(Image courtesy: Embassy Industrial Parks)
Despite unfavourable socio-economic environment, warehousing stock in top 8 cities has added 27 million sq. ft to reach a total of 238 million sq. ft. in 2020 and demand is expected to grow around 160% to reach 35 million sq. ft in 2021 provided external conditions stay stable, a new report by JLL has said.
This is supported by growing demand in sectors such as 3PL (Third Party Logistics) and e-commerce. 3PL has become one of the fastest growing segments in the warehousing space, contributing nearly 35% of total net absorption in 2020, highest among all the other sectors. Likewise, many e-commerce categories are expected to do very well, as consumers are making a behavioral shift from buying offline to online, said the report titled India Real Estate Outlook – A new growth cycle by JLL.
COVID-19 has accelerated e-commerce adoption rates with an increase in UPI transactions by 42% during the lockdown period, leading to an upsurge in the demand for online delivery of essential and non-essential items, it said.
Tier II and III cities are gaining strength in warehousing is eminent from the changing pattern of a typical warehouse sizes with some large transaction sizes of 0.3 – 0.4 million sq. ft, even in cities such as Coimbatore and Lucknow as outliers and ranging between 0.1 – 0.2 million sq. ft in general, as compared to 0.025 - 0.05 million sq. ft (25,000 – 50,000 sq. ft) a few years back, it noted.
“In Q4, the market started gaining momentum with highest supply and absorption in 2020 post the lockdown. Industrial spaces witnessed a 13% Y-o-Y growth in total stock in Grade A & B warehousing space in top 8 cities. The overall warehousing space stands at 238 million sq. ft at the end of 2020 compared to 211 million sq. ft in the previous year thereby resulting in a net supply of 27 million sq. ft,” said Yogesh Shevade, Head Industrial Services, JLL, India.
“An important point to note here is that in 2020 the end-users / tenants have looked for new and innovative ways to taking up spaces on short term / temporary leased of tenure 9 -12 months for leasing of ‘white spaces/unused spaces’ in existing leased warehouse on sub-lease. Unfortunately, these does not get captured in net absorptions (considering these are already leased),” he added.
The warehousing and logistics market in India started gaining impetus with highest supply and absorption in the Q4 of 2020.
Scale also brings sophistication (economics of scale) and therefore we have seen pick up in higher infrastructure organised spaces even in Tier II cities. JLL research indicates that warehousing sizes is expected to grow.
Tier II and III cities of significance include North: Chandigarh – Rajpura, Jaipur, Lucknow; East: Guwahati, Raipur, Patna, Bhubaneshwar; West: Surat, Vadodara, Indore and South: Coimbatore, Vizag, Vijayawada, Kochi.
On the manufacturing front, India stands out as a potential powerhouse with new trends being observed and is expected to continue in the built manufacturing sector such as flex manufacturing. Manufacturing companies are looking for new trends such as rented factories which help in higher CAPEX savings for the owner as it converts CAPEX (land and building) to OPEX (rent). Ready-built factories with pre-constructed/ ready infrastructure as well as built-to-suit factories are available on rent.
“Interestingly, the year 2020 saw more than 6.6 million sq. ft of leased manufacturing in predominant manufacturing destinations of Top 8 cities,” said Saravanan Srinivasan, Head Manufacturing practice of Industrial Services, JLL, India.