We expect a rise in demand of multi-level warehousing for Tier 1 cities.

ESR will focus on developing Grade A industrial and logistics parks.

- Abhijit Malkani, Country Head, ESR India

ESR develops state-of-the-art industrial and logistics parks serving a wide range of international and domestic market leaders including e-commerce companies, 3PL providers, manufacturers, cold-chain logistics providers amongst other enterprises. The firm's best-in-class management team has strong local expertise in key aspects including land sourcing, development, and leasing. Abhijit Malkani, Country Head, ESR India shares his views on the changing trends in the logistics real estate space. Excerpts from the interview…

Could you throw some light on the modern industrial and logistics real estate scenario?  And how do you assess the transformation of the Indian logistics ecosystem as a whole? 

Logistics industry witnessed the shift from B grade warehouses to Grade A spaces even before the lockdown, and the pandemic has pushed the demand for Grade A spaces even further. Warehouse automation is the new urgency in the current supply chain that is employed to make gains upon existing processes leading to transformative impact in supply chain by successfully streamlining warehouse operations with greater speed and efficiency. Major trends that are redefining warehousing sector are automated guided vehicles, robotics, big data, IoT, and sorting systems.

Warehouse leasing activity is likely to remain vibrant going forward, driven by continued demand from E-commerce, policy impetus and growing demand from Tier II cities. Modern tech-powered warehouses will rule the roost, pushing inferior grade properties down the demand pyramid. Organizations are opting for automated warehouses with integrated sustainable features resulting in low carbon emission and increasing productivity, reduces environmental impact and increases cost efficiency.

What is the impact of the pandemic on the logistics sector, especially in terms of new construction and liquidity infusion by global and Indian investors?

Construction delays and lack of labour, inconsistent supply of construction materials, and scarce availability of debt will be an issue for the next two quarters, in-city warehousing spaces will be in demand as there has been a marked increase in grocery formats, demand from e-commerce, FMCG, cold storage will remain robust and increase in demand for spaces for data centers is predicted, as remote working continues. We will also see an increase in joint ventures and outright sale by local developers to institutional developers as availability of debt will be scarce. Streamlining supply chain ecosystem has been a big challenge for the developers. The sector has witnessed liquidity infusion by global investors as well as changing occupier demand for better quality space from E-commerce, 3PL, retail and engineering sectors has also prompted the market to develop more Grade A warehousing space.

Set up in 2016, ESR India has registered an explosive growth in developing industrial and logistics parks. What are the factors that contributed to the success?

With an initial focus on Tier 1 cities, ESR launched its India platform to capitalize on the growing demand for modern logistics parks. Rapidly growing since 2017, ESR has expanded its India footprint to 14 locations including Mumbai, Pune, Delhi, Chennai, Hyderabad and other strategic cities, out of which 12 projects are under construction currently. ESR continues to strengthen its tier 1 portfolio and focus on key metros to explore in-city distribution options. We are also focusing on tier-II cities, as there is a huge demand for quality warehouse space by large ecommerce players in key Tier 2 markets, we have already expanded our footprint in cities like Rajpura, Jhajjar, and Nagpur and will continue to expand across other tier 2 cities crucial for e-commerce distribution to address the demand for Grade A warehouses.

Our best-in-class management team has strong local expertise in key aspects including land sourcing, development, and leasing. The strength of our leading development pipeline and, developing managing properties, asset management skills and integrated sustainable features will continue to position ESR to successfully capitalise on the growth opportunities and further cement our position in the Indian logistics real estate market.

What is your current asset base in India, including assets under development?

15.1 million sq. ft of GFA, 7 million. sq. ft of assets under development.

How concepts such as green / smart / sustainability have impacted the design principles while you develop assets?

Customers are looking at safer, well managed parks with features such as better floor load and quality standards, higher ceiling height, adaptability to implement automation, better surface finishing, increased air changes for natural ventilation and advanced dock doors and docking systems. ESR will focus on developing grade A industrial and logistics parks to meet these demands and will continue to integrate ESG (Economic, Social & Governance) considerations into all aspects of our business. ESR parks are digitally managed by the ESR Smart App that helps in reducing carbon footprint by enabling efficient traffic movement leading to reduction in fuel consumption. One of ESR's sustainability goals is to develop and manage energy and resource-efficient buildings. Through innovations like energy-efficient lighting, wastewater management, recycling programs and roof-mounted solar panels, thereby reducing operating costs for suppliers as well as impact on the environment and optimizing the use of natural lights.

What do you think some of the top trends in warehousing / logistics parks?

In the post Covid world, companies will be keen to consider ready to move warehouses that are integrated with sustainable features, and adaptable for automation. We expect a rise in demand of multi-level warehousing for tier 1 cities to boost in-city distribution as availability of land is scarce. Contactless and digitally managed spaces will be in demand post the pandemic. Sustainability has been a key feature in modern developments, it helps increase productivity, reduces environmental impact, and increases cost efficiency. Companies wanting to adopt automation to further increase their efficiency, consolidate their businesses, and increase safety initiatives and increase contactless business processes and Grade A spaces are more adaptive for such implementations.

What is the transformative impact of automation and digitalization on the same?  How ESR India has been able to leverage the benefits in this space?

As technology permeates the sector, demand for quality space is increasing and companies are opting for large, modern warehouses. Strong demand and increasing demand for Grade Aspaces are also attracting big investments. Like other industries, warehousing is being completely transformed by advances in technology and new workplace trends. ESR has one of early adopters on digitization of their parks to offer clients sustainable solutions.

ESR infrastructure is proposed to be IGBC gold rated. We build energy efficient parks with daylight integration and buildings with limited WWR, energy efficient glass, insulation in roofs to reduce heat gain and energy meters will be installed at our parks to monitor and reduce consumption. Our warehouses feature high ceilings giving space to accommodate multi-level warehouses. All these elements make us environmentally friendly, increases efficiency of employees and helps reduce costs for our clients. ESR parks are also integrated with a smart app that enables faster and more secure visitor entries, advanced way finding around the parks, two step incident reporting and helps reduces pilferage through live streaming. 

What do you think the strategic imperatives for a healthy growth of the Indian logistics ecosystem, including policy and reforms?

Presence of multimodal logistics parks are expected to reduce transportation costs, warehousing costs, congestion and pollution to a significant extent. Development of multimodal logistics parks will also be instrumental in facilitating synchronized, efficient, and seamless freight movement in the country giving a boost to industry and employment generation. Logistics parks hold the potential to transform the Indian logistics and transportation industry and enhance the competitiveness of Indian goods by bringing down transport costs and time-to-market. We foresee multi-level flexible to integrate automation warehousing to be gaining prominence in the future as automation increases warehouse efficiency as well as enables safer management and can be optimized once multiple racking is implemented which require higher ceiling heights.

What are the major challenges the sector is currently going through and what are your suggestions to iron out those issues on a war-footing?

Thepandemic has been challenging for all sectors including logistics real estate. Few immediate and major challenges faced by the sector include a minimum of 6 month delay in construction due to labor shortages and limited supply capacity. The development of infrastructure has slowed down significantly along with challenges in land acquisition. Hence streamlining supply chain ecosystem has become a big challenge for the developers. We will also see an increase in joint ventures and outright sale by local developers to institutional developers as availability of debt will be scarce.

How do you foresee the future trends in the logistics space? What do you think will be the growth drivers, and how geared up the industry as a whole to meet the challenges in the post Covid era?

The Indian logistics industry is growing at an 8% CAGR (2016 -2020) and the market size will grow to approx. US$215 billion by 2020. Demand for strategic locations is gaining prominence occupier groups and sectors like e-commerce, retail, FMCG, manufacturing etc. Organizations are willing to pay higher rents to move into Grade A logistics infrastructure with integrated sustainable features and better amenities that helps to increase efficiency. Rising demand from 3PLs, pharma, e-commerce players is the key growth driver of consolidated, efficient and strategically located warehouses. There has also been a spike in global interest to invest in India and we should see an increase in demand for industrial spaces in the long term as companies plan supply chain diversification. Contactless and digitally managed spaces will be in demand post the pandemic. Companies are looking for ready to move automated spaces with better safety initiatives and integrated sustainability features to increase their efficiency, consolidate their businesses, and increase contactless business processes.

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