Warehouse leasing activity in the country grew more than 45% year-on-year (YoY) to cross 25 million sq ft during calendar year 2018, helped by the expansion in the logistics sector, particularly the growth of online commerce. E-commerce alone accounts for 23% share of this growth with the average size of warehouse leasing by e-tailers surging by 2.3 times in a year, averaging at around 170,000 sq ft in 2018, real estate consultancy CBRE said in a report.
The report added that the demand for better quality space resulted in rents rising by around 10-25% y-o-y in 2018. The impressive growth in e-commerce has been on the back of favourable policy reforms, tech-enhanced warehouses, rising smartphone and internet penetration, digital India movement, among others. This has upstretched the share of e-commerce in overall warehousing leasing uptake in the country from 10% in 2017 to 23% in 2018.
“The sector has seen 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 and given the dynamics at play, demand and supply are both poised to burgeon in the coming years,” said CBRE chairman and CEO (India, South East Asia, Middle East and Africa) Anshuman Magazine.
While supply is on the upswing, quality is also expected to improve as large-scale tech-backed logistics facilities are coming up around the country, at par with established global standards. While the overall warehousing supply (Grade A and inferior grade) for the sector is expected to be around 60 million sq ft till 2020-end, at least 22 million sq ft of this supply is estimated to be in the Grade A category, he added.
CBRE’s national head (industrial & logistics) Jasmine Singh too expressed a positive sentiment on the growth in the logistics sector.
“We anticipate warehouse leasing activity to remain vibrant going forward, driven by continued demand from e-tailers, policy impetus and growing demand from Tier II cities. Modern tech-powered warehouses will rule the roost, pushing inferior grade properties down the demand pyramid. Serious players with a long-term view would also eventually consider green logistics networks,” he said.
As the sector evolves, it is expected to witness the addition of more variables to warehousing equation like supply chain modernisation, growing foray of tech and AI, optimisation of delivery networks and greater synergy between retail and logistics networks, Singh added.
CBRE expects that moving forward, the logistics sector will witness greater digitisation and will be revolutionised by five mega trends — increased use of IoT, big data, robotics, automation and blockchain. Physical internet could also be a very real possibility, considering that players are looking at optimising logistics costs over the long term.
In the long run, e-commerce players and 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.