Post Date : May 12, 2020
The logistics and warehousing sector is on a path of recovery, despite industrial and logistics demand dropping by 30% in Q1 2020- as per JLL’s recent report.
The warehousing absorption rate in the first quarter of 2020 stood at nearly six million square feet, according to a report by JLL. However, this has dropped by 30% with respect to the previous first quarter of last three years (2017 – 2019) , thus exhibiting a contraction due to the nationwide lock down.
India’s warehousing sector, that is driven by new supply in eight major metros including Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, Delhi NCR and Pune witnessed an approximately 15 percent contraction (in mn sq. ft.) during January-March, the first quarter of 2020. The report stated that amid the nationwide lockdown, net absorptions stood at 5.9 mn sq ft.
JLL India expects restricted leasing activities during the second quarter of 2020 calendar year. New supply will also get deferred because of the lockdown to control the spread of COVID-19.
As COVID-19 has significantly impacted businesses and economy worldwide, consumers have shifted consumption activity to online transactions, according to JLL’s report COVID-19: Industrial & Logistics Sector in India. Impact and Opportunities.
However, it seems that despite contraction in demand, the logistics and warehousing sector is on the road to recovery.
“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,” JLL said in the report.
“Modest absorption amidst the COVID-19 uncertainties hints that the fundamentals of the industrial and logistics sector is strong and set to take a faster revival route among major real estate asset classes.”~Ramesh Nair, CEO and Country Head, India, JLL
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.
“The extended lockdown in the country will also impact the under-construction projects resulting in an attenuated supply in the short-term. However, absorptions and demand in the warehousing sector are likely to take a positive turn in the medium-to-long term phase.”~Yogesh Shevade, Head, Industrial Services, India, JLL.
The impact on the logistics sector
The lockdown has frozen supply chains across multiple sectors, both in production and stockpiling. “These restrictions have also limited transactions in the growth-oriented e-commerce sector,” according to the report.
Change in consumer behaviour to boost E-com:
However, after the lockdown, a change in consumer behaviour is expected to benefit e-commerce and e-payments, which is already being observed through movements of essential commodities. The report 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 FMCG, e-commerce, pharmceuticals, and cold storage will see increased growth and demand for additional warehousing spaces. On the other hand, few sectors like auto, heavy machinery and chemicals, may look for short-term rent abetments for one-to-two months.
“Investors might remain cautious, critically scrutinizing portfolios before deploying capital for investments. However, the industrial asset class might emerge as a safer investment option compared to other real estate asset classes,” JLL said.
JLL’s latest report is titled “COVID-19: Industrial & Logistics Sector in India. Impact and Opportunities.”
In another report by Ken Research, it has been predicted that the Indian Logistics Market is Expected to cross USD 300 Billion by 2024.
The report titled “India Logistics Market Outlook to FY24 – Driven by Government Infrastructure Push, New Age Logistics Startups, and Technology Innovation” provides a detailed analysis on the status of the logistics sector in India. The report covers various aspects including the current logistics scenario in India, its components viz, freight transportation, warehousing, CEP, VAS, and cold chain industries, the issues and challenges, major growth drivers, investment in infrastructure,etc.
The report concludes with market projections for future of the industry including forecasted industry size by revenue.
Increasing use of air freight for perishables:
According to the Ken Research report,air freight is expected to ship 6.5 mn tonnes by 2024, and 10 mn tonnes by 2024. This growth will be primarily driven by express freight, perishables, and international trade.
Focus on road sector to continue:
Focus on road infrastructure and dependence on roads for freight transport is expected to continue. Container trucks proportion in the market is expected to rise in the future due to its versatility and resistance to adverse weather.