Falling demand contracts e-commerce’s share of warehouse leasing to 3%

The easing of the pandemic has led to demand faltering for e-commerce companies. As per reports, e-commerce companies’ share in warehousing space leasing has fallen to 3% amid declining demand from more than 20% during Covid-19. This is even as bricks-and-mortar rivals rented 14% of space during the January-June period as they witnessed a demand resurgence.

As per data by Savills India, in 2020, during the pandemic, e-commerce took more than a fifth of warehouse space while physical retailers had a 9% share.

The overall leasing activity in India continued to grow, with a total space take-up of 22.4 million square feet in the first six months of 2023, up from 20.9 million sq ft a year ago.

“E-commerce companies had over-committed space during Covid, expecting the exponential growth they experienced at that time to continue. There are many facilities where they continue to pay rentals without utilizing the full space,” said Gagan Randev, executive director, of India Sotheby’s International Realty.

According to Savills data, after increasing demand for warehousing space over the past five years, tier-2 and tier-3 cities saw the share of e-commerce decline to 4% in the January-June period from 34% a year ago.

“In the past three years, year-on-year space absorption from e-commerce has undergone a significant change due to increased investments in their warehousing operations and footprint optimization through automation, shelving, and improved racking systems. These investments have enabled them to increase their existing storage space and enhance overall operational efficiency.”

Srinivas N, managing director, of Industrial and Logistics, Savills India

As per experts, companies are now on the lookout to outsource the space they had taken during the pandemic.

“E-commerce overbuilt the capacity as Covid-led growth was harvested by them. Now that capacity is vacant. That’s why you see a lot of marketplaces trying to externalize their services. That is not coming out of a business model, that is coming out from vacant space,” said Ashvini Jakhar, founder of Prozo, which manages supply chains for companies.

The first half of 2023 witnessed the third-party logistics sector driving up continuous warehouse demand, accounting for 44% of the total absorption, up from 37% a year ago. This was followed by the manufacturing sector (22%), retail (13%), and fast-moving capital goods and consumer durables sector (6%).

“E-commerce, grew exponentially during Covid when physical retailers were constrained by prevailing conditions and immediately after that when chain stores were still recovering from the pandemic shock, However, the retail business in India is predominantly offline; as demand continues to grow overall, it is only natural for physical retailers’ growth to be driven by the market’s momentum and that would be reflected in.”

Devangshu Dutta, founder of retail consulting firm Third Eyesight

For most retailers, after Covid-19, the warehouse is the epicenter of an omnichannel distribution network for offline as well as online clientele.

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