Logistics sector: Covid-19 alters logistics of trade

By: |
October 5, 2020 2:30 AM

Growth in e-commerce has led to a demand for temporary warehouses, with occupiers seeking alternative sites to service customers better, even as prospects remain good for the sector

As for investors, there is a growing trend towards acquisition of logistics platforms rather than individual assets.As for investors, there is a growing trend towards acquisition of logistics platforms rather than individual assets.

With e-commerce driving the logistics sector in the time of Covid-19, there has been a spike in demand for temporary warehouses, signalling a structural shift in the approach of companies and investors even as the overall sentiment remains positive. While industrial leasing in the top eight cities of India stood at 11 million sq feet in the first half of 2020, the pandemic has led to demand growing for warehouses with a lease tenure of 6-11 months.

Occupiers are looking for alternative locations as it helps in continuity of business and mitigates delays in delivery. The urban logistics sector is thus considering conventional retail spaces, banquet and marriage halls for alternative use as city warehouses. Besides there are upcoming markets like Guwahati, Lucknow, Patna, Jaipur, Coimbatore, Rajpura, Indore, Vijayawada, Hosur and Kochi on which the sector is focussing, seeking to enlarge its footprint. Growth prospects for these markets have brightened with the government unveiling the Atmanirbhar Bharat programme which aims at self-reliance.

Yogesh Shevade, head — Industrial Services, JLL India, an investment and real estate management firm, says the challenge posed by Covid-19 has made large companies consider outsourcing supply chain management for the sake of efficiency. With realtors shifting their focus to development of logistics real estate, manufacturing firms are trying to get space on lease, seeking ‘ready to occupy and built to suit industrial spaces’ with higher specifications and pre-approved usage.

As for investors, there is a growing trend towards acquisition of logistics platforms rather than individual assets. The investment of Rs 380 crore by global private equity (PE) giant Blackstone in the Mumbai-based AllCargo Logistics and the PE company’s tie-up with the Hiranandani Group’s GreenBase to build industrial warehousing across India, entailing an investment of Rs 2,500 crore, illustrate this trend. Although these deals were struck before the lockdown, the mood guiding them has persisted, albeit with some change in approach. Investors are trying to gain captive tenant networks and achieve scale, the scope for which is large in India.

Says Ramesh Nair, CEO and country head India, JLL, “while growth of the logistics sector in value terms is likely to slow down and there may be yield contraction in some markets, investor confidence and capital values are expected to remain intact.” In fact, the growth of internet penetration rates, expansion of online grocery and omni-channel retailing and integration of technology with warehousing and storage which the pandemic has fuelled, augurs well for logistics real estate as an asset class. At $195 billion, industrial and logistics real estate is already the second largest asset class globally.

According to a JLL report, the reimagination of the logistics sector is making occupiers embrace technology, innovative solutions, modern processes and digital transformation to meet evolving consumer habits. Vital in this context is the low e-commerce penetration in India– a mere 5%, as against online retail sale accounting for 14% of global retail sales in 2019. Its rapid growth in the coming years will push the creation of suburb warehouses, in-city warehouses, tier-1 and tier-2 city warehouses and multi-storied warehouses, the report says. For instance, this trend is on ample display at Dulaghar in Howrah—which is growing fast as a global trading hub for readymade garments— with a number of multi-storied warehouses having come up and many more at the development stage.

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