COVID-19 impact | Rental growth for warehousing sector expected to be in the range of 3-5% by 2020

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The average rental growth for the warehouse sector is expected to be between 3-5 percent by the end of 2020, a report titled Asia Pacific Warehouse Review report by Knight Frank, a global property consultancy has said.

The report cited that 5 of 17 cities' prime warehouse rents will increase over the next 12 months, including those in National Capital Region (NCR), Mumbai, Bengaluru, Taipei, and Shanghai.

In H1 2020, 12 of 17 cities recorded stable or rising rents in prime warehouse and logistics markets. The warehouse sector across Mumbai, NCR, and Bengaluru, which accounts for around two-thirds of all the warehouse stock in India, recorded stable rental growth within the first six months of 2020, it said.

Mumbai, NCR and Bengaluru witnessed growth in demand for storage space for daily necessities; electronics and FMCG sectors were given a break in supply chains across the country. As many as 12 of the 17 cities recorded stable or rising rents in H1 2020.Also Read: COVID-19 impact: Smaller cities to see more demand for warehousing space

Market conditions for 16 of the 17 cities tracked are expected to remain stable or improve over the next 12 months. The positive outlook for growth in the second half of 2020 is due to a higher space appetite from e-commerce players and essential commodities.

The report tracks the prime warehouse rental performance across 17 key cities in the Asia Pacific region. Despite the spread of COVID-19, cities registered an average rental change of -0.02 percent year on year (YoY) in H1 2020.

Internationally, Tokyo recorded the highest half-on half rental growth at 4.2 percent, due to healthy take-up rates and the lack of available prime assets within the city. Shanghai warehouse markets recorded the healthiest rental growth compared to Beijing and Guangzhou, at 3 percent half-on-half, led in part by a pickup in storage demand from cold chain operators.

According to the recent ‘India Warehousing Market Report – 2020’, a study on asset class performance across 22 Indian cities by Knight Frank India, the warehousing sector had seen a strong demand growth of 44 percent CAGR, with transactions increasing from 13.9 mn sq ft in FY 2017 to 41.3 mn sq ft in FY 2020.

“The pandemic has led to a break in the supply chain across industries in the country that has resulted in an increasing demand for storage space from the daily necessities, electronics and FMCG sectors. A balance in demand-supply dynamics is expected to support the sustenance of an increase in rental growth," said Balbirsingh Khalsa, National Director Industrial & Logistics, Knight Frank India.

"Due to the continued shift of the tenancy mix, it is probable that all cities across India will remain stable till the year-end,” he said.