A few decades ago, warehouses were not considered to be a good investment option. The images of warehouses were just conjured images of dusty godowns or a building having an undefined shape. They were often located in the outskirts and had only four walls and were stacked with inventories and goods. Now let’s fast-forward to 2021. You will find warehouses to be one of the highly sought after segments. It is a subset of commercial real estate assets and forms a pivotal part of India’s logistic sector.
Even when the residential and commercial real estate sector was facing headwinds from the pandemic, the warehousing property offered a promising investment opportunity for the institutional investors. The main reason for this is that everybody prefers online shopping. In this article, we will be discussing the warehousing activities in the pharmaceutical industry, their importance, and their investment benefits.
Warehousing in the pharmaceutical industry
The pharmaceuticals industry can be viewed from two angles, firstly in its manufacturing stage which includes all the necessary equipment, and secondly compounds or drugs. For manufacturing equipment and drugs produced, it is necessary to have store facilities whereby the temperature could be controlled and is free from any form of contamination or deterioration. As we all know, healthcare is very closely related to the pharma industry and it is on a rise ever since the onset of the pandemic.
Considering the pandemic conditions, there are companies around the world that are focusing on producing effective test kits and vaccinations. Apart from this, other diseases require medical attention and medication. All this has shown the growth of the pharmaceutical industry in India. The Indian pharmaceutical sector and the medical device market are expected to grow to US$ 100 billion and US$ 25 billion respectively by 2025 according to the reports of IBEF.
Thus, with the growing demand for medical equipment and drugs, the production for them has also increased. With the increased production rate, a clean warehousing facility becomes very important. Warehouses play a vital role in the pharmaceutical industry as it enables manufacturers to store and transport medicines. It helps in preventing the degradation of medical products due to adverse climatic conditions. Proper storage also helps in avoiding mix-ups and contamination. Thus in recent times, there is an increased demand for warehouses for pharmaceutical products and machines.
Benefits of investing in pharmaceutical warehouses
In the past few years, India has made significant developments in the logistic sector and has made several regulatory and statutory reforms towards it. The warehouse sector came into the limelight only 3-4 years ago after the implementation of GST. Another major policy of the Indian government which has led to the increase in interest for warehousing spaces was the 100% FDI which was permitted to warehouses.
The scale of operation of the pharmaceutical industry has widened once again with the onset of the pandemic and the growing demand for medicines to control and stop the virus. It has opened up a new avenue for wealth generation for the commercial real estate sector through pharmaceutical warehouses. Some benefits of investing in pharma-warehouse includes:
Growing E-commerce sector
The main users of warehousing facilities in India include e-Commerce, Manufacturing, FMCG, Retail, and Consumer Durables. The pandemic has led to the development of the e-commerce sector and has become a huge part of consumer behaviour. The development of e-commerce has also led to the development of the warehousing sector and the demand for warehouses from the e-commerce sector grew by 70% from 2018-2020.
As already stated, people have shifted from offline mediums to online mediums to a great extent. Apart from shopping for household items to clothing, electronics, etc., they have also started using online mediums to purchase medical drugs as well. Thus with the increase in several e-commerce businesses for pharmaceutical products, pharma-warehouses are also gaining popularity.
The scale of operation of both pharmaceutical and warehousing has provided a formidable opportunity for investment. A report by a leading real estate portal, it was observed an increased demand for warehousing facilities specific for pharmaceutical use in the northern region of India. The pharma-warehousing facilities in the south are not developed like the north but several warehousing facilities are opening in cities such as Hyderabad and Chennai. Thus with the increased production of medication, there is going to be an increase in demand for warehouses capable of storing pharmaceuticals in both north and south.
Return on Investment and rental income
Considering the growth potential of the warehouses in the pharmaceutical industry, it is an imperative decision to invest in pharma-centric warehouses as they can earn you good returns on your investment. By investing in pharma-warehouses and then letting it on rent, you are also opening a new channel of passive income. With the increased production of pharmaceutical products, you can easily find tenants as well. Investors by making investments in these warehouses are also practically coming up with solutions to fight the financial consequences brought by the pandemic on their real estate investments. Even though the pharma logistics at present is only 5%, it is expected to rise to 8% in the next five years.
The government has taken several efforts to encourage investment in the warehousing sector such as Pradhan Mantri Gram Sadak Yojna, Industrial & Dedicated Freight Corridors, Bharatmala and Sagarmala projects, etc. In the past few years, the government has also taken keen efforts to improve pharma warehousing and logistics all around India by granting deductions on the tax as well.
The pandemic had both positive as well as negative impacts on the Indian real estate sector. The lockdown and work-from-home trend has led to a decrease in demand for commercial office spaces. However, the pandemic has opened new investment options called pharma-warehouse under the commercial real estate sector for those looking forward to maximizing their wealth. Considering the large number of drugs and medical equipment produced, pharma-warehouse seems to be a good investment option as there is an increasing demand for storage spaces that are clean and free from any form of contamination or deterioration.
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Warehousing investment in pharmaceutical industry FAQ's:
Yes, warehouses are a good investment at present. Several retailers have started going online and have started demanding warehousing facilities to store their products. With the ongoing pandemic conditions, there is also a huge demand for warehouses specifically for pharmaceutical products and machinery as more PP Kits and vaccinations are under production.
Warehousing is defined under commercial real estate as a storage place for goods and is used by manufacturers, wholesalers, and other stakeholders such as transport companies, import and export companies, and customs.
Yes, it is a profitable option to invest in. With the prevailing pandemic conditions, there is going to be an increase in demand for storage spaces, and with the increasing demand, the investors stand a chance of earning a good amount as rental income from these investments.