Warehousing Outlook 2022
The warehousing and logistics segment of real estate that has emerged as a relatively risk immune to the shocks of the Covid19 pandemic is expected to gain further strength and attract more investment in the year 2022 led by demand from the e-commerce and third-party logistics (3PL) players.
According to industry estimates, transactions for the warehousing segment are estimated to grow at a compounded annual growth rate (CAGR) of 20% to 45.9 million sq ft in the financial year 2022-23 from 31.7 million sq ft in 2020-21. The share of e-commerce entities in the total transaction volume is projected to increase to 36% from 31% during this period, showed data from JLL India. The year 2021, has seen rapid acceleration in the number of transactions in terms of land acquisition and leasing of warehousing space, this is expected to grow twofold in 2022.
Additionally, the emergence of tier II and III cities as potential consumer and realty markets have expanded the scope for the sector creating opportunities to build proper storage facilities, ease transportation and logistics costs, reduce traffic congestions and improve the infrastructure.The Indian logistics and storage sectors are on the verge of transformation, thanks to the implementation of the Goods and Services Tax (GST) and the rise of ecommerce.
While demand in other commercial real estate segments has been dampened in recent quarters, the warehouse market has stood out, owing to the growth of e-commerce and third-party logistics.
Grade A properties will be in demand in 2022 and this demand is anticipated to increase in the coming years due to changing developer preferences and adherence to safety and hygiene norms during COVID-19. Warehousing sizes are expected to grow further in 2022 with companies looking to move to the OPEX model from CAPEX. The box size has grown significantly from 20,000 sq ft five years ago to even a million sq ft now.
According to industry estimates, e-commerce companies like Flipkart and Amazon have leased over a quarter of India's total warehouse capacity in the last two years. This is projected to accelerate further because of a wider shift in consumer purchasing behaviour following the advent of the COVID-19 pandemic.
The industrial segment is also likely to see more investments led by large global investors buying ready and greenfield warehousing spaces this year with expectation of higher returns. The segment has seen some large funds like IndoSpace, ESR, Logos and Blackstone allocating higher capital to this segment. However, rentals will continue to be stable with more supply hitting the market.
The logistics and industrial real estate sector have been showing robust growth across the country over the last few years following the implementation of the Goods and Services Tax (GST). The demand in this segment will continue to rise given the urbanization, rising consumption led by younger demographics and so will the investments.
The year 2022 is also likely to witness the emergence of tier II cities with private equity funds looking to invest in secondary cities in the country, which are witnessing greater warehousing absorption with big ecommerce companies.
Over 15 small cities including Lucknow, Raipur, Bhopal and Vadodara will be witnessing greater warehouse demand since the Covid-19 pandemic started and experts say that the cities are now witnessing 100,000 to 200,000 sq. ft deals compared to 25,000 – 50,000 sq. ft deals that were signed earlier.