As the COVID-19 pandemic has compelled companies to keep inventory close to major consuming centres owing to the anticipated gradual recovery in demand, it is believed that India’s major warehousing hubs will witness a rise in rentals.
According to a Knight Frank report, the prime areas to see the rise in warehouse rent are Mumbai, Bengaluru and the National Capital Region—which make up about two-thirds of all warehouse stock in India.
The report suggests that these Indian cities are among the five large cities in the Asia Pacific region – the others being Shanghai and Taipei – which are expected to see a rise in warehousing rentals in the coming year.
Warehousing rentals across 17 key cities in the Asia Pacific region fell -0.02% from the previous year in the first half of 2020, while staying stable in these cities.
“The pandemic has led to a break in the supply chain across industries in the country that has resulted in an increasing demand for storage spaces from the daily necessities, electronics and FMCG sectors. A balance in demand-supply dynamics is expected to support the sustenance of an increase in growth rental.”~ Balbirsingh Khalsa, National Director – Industrial & Logistics, Knight Frank India
Since the lockdown was imposed, the demand for commercial warehouse space in large cities, especially major consumption centres, has gone up as a breakdown in the supply of essential commodities increased the need to store daily necessities, electronics and FMCG products in order to keep in check the cost-to-serve and reach-to-market.
According to a data from JLL, the overall leasing in India’s top eight cities rose to 11 million sq. ft. as on 30 June, compared to 12-quarter average of 7.3 million sq. ft.
Also, during this time, a new trend of short-term tenures was also witnessed by the warehousing sector. While typical lease tenures are for three years or longer, during the pandemic, short-term demand for warehouses with lease tenures of 6 –11 months was seen, indicating the need for companies to have substitute locations.
Abiding by the lockdown regulations and keeping in check customer satisfaction companies started to lease warehouses near areas which were showing demand. They were looking into making adjustments for the new normal. A rise in in-city warehousing was witnessed. The lockdown has increased demand for grade A warehouses, which offer more sq. ft space and better height for vertical storage, better safety mechanisms against storms or fires, and mechanized loading and unloading operations.
Furthermore, the formalization of the warehousing industry has also brought in investor interest. It has been observed that while warehousing space taken up in FY2020 saw a fall by 11% it has still grown by a robust 44% CAGR in FY2017-2020.
Most investors are expecting the warehousing sector to make the fastest recovery from the crisis globally while the other real estate sector would languish for a longer period.