CBRE REALTY BYTES: Warehouse leasing crossed the 25 million sq. ft. mark in 2018; grew by more than 45% on a y-o-y basis in 2018

• E- commerce accounts for ~23% of overall warehousing space take up in 2018
• Consolidation by leading players led to the average size of warehouse leasing by e-tailers going up by 2.3 times in a year – averaging around170,000 sq. ft. in 2018
• Demand for better quality space resulted in rents rising by 10-25% y-o-y in 2018

New Delhi, June 11, 2019: CBRE South Asia Pvt. Ltd, India’s leading real estate consulting firm, today announced the findings of its latest report, the third in the series - “ONLINE RETAIL DRIVING REALTY – ELEVATING THE E-COMMERCE GAME”. The report examines the link between online retailing (e-tailing) and the logistics sector and the impact of GST on the leasing of warehousing spaces in the country.

As per the report, the impressive growth of the e-commerce sector has been on the back of favourable policy reforms, tech-enhanced warehouses, rising smartphone and internet penetration, digital India movement, amongst others. This has upstretched the share of e-commerce in overall warehousing leasing uptake from 10% in 2017 to 23% in 2018.

Anshuman Magazine, Chairman and CEO, India, South East Asia, Middle East and Africa, CBRE, said: “The sector has seen unprecedented growth and we expect supply to touch almost 60 million sq. ft. by the end of 2020. Innovative technologies, coupled with viable government reforms such as GST and other global collaborations will further push the envelope of development for the Indian logistics sector and given the dynamics at play, demand and supply are both poised to burgeon in the coming years”.

As indicated above, in line with the increase in demand, supply addition is expected to witness a considerable spike. While supply is on the upswing, quality is also expected to improve as large-scale tech-backed logistics facilities are coming up around the country, at par with established global standards. While the overall warehousing supply (grade A and inferior grade) for the sector is expected to be around 60 million sq. ft. till 2020 end, at least 22 million sq. ft. of this supply is estimated to be in the grade A category.

Commenting on the growth of the sector, Jasmine Singh, Senior Executive Director – Advisory & Transaction Services, India, CBRE said, “We anticipate warehouse leasing activity to remain vibrant going forward, driven by continued demand from e-tailers, policy impetus and growing demand from Tier II cities. Modern tech-powered warehouses will rule the roost, pushing inferior grade properties down the demand pyramid. Serious players with a long-term view would also eventually consider ‘green’ logistics networks. As the sector evolves, we can expect to see the addition of more variables to the warehousing equation - supply chain modernization, growing foray of tech and AI, optimization of delivery networks and greater synergy between retail and logistics networks.”

Download the report here

In terms of trends more specific to e-commerce warehousing, in the long run; e-commerce players / retailers may collaborate and share fulfilment centres to rationalise costs. This will lead to mushrooming of small-scale warehouses, especially in regions close to highly-populated residential catchments. Omnichannel retail will further drive warehouse demand from companies seeking deeper access to more neighbourhoods. Urban distribution networks will need to be optimized for last-mile delivery to enhance delivery speed. There is also likely to be a closer integration of last-mile logistics and bricks-and-mortar retailing as operators strive to improve efficiency. Retail store networks and logistics operations will be viewed as one to ensure that consumer orders are fulfilled in the fastest and the most efficient way.

The increased demand would also pave way for opportunities such as asset enhancements and redevelopments. Many grade B warehouses located close to cities will undergo redevelopments as per occupier specifications. Developers are likely to gain from the rental increase and occupiers will gain from the improved infrastructure.

Moving forward, the logistics sector will witness greater digitization and will be revolutionized by five megatrends - increased use of IoT, big data, robotics, automation and over the course of time, blockchain. Physical internet could also be a very real possibility, considering that players are looking at optimizing logistics costs over the long-term.

In the long run, e-commerce players / retailers may collaborate and share fulfilment centres to rationalise costs. This will lead to mushrooming of small-scale warehouses, especially in regions close to highly-populated residential catchments.

Omnichannel retail will further drive warehouse demand from companies seeking deeper access to more neighbourhoods. Urban distribution networks will need to be optimized for last-mile delivery to enhance delivery speed. There is also likely to be a closer integration of last-mile logistics and bricks-and-mortar retailing as operators strive to improve efficiency. Retail store networks and logistics operations should be viewed as one to ensure that consumer orders are fulfilled in the fastest and the most efficient way.

CBRE anticipates a bright future for the logistics and e-commerce sectors in the country. This is on the back of intrinsic strengths of India - the most important of which is the inherent consumer-demand led growth of both sectors and the continued willingness of all players to work together for creating cross-industry efficiencies. The true question is thus not really if sustainability of the e-commerce and logistics sectors is a possibility, but rather how soon would these sectors reach their true potential and see heightened growth in the country.