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Warehousing space transactions set to grow 19% annually over next five years: Report

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With the Covid-19 pandemic threatening to push India off its economic growth trajectory, the real estate sector’s flexibility has been tested to its limit. While demand in other commercial real estate segments has been impacted in the last few quarters, the warehousing market has emerged as stood out led by e-commerce and third-party logistic growth.

Higher penetration and more acceptance for online shopping across metro cities, tier II locations and towns are expected to continue pushing the growth of warehousing and logistics segments.

Annual warehousing transactions across top eight Indian cities are expected to grow at a compound annual growth rate of 19% to 76.2 million sq ft over the next five years from current 31.7 million sq ft, showed data from Knight Frank India.

As per the projections for the next five years, e-commerce segment is expected to take up significant space estimated to be 98 million sq ft, registering an increase of 165% from the preceding period of 2017-2021. Third-party logistics and other sector companies are expected to take up 56% or 83 million sq ft and 43% at 53 million sq ft more space respectively, over the same reference period.

“Supply chain disruptions from the pandemic have intensified the need for more institutional players in the warehousing segment which will ensure institutionalisation of the warehouse space, leading to greater participation from the big developers. In the short run occupier activities will be dictated by the intensity of the pandemic however in the long -term perspective the sector should gain momentum aligning itself to India’s economy development trajectory,” said Shishir Baijal, CMD, Knight Frank India.

With respect to total land committed to the warehousing development in the top 8 cities is around 22,488 acres, which will translate to a total buildable potential of up to 531 million sq ft. Existing warehousing stock already accounts for 329 million sq ft on this committed land, leaving about 202 mn sq ft of potential warehousing space that can be developed in these land parcels.

In 2020-21, warehousing transactions across top 8 Indian cities registered an on-year decline of 23% at 31.7 mn sq ft. This decline can be attributed to the disruption caused by the pandemic and the associated lockdowns that brought economic activity to a near halt and adversely impacted occupier decisions. Chennai was the only city to witness a growth of 4% YoY to 3.5 mn sq ft in FY 2021, compared to 3.4 mn sq ft in FY 2020. While Bengaluru transaction levels remain stable, Ahmedabad and Pune were the worst-hit markets with a decline of 42% YoY each.

Occupiers have been increasingly showing preference for grade A properties as they are much better geared toward tackling exigencies such as those posed by the pandemic. Increased demand by e-commerce companies also resulted in increased preference for Grade A properties. Around 65% transactions during 2020-21 were in Grade A properties with the exception of Bengaluru and Ahmedabad, more than half the area transacted in all the top markets occurred in Grade A properties.

The 13 secondary markets show strong future potential as their current share in transactions have grown consistently from 12% in FY 2019 to 23% in FY 2021. Secondary markets accounted for 0.9 mn sq m (9.7 mn sq ft) of warehousing transactions during FY 2021.

The e-commerce sector has been reported as a major demand driver for warehousing markets all across the globe. The e-commerce market in India is still in its infancy, with market penetration at 4.7% in 2019. The growth potential for the segment has been substantial in mature markets of UK and USA. The entry of Indian business giants in the space signifies that the e-commerce segment is at the cusp of its next phase of growth.

The warehousing space per capita in India is significantly lower than in developed economies. With the critical business objectives that a supply chain serves, industrial and warehousing spaces have a long runway for growth in this country. This premise also builds a pathway to progress on the maturity curve for the sector and promotes increased institutional participation.

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