Third-party logistics players, e-commerce firms drive warehousing demand

By: |
Published: August 16, 2019 12:19:04 AM

Warehouse leasing by corporates rose a healthy 31% Y-o-Y to surpass 13 million sq ft during the first half of the 2019 calendar year (CY), with Mumbai, Chennai and Bangalore accounting for more than 60% of the activity.

Large metros like Delhi-NCR, Mumbai and Bangalore are expected to dominate the supply pipeline, with average size of the warehouses in Delhi NCR and Mumbai likely to exceed 1 million sq ft. (Representative image)Large metros like Delhi-NCR, Mumbai and Bangalore are expected to dominate the supply pipeline, with average size of the warehouses in Delhi NCR and Mumbai likely to exceed 1 million sq ft. (Representative image)

Warehouse leasing by corporates rose a healthy 31% Y-o-Y to surpass 13 million sq ft during the first half of the 2019 calendar year (CY), with Mumbai, Chennai and Bangalore accounting for more than 60% of the activity. The demand during the period was mainly driven by third-party logistics (3PL) players, followed by e-commerce companies.

Except the Delhi-NCR and Bangalore, all other cities witnessed a marginal growth in leasing. In a few instances, tier II cities like Hosur (Tamil Nadu) and Vijayawada (Andhra Pradesh) saw rise in leasing with large e-commerce players taking up 0.64 million sq ft and 0.15 million sq ft, respectively. Besides, several manufacturing firms acquired land in Sri City (Andhra Pradesh), one of the country’s mobile phone manufacturing hubs, said CBRE in its latest report on the industrial and logistics market.

Jasmine Singh, executive director (advisory & transaction services) at CBRE India, said: “It is quite interesting to note that key demand drivers of leasing activity in H1 2019 were 3PL (56%) and engineering & manufacturing (6%) firms. Domestic corporates drove demand with a share of about 85% of leasing as compared to about 67% in H12018. We also witnessed new launches to the tune of about 15 million sq ft by major developers.”

3PL firms are third-party logistics companies in the logistics and supply chain management, which use third-party players to outsource distribution, warehousing, and fulfillment services. The sharp rise in leasing activity by 3PL players like Delhivery, Flyjack Logistics, DHL, Future Supply Chain and Kerry Indev Logistics was due to their continued expansion across cities.

3PL companies were followed by e-commerce (9%) and retail firms (8%). E-commerce players like BigBasket and Flipkart too leased space across cities. Corporates from sectors like retail, auto ancillary as well as electronics & electricals too contributed.

In terms of rent, sustained interest in locating quality warehouses led to rise in rents in range of 5-40% on national highway-1 (NH) and NH-8 in Delhi-NCR during H12019. Growth in Bangalore was around 3-24% in eastern and western corridors, while it was 5-7% in western corridor II and northern corridor in Chennai. Hyderabad recorded a growth of 12-18% in western and southern corridors, whereas Narol (Ahmedabad) witnessed a rental growth of 3-6%.

Rent in the logistics space went up in nine cities during H12019, while it was stable in 19 markets. Prime locations are likely to witness rental growth during the second half of CY 2019. These include NH-8 in Delhi-NCR, Bhiwandi in Mumbai, western & northern corridors in Chennai, northern corridor in Hyderabad and NH-2 & NH-6 in Kolkata.

Investment activity during January-June 2019 was driven mainly by two deals – a joint venture by prominent developers for developing an industrial park in Thane (Mumbai MMR) and acquisition of Casagrand’s two warehouses in Chennai by Logos for $100 million.

On the supply side, while total supply, including investment and inferior grade, is expected to hit 60 million sq ft by 2020, at least 22 million sq ft of this is estimated to be developed by players like Indospace, Allcargo, Embassy and ESR.
Large metros like Delhi-NCR, Mumbai and Bangalore are expected to dominate the supply pipeline, with average size of the warehouses in Delhi NCR and Mumbai likely to exceed 1 million sq ft. The average size in Chennai, Hyderabad and Pune is likely to be in the 0.3-0.5 million sq ft range.

On the sector’s outlook, CBRE chairman & CEO (India, South East Asia, Middle East & Africa), Anshuman Magazine said, “We also expect logistics leasing activity to strengthen owing to consolidation/expansion by occupiers. In addition, as per our APAC Investor Intention Survey, 2019, India was among the top five investment destinations in APAC. Industrial and logistics was also one of the top segments expected to be targeted by investors in 2019.”

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.