Decoding the rising trend for In-city Warehousing: Scope and Challenges

Incity warehousing sees a rising trend

As the threat posed by COVID brings to the forefront the concept of home deliveries and hypes up e-commerce, it is anticipated that the demand for in-city warehousing will see a multi-fold increase.

As per a report, the demand for small warehouses within city limits is expected to rise over the next year as e-commerce firms are targeting to ensure same-day deliveries of food and groceries items to customers.

E-commerce which is likely to be the first on demand pie contributing to the rise of in-city warehousing has earlier also proved itself as a key occupier of the sector.

Before COVID had struck the nation, e-commerce stood at 14% share in warehouse demand in FY2018 and 24% in FY 2019. It was second only to the third-party logistics segment, as suggested by a report released by Knight Frank. 

Also Read: E-commerce players amplify warehousing operations ahead of the festive season

As the e-commerce segment makes a swift dash towards a new normal, they re-align their focus on same-day delivery of groceries and food items. Thus, creating a demand for warehousing of 5000-10,000 sq ft size, said property consultant Colliers International.

As per the consultant, e-commerce companies are now trying to stock a larger proportion of inventory closer to their customers’ locations for efficiency and to improve the quality of products upon delivery.

The report said, “Over the next 12 months, we believe in-city warehousing will gain traction, to be used as small distribution hubs. We expect occupiers to scout for in-city warehousing space in the range of 5,000-10,000 sq ft in major demand hubs such as Mumbai, Bengaluru and Chennai and the NCR.”

Even the older and lesser utilised ground level office spaces and service centres are being considered to set up small warehouses.

The e-commerce sector was already on a growth trajectory in the nation after the lockdown and closure of malls have further helped this sector to flourish due to less competition. And, anticipating the potential of the sector, many businesses have adapted to omnichannel models and are thus scrambling for additional warehouse capacity across cities.

As the need to have in-city warehouses increases by the hour a new trend of multi-storey warehousing will be seen.

The new model of warehousing will not only help companies deliver in a timely manner but also minimise the transportation cost.

As per the Knight Frank report, depending on the Indian Market, 2 storey (G+2) or 3 storey (G+3) structure of multi-storey in-city warehousing are the most suitable.

It also suggests that a land of 4-8 acres is suitable to this new model as compared to the peripheral market projects that are spread across a minimum of 30 acres.

While the adoption of a new model of warehousing brings in multiple benefits, companies will face challenges in finding the right place and the cost of warehousing in the city.   

The Knight Frank report says that finding 4-8 acres of land parcels with even shapes (rectangle/square) that can accommodate 50-60% of ground coverage and FSI utilization of 1.2 to 1.5 will be a challenge.

Further it says that the cost will go up significantly as an in-city warehouse for an RCC structure of 2-3 storey will cost INR 2500-3000 per sq. ft., while in a peripheral structure it costs INR 1200-1800 per sq. ft. 

Also, it will be challenging to find plot frontage and adequate access road for cargo vehicle movement in the cities. Despite the challenges that the companies foresee, it is believed that the market participants will consider highlights that serve the city consumption within a transit time of 3-4 hours and will make a shift which will be initially explored by markets like Delhi, Mumbai and Bengaluru.

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