 6 MT/sqm floor strength | Plinth - 1.2 Mts. | Provision for mounting cranes.

-  Built-to-Suit:  As per tenant specifications in 6 - 9 months. Many organized developers in the country can provide global quality space.

-  Ultra-fast Approvals: Pre-approved for most industrial investments | Non-polluting industries relaxed from several permissions.

What has been the impact of the pandemic on the warehousing sector, and what is your forecast on the growth and what are the growth drivers? 

The Covid -19 outbreak has caused significant disruption in supply chains. Nobody could have predicted the scale, speed, severity, or timing of the outbreak. There has indeed been some impact of the pandemic in the warehousing sector including labour availability constraints, 'Force Majeure' conflict, attenuated work in progress leases etc. However, it is a wonder how the sector have behaved and (re)imagined itself to adopt to these changes. Relaxed lockdown measures and good implementation of technology has eased the logistics sector during the pandemic. Various measures like implementation of paperless and express approvals for goods movement, removing bottlenecks has made the logistics sector more efficient and robust.

However, one thing that has come out repeatedly that the demand for Industrial (Light Manufacturing) and Logistics (Warehouses) space demand is a 'long-term' sustained growth story with strong fundamentals like;

-  Visible shift to online shopping & e-commerce,

-  Consolidation to Increase Efficiency,

-  High quality space to achieve targeted mechanization / automation levels,

-  'Frozen in the new fresh' boosting temperature controlled storage

-  Capex light manufacturing built space demand

What is the trend in terms of liquidity infusion by global and Indian investors in logistics and warehousing sector?

In the pandemic, Industrial asset class has emerged to be the 'dark horse' by many Private Equity Funds or Sovereign Wealth Funds or Pension Funds primarily because of the strong demand growth fundamentals of the sector, longer lease tenures of tenants for assured long term returns, fast construction timelines that helps in rent flow sooner than most asset classes.

Fund flow in the Industrial asset class has been very consistent in the past few years with close to 7 - 8 $ billion committed in the form of platform deals or otherwise. However, on ground / project investments or deployments of such funds has been low ~ 1 - 2 $ billion due to some bottlenecks. Recent policy level and structural measures to remove such bottlenecks at state and central Government level like Infrastructure Status, declassification of industrial from commercial zoning, National logistics policy and others is expected to help in deployment of fund in the medium to long term.

What is scope and potential for floating lease space for warehousing?

Floating lease / Temporary leases (lease tenure 6 - 11 months) has gained some momentum during the pandemic. Some of the reasons for temporary warehouses;

-  Clogged supply chain during the lockdown had forced some warehouses to run on full capacity of storage for certain commodities,

-  Many warehousing projects which were scheduled to be delivered in the next 6 -9 months, eminent delays in delivery of such projects was visible due to lockdown and various ancillary reasons. However, e-commerce and other players would still need warehouses to cater to the surge of sales during the upcoming festive seasons in India. Temporary leases can be considered as primary business continuity plan. At JLL, we believe this can be a short-term trend induced by the pandemic and might fade, post Covid.      

What are the major challenges that need to be addressed on a war footing? 

While the demand in the industrial and logistics space seems to robust in the near to medium term, there are two major areas which needs improvements for growth of the sectors at a ground level - land acquisitions & approvals.

Easing out Land Acquisition Hurdles: Considering land in India is a state subject and land acquisition remains a concern in several locations due to local norms like 'ULCRA' or 'Zoning Restrictions' which provided significant hindrances for acquisition, aggregation and conversion of land. However, there have been some conscious efforts from central and state governments to ease out acquisition hurdles i.e.

-  Identify land parcels with several central and state government authorities for industrial and logistics purposes

-  Fast track and time bound zoning conversion of land for manufacturing purpose.

Ease of Approvals: There are several state and central government agencies that provide pre-establishment approvals and pre-operation approvals. Lack of co-ordination of different departments and multiple documentary requirements have historically created delays in project approvals. Recent steps to ease out approvals are however noteworthy.

-  Relax bureaucratic red tapes and overhaul the ease of doing business hurdles by bringing in several initiatives including and not limited to fair assessment on a competitive environment of state's performance in attracting investments within stipulated time frame.

-  Several states coming out with automatic / deemed approval route based on self-disclosures within 30 days of submission or it is considered as deemed approved.

-  Central government working on 'Single Window Clearance System'

-  States offer permissions through online platforms with proper tracking mechanisms.

What is the bearing of emerging trends like omni-channel logistics platforms on the logistics eco system?  

Retail logistics industry today is accessible to Indian customers in 3 main mediums:

• Online: Ecommerce, which encompasses variety of products entailing groceries, electronics & other FMCDs as well as apparels. While, major ecommerce platforms have strategic expansions to cater to the growing seasonal sale seasons, there has also been increased focus of 'One-day Delivery or Express Delivery' of products.
• Offline: Conventional brick and mortar stores, which includes single and multi-brand retail as well as big box, retail stores such as Metro Cash & Carry, Walmart, Home Town, etc. Additionally, there has been an increased interest of large international retail brands such as H&M, Uniqlo, etc. that have entered the market recently and have also taken significantly large warehouse space in key cities for inventory storage.
• Omni-channel: This medium has gained significant traction as both online and offline channels straddle to find optimum share of space in either channels. Pepperfry, Urban Ladder, are some of the brands that have successfully carved out this space through 'experience centres' which act as the front for the stores while, large warehouses store inventory basis customer experience and orders via online channels.

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