Demand for logistics & warehousing space outstrips supply; to clock approx. 38mn sq-ft by end 2019
Structural reforms and implementation of GST have bolstered demand
Structural reforms including the awarding of infrastructure status and the implementation of GST, have bolstered the demand for logistics and warehousing space in the country. As a result, demand has outstripped the supply according to JLL’s latest report, Indian Logistics and Warehousing: Tracing the Lifecycle.
The report said that annual demand of around 32 mn sq-ft has outstripped the supply of 31 mn sq-ft witnessed for the first time in last four years. With January-March period of 2019 already witnessing 8.4 mn sq-ft of absorption, it is expected to clock approx. 38 mn sq-ft by end of 2019. With high demand, lease transactions have remained high so far, it added. Alongside the rise in transactions, the share of Grade A spaces leases have also gone up in the past four years, it said. Of the total 32 mn sq-ft of industrial and logistics leases in 2018, 56% were concluded in Grade A spaces.
Sectors such as 3PL/logistics, engineering, auto & ancillary, e-commerce, FMCG, retail and telecom & white goods have remained the biggest demand drivers. As a result of the high demand, logistics sector is expected to grow to $215 bn by 2020.
Ramesh Nair, CEO & country head, JLL India, said, “Favourable investment regulations have made the deployment of development funds a lot easier than it used to be in the past. Moreover, the infrastructure status as expected has added strength to the development pace. GST implementation has brought in a uniform tax regime and has removed the challenges relating to logistics supply chain, making it easier for operators in the space to expand across geographies.”
Yogesh Shevade, head, industrial services, JLL India, said, “There is huge potential in the logistics and warehousing sector. With high demand for high-quality logistics facilities and increasing market maturity, the space is set to grow from this stage. However, development side continues to witness challenges on account of problems such as land aggregation, tax parity etc.”
“Hopefully, we will witnessing easing of these challenges with further reforms,” Shevade added.
The sector, as a result of these developments, has witnessed a regular upward trend in average rents in the past three years. The trend is expected to continue in coming years, the report added.
The liquidity infused by global investors is prompting the market to move towards organized and globally accepted warehousing space - Grade A/globally accepted warehousing space has more than 50% savings on rent per pallet position over Grade B spaces. While in operation, in the future we will see mechanised and automated material handling facilities. These will bring in the much needed efficiency enhancement leading to as much as reduction of upto 30% in logistics cost. In a well-maintained warehousing facility, technology and planning of maintenance can optimise Common Area Maintenance charges significantly.