E-commerce sector accounts for around 23% of overall warehousing space take up in 2018
Warehouse leasing capacity in seven major Indian cities grew by over 45 percent to cross the 25 million sq ft mark in 2018 and is expected to touch almost 60 million sq ft by 2020-end, as per a CBRE report.
Cities that accounted for the increase were Delhi-NCR, Mumbai, Chennai, Kolkata, Hyderabad, Pune and Bengaluru. Among sectors, e-commerce accounted for around 23 percent of the overall warehousing space take-up, it said.
Consolidation by leading players meant warehouse leases by e-tailers went up by 2.3 times in a year and averaged around 170,000 sq ft in 2018. Additionally, demand for better quality space resulted in rents rising by 10 percent to 25 percent year-on-year in 2018, the report said.
The report titled 'Online Retail Driving Realty – Elevating the E-commerce Game', examined the link between online retailing (e-tailing) and the logistics sector and the impact of GST on leased warehouse spaces in India.
It found that the growth of the e-commerce sector has been on the back of favourable policy reforms, tech-enhanced warehouses, rising smartphone and internet penetration, and the digital India movement amongst others.
This has upstretched the share of e-commerce in overall warehousing leasing uptake from 10 percent in 2017 to 23 percent in 2018, it said.
The overall warehousing supply (grade A and inferior grade) for the sector is expected to be around 60 million sq ft till 2020-end, of which at least 22 million sq ft is estimated to be in the grade A category, the report added.
"The sector saw unprecedented growth and we expect supply to touch almost 60 million sq ft by 2020-end. Innovative technologies, coupled with viable government reforms such as GST and other global collaborations will further push the envelope of development for the Indian logistics sector. Given the dynamics at play, demand and supply are both poised to burgeon in the coming years," Anshuman Magazine, chairman and CEO, India, South East Asia, Middle East and Africa, CBRE said.
"Driven by continued demand from e-tailers, policy impetus and growing demand from Tier II cities we anticipate warehouse leasing activity to remain vibrant going forward. Modern tech-powered warehouses will rule the roost, pushing inferior grade properties down the demand pyramid," Jasmine Singh, National Head – Industrial & Logistics, CBRE added.
Going forward omnichannel retail to drive warehouse demand
In the long run, e-commerce players or retailers may collaborate and share fulfilment centres to rationalise costs. This will lead to mushrooming of small-scale warehouses, especially in regions close to highly-populated residential catchments. Omnichannel retail will further drive warehouse demand from companies seeking deeper access to more neighbourhoods, says the report.
There is also likely to be closer integration of last-mile logistics and bricks-and-mortar retailing as operators strive to improve efficiency. Retail store networks and logistics operations will be viewed as one to ensure that consumer orders are fulfilled in the fastest and the most efficient way, it said.
Grade B warehouses located close to cities may undergo redevelopment
The increased demand would also pave the way for opportunities such as asset enhancements and redevelopments. Many grade B warehouses located close to cities will undergo redevelopments as per occupier specifications. Developers are likely to gain from the rental increase and occupiers will gain from the improved infrastructure, it said.Moving forward, the logistics sector will witness greater digitisation and will be revolutionised by five megatrends - increased use of IoT, big data, robotics, automation and over the course of time, blockchain. Physical internet could also be a very real possibility, considering that players are looking at optimising logistics costs over the long-term, it added.Subscribe to Moneycontrol Pro and gain access to curated markets data, exclusive trading recommendations, independent equity analysis, actionable investment ideas, nuanced takes on macro, corporate and policy actions, practical insights from market gurus and much more.