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COVID-19 impact: Warehousing demand may take a hit in short term

Automobile, consumer durables and engineering are some segments that will experience a slowdown due to the outbreak, thus hitting demand for warehouses, Knight Frank India has said in a report.

Representative image
Representative image

The demand for warehouses is expected to fall in the short term and rents, too, will be under pressure due to the coronavirus pandemic but the segment has overall seen healthy growth in the last three years, a report has said.

On the institutional investment side, the sector has seen investment volume going from 125 million dollars in 2016 to 2.3 billion dollars in 2017. In 2018 and 2019, it was recorded at 2.2 billion dollars and 1.8 billion dollars, respectively, India Warehousing Market Report–2020 by property consultants Knight Frank India has said.

In 2020, the investor activity was subdued on account of the pandemic, it said.

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“Despite the economic slowdown and the pandemic, warehousing market has remained largely resilient, recording a growth of 44 percent CAGR in the last three years,” said Shishir Baijal, chairman and managing director, Knight Frank India.

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The viral outbreak led to large-scale supply chain disruptions. Automobile, consumer durables, engineering were some segments that would experience a slowdown thus impacting warehousing demand, whereas e-commerce, FMCG and third-party logistics (3PL) were likely to enhance their footprint, the report said.

The land committed to warehousing in the top eight cities of the country could add 193 million square feet of new warehousing supply, the report has said.

The currently committed land is estimated at 21,163 acres, which has the potential of adding 63 percent more supply to already existing 307 mn sq ft of warehousing stock, the report has said.

Warehousing demand has seen a strong growth in the last few years and recorded a significant rise of 44 percent CAGR since 2017, mostly after the introduction of the Goods and Services Tax (GST).

Three of the eight markets --Hyderabad (2.19), Ahmedabad (2.09) and Chennai (2.02)--rank high on Knight Frank’s Development Potential Multiple.

Despite a slowdown, warehousing leasing activity saw healthy demand in Mumbai (8% YoY), Pune (42% YoY) and Ahmedabad (5% YoY) in FY2020.

Rents in Grade A properties for FY2020 remained stable ranging from Rs 13-32 per sq ft per month for FY 2020. Cap rates saw a significant decline in the previous decade from 12-15 percent in 2011 to 8.5-9.5 percent in 2019.

GST led to a transformative shift to efficiency-based location and size strategy rather than the erstwhile tax- saving focused objective.

The real-estate asset class has seen a robust compounded annual growth rate (CAGR) for the period FY2017-2020. Post GST, the asset class has received institutional investment commitments of 6.5 billion dollars.

As per the report, warehousing demand in secondary markets has seen a growth of 20 percent in FY 2020. Secondary market is still at a nascent stage, contributing around 13 percent to overall demand. Out of 11 cities, Patna and Jaipur noted more than 3X growth of 200 percent and 223 percent respectively in FY2020

“Demand has especially been strong from industries such as 3PL, E-commerce, FMCG and pharmaceutical, which is expected to continue in FY 2021," Baijal said.

The warehousing segment was gaining traction with investors due to the potential of India’s domestic consumption and overall GDP growth, he said.
First Published on Jul 2, 2020 01:03 pm
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