The outbreak of the COVID pandemic has threatened the Indian economy and tested the resilience of the real estate segment to its limits. While the commercial real estate’s assets such as hospitality, retail, office have been severely impacted during the year, it was the warehousing market that absorbed much less heat comparatively.
Now with things appearing to go back to the pre-covid levels, the warehousing sector is shining the brightest as it successfully overcomes the challenges of Labour availability, surging cost of construction, cargo complexity, and inventory management among many others.
The latest report by Knight Frank India – “India Warehousing Market Report – 2021,” very well projects the growth trajectory of the Indian warehousing market after the turbulent year.
As per the report, in FY 2021, the warehousing transactions in the top 8 Indian cities namely NCR, Mumbai, Pune, Bengaluru, Chennai, Hyderabad, Kolkata, and Ahmedabad registered a decline of 23% year–on–year (YoY) to 31.7 mn sq ft. due to the disruption caused by the pandemic.
Chennai was the only city to witness a growth of 4% YoY to 3.5 mn sq ft in FY 2021, compared to 3.4 mn sq ft in FY 2020. While Bengaluru transaction levels remain stable, Ahmedabad and Pune were the worst-hit markets with a decline of 42% YoY each, the report revealed.
As occupiers geared themselves against the pandemic and the increasing e-commerce market more investment in Grade A properties was witnessed. As per the report, 65% of all transactions during FY 2021 were made in Grade A properties except Bengaluru and Ahmedabad.
Now as we move forward, the international property consultancy, Knight Frank India predicted that the total warehousing transactions across the 8 primary markets will grow at a CAGR of 19% by 2026.
It is estimated that the e-commerce sector will consume the most space in the next five-year block of FY 2022 – 2026 at 9.1 mn sq m (98 mn sq ft), 165% more than the preceding period of FY 2017 – 2021. Similarly, 3PL and Other Sector companies are expected to take up 56% and 43% more space in the next five years compared to the preceding period.
These three occupier groups are expected to account for 86% of the total transacted space in the next five years compared to 78% of the transacted space earlier.
Apart from the 8 major markets, the 13 secondary markets of the nation including cities like Agra, Indore, Jaipur, Nagpur, Patna, Siliguri, Vadodara, Vapi, Vishakhapatnam, etc. are also showing promising results. These secondary markets are believed to have a strong future potential as their current share in transactions has grown consistently from 12% in FY 2019 to 23% in FY 2021.
While the Indian warehousing market both primary and secondary are showcasing a strong future potential, is still at a very nascent stage and has a long way to go before tapping into its full potential.
The Indian Warehousing Market has to take a massive leap to match up with the more mature markets like the USA, China, and the United Kingdom.
India has a per capita warehousing stock of just 0.02 sq m compared to the USA, China, and the United Kingdom that have 4.4 sq m, 0.8 sq m, and 1.09 sq m respectively.
The e-commerce sector has been the biggest driver of warehousing across developed markets globally. The share of online sales in the UK had spiked from 19.2% in 2019 to a steep 33.4% in May 2020 showing the dominance and scalability of the online marketplace even in a mature market.
“With only 4.7% penetration in India (2019 est), we believe that the Indian e-commerce market is on the cusp of its next phase of growth with Indian business giants such as the Reliance and Tata groups entering the fray along with global behemoths Amazon and Walmart to capture this massive market,” the report read.
A growing economy like India holds massive potential for its warehousing market, which will fructify over the next few years.