The logistics sector in India is witnessing unprecedented structural shifts in the form of automation, leading to a blurring of lines with the retail sector, the transformation of supply chains and growing investments. From an increasing number of policy incentives to tech-enhanced warehouses, the sector is now seeing a change in every aspect of its operations. These factors are likely to create a favorable business environment and position India among the most attractive investment destinations for the logistics industry in the coming quarters.
Logistics leasing in the country recorded a growth of 31% compared to H1 2018, crossing 13 million sq. ft. in H1 2019. Out of all the cities, Mumbai, Chennai and Bangalore accounted for more than 60% of leasing activity during the time period. All cities, except NCR, Bangalore and Chennai witnessed a marginal rise in space take-up during H1 2019. 3PL firms, accounting for about 56% of the leasing activity, drove space take-up during H1 2019 and were followed by e-commerce players (9%) and retail firms (8%).
Small-sized transactions (less than 50,000 sq. ft.), dominated logistics space take-up, accounting for about 38% of the leasing activity in H1 2019. The share of medium-sized transactions (ranging between 50,000 sq. ft. and 100,000 sq. ft.) rose from 26% in H2 2018 to 32% in H1 2019. Furthermore, large-sized deals (greater than 100,000 sq. ft.) accounted for 30% of the leasing activity during H1 2019.
As technology permeates the sector, demand for quality space is escalating and corporates across segments are opting for large, modern warehouses. Advances in technology, particularly automation, will continue to enhance the specifications and operations of logistics assets, thereby pushing older, inferior-grade properties down the demand pyramid. Cities such as NCR, Mumbai, Bangalore are expected to dominate the supply pipeline, with the average size of warehouses in NCR and Mumbai likely to exceed 1 million sq. ft. Other cities such as Chennai, Hyderabad, and Pune are also expected to witness supply addition, but the average size of the development is expected to be in the 0.3 - 0.5 million sq. ft. category. In order to satiate the demand for quality spaces, domestic companies would continue to partner with foreign players to seize the growth opportunity that the sector is offering.
Moreover, since the majority of the demand is from players seeking quality and technology-compliant spaces, large-scale developments in the logistics sector have started to spring up across the country. Although a majority of the sector is unorganized, the entry of international players has resulted in the emergence of quality assets. While the overall supply (investment-grade and inferior grade) for the sector is expected to be around 60 million sq. ft. till 2020, at least 22 million sq. ft. of this supply is estimated to be in the investment-grade category
For H2 2019, it is expected that the supply-constrained locations will continue to deliver rental growth, with new logistics hubs also emerging across cities in response to labor availability and land shortage. Prime locations likely to witness rental growth in coming months include NH-8 in NCR; Bhiwandi in Mumbai; Western and Northern Corridors in Chennai; Northern Corridor in Hyderabad; and NH-2 and NH-6 in Kolkata.
At last, H1 2019 marked two years of implementation of the GST, which has resulted in an increasing number of consolidation/expansion deals by both industrial and logistics occupiers – a trend that is expected to continue. The sector is also likely to attract significant investments – as indicated by the latest report titled “CBRE APAC Investor Intention Survey, 2019” that, India was among the top 5 investment destinations in APAC and Industrial & logistics was one of the top segments expected to be targeted by investors in 2019.