Led by online retailers as well as investors looking for an alternative asset class beyond commercial offices and shopping malls, the Covid-19 pandemic has unsurprisingly created a huge demand for warehousing space.
Even as supply-side disruptions continue with expected delays in construction of warehousing hubs, the sector is set to become a sought-after investment opportunity with the need for high-quality, automated facilities for smooth supply chain processes now more than ever.
“There is a huge interest from investors, who earlier looked at office and retail sectors, to venture into the warehousing space. With e-commerce penetration expected to rise significantly, and physical shopping facing a setback, this will emerge as the new growth sector," said Chandranath Dey, head-industrial operations and business development at JLL India.
As of 2019-end, India had a total warehousing stock of 211 million sq. ft, of which 88 million sq. ft is classified as Grade A space. Traditionally, third-party logistics (3PL) and manufacturing sectors comprised the majority of the warehousing consumption with e-commerce at the third spot. The trend will likely shift with e-commerce expected to drive demand in the coming quarters, Knight Frank India said in a report. The share of online retailers rose to 23% in 2019-20, from 14% in 2018-19 and is set to further surge, the report said.
Due to the uncertainty of demand for commercial office in the short to medium-term, the norm of work-from-home, and malls facing turbulence, the warehousing sector is still expected to grow despite short-term hurdles.
Developers, too, want to cash in on the opportunity. Embassy Industrial Parks, part of Embassy Group, has several warehousing and industrial facilities. It plans to break ground for a new hub in Hyderabad this year and also start developing a new facility in Hosur.
Shishir Baijal, chairman and managing director at Knight Frank India, said, “Despite the slowdown and the pandemic, warehousing market has remained largely resilient, recording growth of 44% CAGR in the last three years. Demand has been strong from industries such as 3PL, e-commerce, FMCG and pharma."
With a covid-19 induced shift in buying behaviour, e-commerce growth is likely to accelerate post-pandemic as well. This will further increase the share of e-commerce in warehousing demand in the medium to long-term.
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