Industrial real estate shows resilience in March led by e-commerce, pharma2 min read . Updated: 11 May 2020, 10:36 AM IST
- FMCG, e-commerce, pharmaceuticals, and cold storage will see an increased growth and demand for additional warehousing space in the medium term
- Fundamentals of the industrial and logistics sector are strong and set to take a faster revival route among major real estate asset classes
Mumbai: Demand for e-commerce and pharmaceutical services have helped India’s industrial and logistics real estate industry remain the most resilient asset class in the first quarter of 2020, according to a report by JLL on Monday.
In the medium term, sectors such as FMCG, e-commerce, pharmaceuticals, and cold storage will see an increased growth and demand for additional warehousing spaces, while facility management and quality will command a premium, as per JLL’s latest report 'Covid-19: Industrial & Logistics Sector in India', released.
As covid-19 has significantly impacted businesses and economy worldwide, consumers have shifted to online buying. A poll conducted during recently held JLL Industrial & Warehousing Webinar showed approximately 75% of respondents believe the industrial and logistics asset class will have the fastest recovery among other real estate asset classes. Meanwhile, 65% of respondents feel COVID-19 will catalyze manufacturing investments in the country.
“The quarterly new supply addition is higher than the average quarterly new supply addition of first quarter in the last three years (between 2017–2019) which demonstrates that the impact of lockdown has likely not set in yet," says the report. Modest absorption amid uncertainties show the fundamentals of the industrial and logistics sector are strong and are set to take a faster revival route among major real estate asset classes, said Ramesh Nair, CEO and Country Head, India, JLL.
India’s warehousing sector, driven by new supply in eight major metros --Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, Delhi NCR and Pune -- saw an approximately 15% contraction (in mln sq. ft.) during January-March. Net absorptions stood at 5.9 mln sq ft amid the lockdown across the country started March.
The projected supply of speculative spaces may be delayed by a quarter or two, which will also be influenced by factors including protracted labour shortages, added the report.
As the impact of the national lockdown becomes clearer, leases and active request for proposals that were in various stages of closure are likely to be completed in the third and fourth quarters of 2020. Post lockdown, demand is likely to be driven by e-commerce and third party logistics companies which will continue to explore urban spaces. Grade A properties will be more attractive to occupiers due to health and safety considerations.
Pent-up demand and project closures may be pushed by two quarters with an expected spark in activities by Q4. However, the fundamentals of the sector remains strong and the biggest advantage for India is its potential to capture manufacturing demand as companies reposition their global supply chains from a business continuity planning (BCP) standpoint.
The lockdown had frozen supply chains across multiple sectors, both in production and stockpiling. “These restrictions have also limited transactions in the growth-oriented e-commerce sector," added the report. However, after the lockdown, a change in consumer behavior is expected to benefit e-commerce and e-payments, which is already being observed through movements of essential commodity.
The report highlights that the medium-term will experience an uptake in demand of urban logistics and in-city warehousing. The logistics sector is expected to see long-term growth as e-commerce expands and with enhanced infrastructure support. Sectors such as like auto, heavy machinery and chemicals, may look for short-term rent abetments for one-to-two months.
“Occupiers will re-align their overall real estate strategy based on post-Covid-19 scenarios, such as labor, consumer demand and government support," the report said.