Property owners wake up to lucrative prospects of dark stores as demand surges 40% in 3 years

Dark stores are typically located in bylanes, back alleys, or repurposed retail and commercial spaces in areas where real estate prices for retail use would be less profitable. Sunil Singh, Director at RealtyCorp, points out that landlords can earn nearly double the rental income by leasing such spaces to dark stores.

For example, Singh facilitated a deal two years ago for 1,800 square feet of dark store space leased to Blinkit in Bengaluru’s Frazer Town at Rs 60 per square foot, translating to Rs 1.08 lakh per month. Prior to COVID-19, another deal in Domlur fetched Rs 50 per sq ft for a 1,500-sq-ft space, with a rental return of Rs 75,000 monthly.

Singh estimates that if these spaces had been leased to a grocery or Kirana store, the rental returns would have been at least 30-40 percent lower, given their less desirable locations. The current high demand for dark stores in the quick commerce sector is pushing rents up by 20-25 percent in such areas.

Landlords Riding the Quick Commerce Boom

Landlords with land parcels in less accessible areas, such as those located off main roads, are capitalizing on the growing demand from quick commerce companies. Pawan Sharma, Director of Sales and Leasing at Agarwal Estates, says that these landowners, who previously rented to migrant workers for as little as Rs 1-3 per sq ft, are now seeing significantly higher returns by converting spaces into dark stores.

Brokers explain that the rental yield for dark stores in prime residential areas ranges from 3-5 percent, close to the residential rental yield of 3 percent and commercial rental yield of 6 percent in Bengaluru. In addition, security deposits for these transactions are typically three to four months' rent, compared to six months for commercial spaces, allowing quick commerce companies to expand rapidly with lower capital investments.

Despite the boom, affordable spaces are becoming increasingly scarce. Brokers note that Blinkit is actively looking to expand its dark store presence in Bengaluru but is struggling to find available properties.

In areas where real estate prices are 25-30 percent lower, particularly near canals or far from prime locations, landlords are now constructing built-to-suit sheds specifically designed for dark stores. These structures, typically between 2,000 and 4,000 sq ft, are made of tin and asbestos and cost Rs 600-1,000 per sq ft to build. Manjesh S Rao, Chief Realty Officer at BrokerInBlue, says these sheds are now renting for ₹30-45 per square foot, compared to ₹23-27 per sq ft just a few years ago.

Challenges Due to Lack of Regulation

However, the lack of clear regulations for dark stores poses a challenge. India currently has no official framework from urban or central authorities to govern dark stores or in-city warehousing. As a result, only 10-15 percent of dark stores are estimated to be fully compliant with local laws. In Bengaluru, officials from the Bruhat Bengaluru Mahanagara Palike (BBMP) say these stores often operate under trade licenses meant for provision or retail stores, as no specific regulations exist for dark stores.

A similar situation is playing out in Noida, where officials report a sharp increase in the number of dark stores, most of which are licensed as retail or commercial spaces without specific policies in place.

Quick commerce companies face additional hurdles in securing compliance for parking spaces and fire safety measures, especially when stores are located in densely populated residential areas. Activists like Sandeep Anirudhan have noted that dark stores sometimes cause traffic congestion and other issues for local residents, leading to complaints and even store closures in some cases.

To address these concerns, the central government has recently initiated meetings with quick commerce companies to better understand the regulatory needs of dark store operations. Industry experts believe that municipal bodies will need to develop policies to help these stores comply with urban laws and mitigate operational risks.