The transformation of the Logistics sector - Reliant Logistics Institute

The transformation of the Logistics Sector

During the year 2018, the overall absorption of logistics during the year touched close to 24 million sq. ft., which was a growth of about 44 per cent compared to the prevailing year. Nearly every city in India witnessed growth in space take-up on an annual basis. Following the expected trend, 3PL, e-commerce and engineering & manufacturing drove demand during the year contributing about 35 per cent, 23 per cent and 15 per cent to overall take-up respectively. There was an appreciation in micro markets owing to increased demand coupled with limited investment-grade supply. E-Commerce has been a major contributor to the demand in the logistics sector, by leasing about 10 million sq. ft. of space across various cities. The growing focus on expansion into the tier II and tier III cities by e-commerce players will give a further push to this demand.

Logistics demand to remain higher in 2019

Since the government took some effective steps to nurture the sector there has been a rapid demand in the logistics. Post the implementation of GST, the demand for warehousing facilities has witnessed a significant surge. The growth in leasing activity in 2018 versus 2017 was observed to be close to 44 per cent, the annual absorption in 2017 was approximately 17 million sq. ft.; in comparison to 2018 which recorded absorption of close to 24 million sq. ft. With the introduction of the latest technology, demand for quality space is increasing and corporates over segments are opting for generous, modern warehouses. Latest introductions in technology, especially automation help in improving the specifications and operations of logistics assets, thereby forcing older, lower grade properties down the market pyramid. Also, we expect that the trend for e-commerce platforms to own and operate their own facilities will result in more built-to-suit facilities, thereby taking off some “pure” leasing from the market. In the longer-term, the gradual normalisation of e-commerce increase and influence on the profit margin of 3PL players for faster and affordable delivery will result in the stabilisation of demand. In order to cut costs and to improve efficiency, there will be an increased interest in e-commerce players/retailers to share fulfilment centres. There will be a growth of small-scale warehouses, especially in close proximity to highly-populated residential catchments. In order to increase the demand, the major focus will be on fresh produce/groceries delivery. As the segment witnesses increased traction, we expect players to display interest in cold chain facilities and temperature-controlled warehouses. The government’s ambitious Make in India initiative is expected to act as a catalyst for growth in the logistics sector. Currently, the manufacturing sector contributes about 19 per cent of the GDP as per Q2 2018-19 (2011-12 prices) estimates. To further increase this contribution to 25 per cent by 2025, the government is working on a new industrial policy with a focus on three pillars – competitiveness, sustainability and inclusion.


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