Investing In a Warehouse, 5 Reasons Why You Should Do A Feasibility Check

Residential and commercial realty segment has been an area of interest for most of the real estate players in last two decades. With stagnancy in residential sector for last 4 – 5 years, the focus is gradually shifting towards the industrial market. Warehousing is attracting a lot of investment due to consistent demand and good ROI.

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It is important to understand that the dynamics in warehousing sector is different and the decision of setting up the warehouse at the right location is a make or break deal for any such investment.
Roughly the civil structure for a warehouse would require Rs 1000 – 1600 investment per square feet. So, for a 50,000 sq. ft. warehouse, we are looking at anywhere between Rs 5 Cr – 8 Cr of investment and an additional investment of Rs 3 Cr – 4 cr if we want to setup infrastructure as well. Before you invest your money, it is important to do a thorough feasibility study for a warehouse and make an informed decision.

Organizations can take help of consulting companies with a good understanding of supply chain industry and real estate market. In this blog, we will discuss 5 reasons why you should do a feasibility study for a warehouse before investing:

1.    Is warehouse the right choice of Investment – In top 8 Indian cities, warehousing requirement is increasing at 8 % CAGR. Companies can expect returns in the range of 10 % – 25 % if they do investment at the right place. Given that, it is important to check whether warehouse is the best investment opportunity for the market you have chosen. Supply chain consultants can do a thorough analysis of the demand scenario and guide you whether you should invest in a warehouse or go for other supply chain facilities like the cold store, container freight stations or inland container depots. While there are multiple avenues for investment, the right decision can double your ROI.

2.    Demand mapping – It is important to understand which are the industries that are going to drive the demand in your warehouse. All the industries are different and so are their requirements. Also, before you put millions of dollars in building a warehouse, you should know what is the optimum size of the warehouse that you should build. This decision will be driven by the demand landscape in the region. It also helps you to develop a phase wise implementation plan to minimize your risk and increase your returns. This is also important to understand that warehousing industry is very sensitive to the location. So, even if you build a world class warehouse at a wrong location, it will not give you good returns.

3.    Financial Modelling – Once you are done with your primary research and know the requirements, next step is to understand how much your investment is going to fetch you back. Depending on the specifications, there may be up to 60 % variation in warehouse setup cost.
Warehousing experts can help you with the detailed costing, estimate revenue streams and give you visibility of IRR of your investment before you put your precious capital in the project.

4.    SWOT analysis – Setting up a warehouse is a capital intensive and irreversible investment. It is important to analyze all the aspects of the project before taking the leap. Many companies do analyze the demand scenario but completely miss the other aspects. Government regulations, political scenario, legal regulations and competitor analysis are some of the factors to be analyzed before finalizing on the project. It is advisable to take help of industry veterans who have good experience of the business and can help you do a detailed SWOT analysis of the project

5.    Infrastructure Analysis – Demand of a warehouse is driven by the supporting infrastructure in the region. If the connectivity of the warehouse is not good, it will be difficult to get takers for the same. You must check for multi modal connectivity and availability of other logistics facility and infrastructure which should be integrated with warehousing to offer a complete solution for the end customer. Infrastructure analysis is an important aspect of the feasibility study and should be carefully examined before investing in the project.

It is advisable to take professional help to do a feasibility study for a warehouse. Proper market research should be conducted before proceeding with the project. Your consulting partners will not only check the feasibility of your idea but would also guide you on other alternatives and help you maximize profits from your investment. So, before you finalize your project plan, evaluate your decision on the above five parameters.

Holisol is a leading supply chain organization providing solutions in retail (end-to-end fulfillment), Auto & Engineering (packaging & supply chain) and Consulting. Holisol works on the value proposition of Design-Implement-Manage to offer customers an experience of working like their own extended team, with affordable strategic and operational expertise.

Holisol has a workforce of +300 supply chain enthusiasts who are continuously building value through leadership, innovation and relationships. For more information visits us at