Home >Industry >Infrastructure >Warehousing emerges as go-to real estate asset class

The coronavirus crisis has inadvertently created a huge demand for warehousing space, led by online retailers as well as investors looking for an alternative asset class beyond commercial offices and shopping malls.

Even as supply-side disruptions continue with expected delays in construction of warehousing hubs, the sector is set to become a sought-after investment opportunity with the need for high-quality, automated facilities for smooth supply chain processes now more than ever.

“There is a huge interest from investors, who earlier looked at office and retail sectors, to venture into the warehousing space. With e-commerce penetration expected to rise significantly, with physical shopping facing a setback, this will emerge as the new growth sector," said Chandranath Dey, head-industrial operations and business development, JLL India. As of 2019-end, India had a total warehousing stock of 211 million sq. ft, of which 88 million sq. ft is classified as Grade A space.

Traditionally, third-party logistics (3PL) and manufacturing sectors comprised bulk of the warehousing consumption with e-commerce at the third spot. The trend will likely shift with e-commerce expected to drive demand in the coming quarters, Knight Frank India said in a report on Thursday. The share of online retailers rose to 23% in 2019-20, from 14% in 2018-19 and is set to further surge, the report said.

Dey at JLL India expects the share of e-commerce to rise to about 40% of the total demand, both directly and indirectly, through 3PL firms.

The nationwide lockdown has lifted demand for ready warehousing space, ranging from 30,000-50,000 sq. ft, from e-commerce and 3PL firms for up to 9-12 months. Online delivery firms, especially those dealing in groceries and other essentials and faced supply bottlenecks, looked for space for their stocks.

Given in the short to medium-term, commercial office demand is shrouded with uncertainty, the norm of work-from-home, and malls facing turbulence, the warehousing sector is still expected to grow despite short-term hurdles.

Developers, too, want to cash in on the opportunity.

Aditya Virwani, chief operating officer, Embassy Group expects robust demand from e-commerce firms given the boom in online retail.

“...We plan to focus more on taking up land in locations that can be suitable for e-commerce companies," he said.

Embassy Industrial Parks, part of Embassy Group, has several warehousing and industrial facilities. It plans to break ground for a new hub in Hyderabad this year and also starting developing a new facility in Hosur.

To be sure, in the last three years, India’s warehousing demand gained pace as investors looked to build large portfolios as a long-term investment bet with easing of regulations and scalability of the business.

Blackstone Group Lp, the largest owner of office assets in India, partnered with Hiranandani Group last year to invest 2,500 crore in warehousing and industrial assets.

This year, it took a majority stake in Allcargo Logistics to develop logistics parks in key consumption hubs.

In June, Singapore’s Mapletree Investments Pte Ltd bought 700,000 sq. ft in an industrial warehouse from KSH Infra for $40-50 million in Chakan, near Pune.

According to Knight Frank, the warehousing sector received institutional investment commitments of $6.5 billion post the implementation of the goods and services tax.

Shishir Baijal, chairman and managing director, Knight Frank India, said, “Despite the slowdown and the pandemic, warehousing market has remained largely resilient, recording growth of 44% CAGR in the last three years. Demand has been strong from industries such as 3PL, e-commerce, FMCG and pharma."

With a covid-19 induced shift in buying behaviour, e-commerce growth is likely to accelerate. This will further increase the share of e-commerce in warehousing demand in the medium to long-term, the report said.

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