Demand soars for warehousing on supply chain gaps3 min read . Updated: 06 Oct 2020, 06:44 AM IST
- Since the lockdown began in March-end, the demand for warehouses in large cities has gone up
India’s major warehousing hubs are set to see a rise in rentals as severe disruptions in supply chains due to the pandemic forces companies to keep inventory close to major consuming centres on hopes of a gradual recovery in demand.
Prime warehouse rents are expected to rise in Mumbai, Bengaluru and the National Capital Region—which make up about two-thirds of all warehouse stock in India, real estate consultancy firm Knight Frank said in a report last Friday.
The Indian cities number among the five large cities in the Asia Pacific region—the others being Shanghai and Taipei—where warehousing rentals are expected to rise in the coming year while staying stable in the rest of the region, according to Knight Frank. Warehousing rentals across 17 key cities in the region fell -0.02% from the previous year in the first half of 2020, while staying stable in these cities.
“The pandemic has led to a break in the supply chain across industries in the country that has resulted in an increasing demand for storage space from the daily necessities, electronics and FMCG sectors," said Balbirsingh Khalsa, national director-industrial and logistics, Knight Frank India. “A balance in demand-supply dynamics is expected to support the sustenance of an increase in rental growth."
Since the lockdown began in March-end, the demand for commercial warehouse space in large cities has gone up as a breakdown in the supply of essential commodities increased the need to store daily necessities, electronics and FMCG products near major consumption centres.
Overall, leasing in India’s top eight cities rose to 11 million sq. ft as on 30 June, compared to 12-quarter average of 7.3 million sq. ft, according to data from another real estate consulting firm JLL.
While typical lease tenures are for three years or longer, there was also a surge in short-term demand for warehouses with lease tenures of 6 –11 months, since lockdown began, indicating the need for companies to have substitute locations.
Mayur Toshniwal, managing director at Future Supply Chain Solutions Ltd, said the present development has been in the making for a while.
“There is a genuine demand from end-users, like branded FMCG companies, wanting to scale up and upgrade from old-style godowns to large tech-enabled warehouses. Even during covid times, Future Supply Chain continued to acquire new customers," he said. “As customer fulfilment becomes a priority, companies are showing more interest in exploring newer supply chains which have both scale and technology. For most supply chain companies, the e-commerce sector has shown stupendous growth. The front-end of retail has already changed; what we’re seeing now is the back-end changing too."
The lockdown has increased demand for grade A warehouses, which offer more sq. ft space and better height for vertical storage, better safety mechanisms against storms or fires, and mechanized loading and unloading operations.
“Modern warehousing has become more expensive, but you also get commensurate efficiencies," Toshniwal said. “Customers are willing to adapt to a new normal. Earlier, if the rent was ₹10-11 per sq. ft, it is now in the ₹15-18 per sq. ft range. But, for the customer, the throughput is also much higher. In a godown of say 40,000 sq. ft versus a grade A warehouse with 100,000 sq. ft, the plot area is only 2.5 times higher but increase in throughput (put in more inventory, reduce wastage) can be many times higher."
The formalization of the warehousing industry has also brought in investor interest. Investors are keen to buy into logistics platforms, as the Blackstone group did in Allcargo Logistics or in its joint venture with Hiranandani. Mint reported in June that Singapore-based Mapletree Investments Pte Ltd had bought 700,000 sq. ft in an industrial warehouse coming up at Chakan near Pune from KSH Infra.