FDI in e-commerce to boost demand for office, logistics spaces

Demand for office, warehousing and logistic spaces will increase with 100 percent FDI permitted in marketplace e-retailing, significantly benefitting the real estate sector, according to property consultant JLL India.

The government yesterday allowed 100 percent FDI through automatic route in most of e-commerce retailing, a development that will boost domestic as well as foreign players like Flipkart and Amazon.

"India is already host to some of the largest global e-commerce players. The announcement that 100 percent FDI will now be allowed in e-commerce is going to open the floodgates to a host of other players in this segment," JLL India Chairman and Country Head Anuj Puri said in a report.

"The impact this development will have on Indian real estate will be significant," he added.

Firstly, Puri said the new players would require large office spaces to house their back-end teams and this demand would be naturally directed to the seven major cities.

"The second impact will be on the demand for warehousing and logistics real estate. Unlike the demand for office spaces, this additional requirement will be spread fairly evenly across Indian cities," he said.

Stating that the e-commerce players need to deliver products quickly to their customers, Puri said one of the most important clientele segments for them are in the tier II and tier III cities.

"We will therefore see a significant step-up in demand for warehousing spaces in and around these cities," he added.

Indian real estate sector, particularly housing segment, is facing a huge slowdown from last 2-3 years. However, office and warehousing segments have been performing better due to demand of spaces from corporates especially e-commerce firms.

On the flip side, the consultant said that there has been a rider clause attached to the FDI liberalisation on e-commerce.

"...e-commerce players now will be unable to sell below market prices and not more than 25 percent of sales will happen via one vendor...this announcement brings brick-and- mortal retailers on a more level playing field, and would help to still the outcry over unfair trade practices to an extent," Puri said.

"Overall, this is positive for the retail industry; more rational behaviour will now prevail in terms of market trade practices, and mounting of losses by most e-commerce companies will be curtailed. Online sales may reduce as deep discounts disappear, although losses will also be capped," the consultant said.

With e-commerce in India still at the nascent stage, the base being low even now and the growth rate very high, there is enough scope for both e-commerce and brick-and-mortar retail to flourish.