On a Saturday morning, a partially operating mall in Greater Noida is a hub of activity. However, the buzz is not because the mall has good footfall. The activity is because retailers at the mall and in the vicinity now use the spaces available in the building to store goods. The mall also has a big hyper store that uses three adjacent shop spaces to store additional supplies. Interestingly, the hyper store is one of the few big-box stores at the mall and caters to people in the catchment area and people shopping online who can pick up their shopping from the mall.
The empty stores in the mall, which would otherwise have been a liability, have turned out to be a business opportunity for retailers and the owner. This segment, called dark stores or micro-fulfilment centres, are on a rise across cities. And there are scores of examples of such locations, with successive lockdowns due to the COVID-19 pandemic resulting in the shutting down of several offices and businesses in malls.
As a result, vacant spaces are being used for warehousing, a trend that is fast becoming a common feature in urban areas, experts said. “Both commercial office space and retail were severely impacted by the pandemic and had little choice but to shut down or terminate their lease contracts. This trend was largely prevalent in Grade B or C spaces across cities. For instance, with employees mostly working from home and also to cut costs, many smaller companies terminated their lease and sought to wait and watch before leasing another space. As a result, we saw many vacant office spaces,” said Shobhit Agarwal, MD and CEO, ANAROCK Capital, the investment banking arm of the property consultancy.
The rise in e-commerce and online delivery platforms has a direct impact on the space taken up by retailers.
“The market is shifting towards on-demand solutions, further increasing the demand for faster delivery. COVID-19 has catalysed the e-commerce market, compressing delivery timelines to as low as 30 minutes, ensuring zero compromise in product quality. However, to meet this increasing e-commerce logistics in cities, there is an increased demand for micro-fulfilment centres and the need to reduce high last-mile transportation costs. This has reinvigorated the market for small to medium-sized storage space as a new-age in-city warehouse within the city catering to the last-mile delivery,” said Chandranath Dey, head, operations, business development, logistics and industrial and ports, airports and global infrastructure, JLL India, the real estate consulting firm.
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“Urban logistics is now reinvented by repurposing existing usage of defunct urban real estate or assets that have exhausted their conventional use as in-city warehouses,” he added.
Large-scale B2B distributors managing the national-level supply chain, platform providers and consultants dealing in commercial and residential spaces have also confirmed the trend.
“These fulfilment stores have risen in number in recent times. Subsequent lockdowns have pushed retailers to think of newer ways to maintain the supply lines for their stores. And these spaces have proved to be a boon for retailers and companies. These help in faster, on-time delivery to their customers,” said Ketan Patel, chairman and managing director, Creative NewTech, a brand licensee and market entry specialist.
Realtors seem to agree. “In the last two years, the use of these spaces has increased significantly. As a result, occupiers and companies are increasingly looking for such spaces. And the demand is more for urban areas in metros and state capitals,” said Gaurav Aggarwal, co-founder, Inches2Acres, a New Delhi-based brokering firm.
There are benefits in setting up these centres within city limits. “The rise in dark stores has led to the decentralisation of warehousing operations. The operations are then focused and more streamlined. Moreover, there is less spend by way of reducing the travel time of goods. This aspect of reducing the working capital has made sense for a majority of companies,” added Patel of Creative NewTech.
“These in-city fulfilment stores or dark stores are working well for brands. For FMCG (fast-moving consumer goods) companies and retailers focusing on food deliveries, these have helped in maintaining the freshness of deliveries. Moreover, a shortened delivery time has helped brands garner more support and loyalty from consumers,” said Raju Dedhia, operations director, Vinculum Group, a software firm catering to omnichannel retail.
The various formats of supply
A variety of urban real estate assets as in-city warehouses are being looked at as warehousing options. These include traditional brick-and-mortar retail stores, old manufacturing buildings/campuses within city limits, ground floors of retail malls/ hyper marts, ground floors of office buildings, basements/podiums, industrial estates/workshops/car repair yards, marriage halls with open areas and single-screen theatres.
However, the acquisition cost of these spaces is also high when compared to those available in peripheral areas. And these are turning out to be an opportunity for developers too.
“Although in-city warehousing is gaining popularity in the Indian market, it has a relatively higher cost component for developing multiple warehouses in city neighbourhoods. The size of these spaces ranges from 5,000 to 25,000 sq. ft, a major deterrent to the availability of such spaces at relatively lower rentals. Hence, developers have resorted to reinventing and repositioning their existing assets with relatively poor performance, defunct or stressed, for alternate use as an in-city warehouse,” said Dey of JLL.
What lies ahead?
The number of in-city fulfilment centres will likely continue to rise. Demand from e-commerce players, FMCG companies or omnichannel retail players is increasing as they look for e-commerce-centric fulfilment methods to service end-consumers.
According to data from JLL, India is currently expected to witness an additional demand of around 7 million sq. ft. of in-city warehouse space in 2022. In addition to this, demand for warehousing is also high in many tier 2 and 3 cities, where consumer spending has increased in recent years due to increased internet penetration and lifestyle. “It will result in the demand for in-city warehouses to spread, leading to the adaptive reuse of unused office, retail and commercial spaces like warehouses,” said Dey of JLL.