Annual warehousing transactions for top 8 Indian cities projected to grow at 19% CAGR over next 5 years
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Annual warehousing transactions for top 8 Indian cities projected to grow at 19% CAGR over next 5 years

Knight Frank India, an international property consultancy, in their latest report - ‘India Warehousing Market Report – 2021’, projects that annual warehousing transactions for top eight Indian cities (primary markets) will grow at a compound annual growth rate (CAGR) of 19% to 76.2 mn sq ft (7.08 mn sq m) by Financial Year (FY) 2026 from 31.7 mn sq ft (2.95 mn sq m) in FY 2021. As per the projections for the next 5 years (FY 2022 – FY 2026), the e-commerce segment is expected to take up significant space estimated to be 98 mn sq ft (9.1 mn sq m) , approximately registering an increase of 165% from the preceding period of FY 2017 – 2021. Third Party Logistics (3PL) and other Sector companies are expected to take up 56% (83 mn sq ft) and 43% (53 mn sq ft) more space respectively, over the same reference period.

With respect to total land committed to the warehousing development in the top 8 cities is approximately 22,488 acres, which will translate to a total buildable potential of up to 531 mn sq ft. Existing warehousing stock already accounts for 329 mn sq ft on this committed land, leaving about 202 mn sq ft of potential warehousing space that can be developed in these land parcels.

ESTIMATED WAREHOUSING TRANSACTIONS BY SECTOR:

Sector

Transactions FY17 - FY21 mn sq m (mn sq ft)

Projected Transactions FY22 - FY26 mn sq m (mn sq ft)

Change

E-commerce

3.4 (37)

9.1 (98)

165%

3PL

4.9 (53)

7.7 (83)

56%

Other Sectors

3.4 (37)

4.9 (53)

43%

FMCD

0.7 (8)

0.9 (9)

20%

FMCG

0.8 (8)

0.9 (10)

15%

Retail

1.4 (15)

1.5 (16)

7%

Miscellaneous

0.4 (4)

0.4 (4)

1%

Total

15.1 (162)

25.4 (273)

68%


Source: Knight Frank Research

Notes: Warehousing transaction includes light manufacturing/ assembling apart from storage. Other Sectors include all manufacturing sectors (automobile, electronics, pharmaceutical, etc.) excluding FMCG and FMCD. Miscellaneous category includes services such as telecom, real estate, document management, agricultural warehousing and publishing.

In FY2021, the warehousing transactions in the top 8 Indian cities registered a decline of 23% YoY to 31.7 mn sq ft. This decline can be attributed to the disruption caused by the pandemic and the associated lockdowns that brought economic activity to a near halt and adversely impacted occupier decisions. Chennai was the only city to witness a growth of 4% YoY to 3.5 mn sq ft in FY 2021, compared to 3.4 mn sq ft in FY 2020. While Bengaluru transaction levels remain stable, Ahmedabad and Pune were the worst-hit markets with a decline of 42% YoY each.

Occupiers showed a marked preference for Grade A properties as they are much better geared toward tackling exigencies such as those posed by the pandemic. Increased demand by e-commerce companies also resulted in increased preference for Grade A properties. 65% of all transactions during FY 2021 were in Grade A properties with the exception of Bengaluru and Ahmedabad, more than half the area transacted in all the top markets occurred in Grade A properties.

The report also evaluates 13 secondary markets. These markets show strong future potential as their current share in transactions have grown consistently from 12% in FY2019 to 23% in FY2021. Secondary markets accounted for 0.9 mn sq m (9.7 mn sq ft) of warehousing transactions during FY 2021.

Shishir Baijal, Chairman & Managing Director, Knight Frank India, said, “The past five quarters have been nothing short of a roller coaster ride as successive infection waves adversely impacted human life. During this period, most commercial real estate asset classes have been impacted by the headwinds including the Indian warehousing sector. But inherent strength of the Indian economy, strong domestic consumer base and some unique opportunities arising out of the pandemic have mitigated the impact on the warehousing sector.”

He added, “Supply chain disruptions from the pandemic have intensified the need for more institutional players in the warehousing segment which will ensure institutionalisation of the warehouse space, leading to greater participation from the big developers. In the short run occupier activities will be dictated by the intensity of the pandemic however in the long -term perspective the sector should gain momentum aligning itself to India’s economy development trajectory.”

The warehousing space per capita in India is significantly lower than in developed economies. With the critical business objectives that a supply chain serves, industrial and warehousing spaces have a long runway for growth in this country. This premise also builds a pathway to progress on the maturity curve for the sector and promotes increased institutional participation.

TOTAL WAREHOUSING TRANSACTIONS ACROSS THE 8 PRIMARY MARKETS:


Source: Knight Frank Research

EXISTING AND PROJECTED SECTOR SPLIT OF WAREHOUSE DEMAND:

The e-commerce sector is expected to see the maximum growth in warehousing transaction volumes among all sectors over the FY2022-26 period, with its share of annual transactions growing from 31% currently to 37% in FY2026. E-commerce, 3PL and other sectors are expected to account for 86% of the total warehousing transacted space in the next five years (FY2022-26) compared to 78% of the transacted space during FY 2017-21.

Source: Knight Frank Research

Notes: Warehousing transaction includes light manufacturing/ assembling apart from storage. Other Sectors include all manufacturing sectors (automobile, electronics, pharmaceutical, etc.) excluding FMCG and FMCD. Miscellaneous category includes services such as telecom, real estate, document management, agricultural warehousing and publishing.

ANNUAL WAREHOUSING TRANSACTION:

Though there is a YoY fall in transaction volumes in FY 2021, demand has grown at a CAGR of 23% in the FY 2017-21 periods.

Warehousing leasing

FY 2021

% Change

CAGR

City

in mn sq m (mn sq ft)

FY 2021 YoY

FY 2017-21

NCR

0.6 (6.9)

-20%

25%

Mumbai

0.5 (5.8)

-23%

39%

Bengaluru

0.4 (4.3)

0%

35%

Chennai

0.3 (3.5)

4%

17%

Kolkata

0.3 (3.1)

-22%

23%

Ahmedabad

0.3 (3)

-42%

14%

Pune

0.3 (2.8)

-42%

9%

Hyderabad

0.2 (2.4)

-30%

18%

Total

2.9 (31.7)

-23%

23%

Source: Knight Frank Research

COMPARING INDIAN WAREHOUSING MARKET WITH OTHER COUNTRIES

The E-commerce sector has been reported as a major demand driver for warehousing markets all across the globe. The e-commerce market in India is still in its infancy, with market penetration at 4.7% (2019 est.). The growth potential for the segment has been substantial in mature markets of UK and USA. The entry of Indian business giants in the space signifies that the e-commerce segment is at the cusp of its next phase of growth.

The table below depicts the massive gap between the size of the Indian warehousing market and more mature markets of the USA, China and the United Kingdom. India has a per capita warehousing stock of just 0.02 sq m compared to the USA, China and the United Kingdom that have 4.4 sq m, 0.8 sq m and 1.09 sq m respectively.

Country

GDP Constant Prices (USD tn)

Population (mn)

GDP Per Capita (USD)

Warehousing Stock (mn sq m)

Warehousing Stock Per Capita (sq m)

United States of America (USA)

18.3

328

55,753

1,446

4.4

United Kingdom

2.9

67

43,710

73

1.09

China

11.5

1,397

8,242

1,060

0.8

India

2.9

1,366

2,152

30.9

0.02

Source: World Bank, China Logistics Research Association, Knight Frank Research

STOCK SPLIT BY GRADE

The Report highlights that the development of Grade A warehousing facilities has increased in recent years, currently constituting 35% of the total stock compared to 34% in FY 2020. Pune (71%) and Chennai (71%) have the highest concentration of Grade A stock due to their primary demand base of auto and auto ancillary occupiers. Mumbai (18%) and NCR (29%) being older markets have a significantly lower proportion of Grade A warehouses.

Market

Grade A

Grade B

Pune

71%

29%

Chennai

71%

29%

Hyderabad

56%

44%

Kolkata

56%

44%

Bengaluru

42%

58%

Ahmedabad

30%

70%

NCR

29%

71%

Mumbai

18%

82%

Total

35%

65%

Source: Knight Frank Research

SECONDARY MARKET DEMAND SURGES

As per the report, warehousing demand in secondary markets has grown 31% YoY compared to a 23% YoY de-growth for primary markets, in FY 2021. The secondary markets contribute around 23% of overall warehousing demand in India. Among the secondary markets, Indore and Jaipur noted exponential growth of 306% and 219% respectively in FY 2021.

Row Labels

FY 2021

mn sq m (mn sq ft)

YoY Growth

Ambala-Rajpura

0.11 (1.2)

-47%

Lucknow

0.1 (1.1)

157%

Bhubaneswar

0.01 (0.1)

-73%

Coimbatore

0.11 (1.2)

31%

Guwahati

0.08 (0.8)

14%

Indore

0.12 (1.2)

306%

Jaipur

0.1 (1)

219%

Ludhiana

0.04 (0.5)

31%

Patna

0.02 (0.2)

-69%

Siliguri

0.04 (0.4)

100%

Vadodara

0.04 (0.5)

183%

Surat

0.08 (0.8)

80%

Vapi

0.06 (0.6)

296%

Source: Knight Frank Research

WAREHOUSE RENT

Rent growth faced significant headwinds in the challenging market with occupiers negotiating hard for incentives like rent-free periods and delaying contractual escalations to tide over liquidity issues.

Market

FY 2020 INR/sq.m./month (INR/sq. ft./month)

FY 2021 INR/sq.m./month (INR/sq. ft./month)

YoY Change

Mumbai

235 (21.9)

218 (20.2)

-7%

Bengaluru

212 (19.7)

202 (18.8)

-5%

Ahmedabad

171 (15.9)

167 (15.5)

-3%

Chennai

235 (21.8)

229 (21.3)

-3%

Hyderabad

214 (19.9)

210 (19.5)

-2%

Kolkata

223 (20.8)

221 (20.6)

-1%

Pune

249 (23.1)

248 (23)

-1%

NCR

191 (17.7)

193 (17.9)

1%

Source: Knight Frank Research

Image Source

Knight Frank India, an international property consultancy, in their latest report - ‘India Warehousing Market Report – 2021’, projects that annual warehousing transactions for top eight Indian cities (primary markets) will grow at a compound annual growth rate (CAGR) of 19% to 76.2 mn sq ft (7.08 mn sq m) by Financial Year (FY) 2026 from 31.7 mn sq ft (2.95 mn sq m) in FY 2021. As per the projections for the next 5 years (FY 2022 – FY 2026), the e-commerce segment is expected to take up significant space estimated to be 98 mn sq ft (9.1 mn sq m) , approximately registering an increase of 165% from the preceding period of FY 2017 – 2021. Third Party Logistics (3PL) and other Sector companies are expected to take up 56% (83 mn sq ft) and 43% (53 mn sq ft) more space respectively, over the same reference period. With respect to total land committed to the warehousing development in the top 8 cities is approximately 22,488 acres, which will translate to a total buildable potential of up to 531 mn sq ft. Existing warehousing stock already accounts for 329 mn sq ft on this committed land, leaving about 202 mn sq ft of potential warehousing space that can be developed in these land parcels.ESTIMATED WAREHOUSING TRANSACTIONS BY SECTOR:SectorTransactions FY17 - FY21 mn sq m (mn sq ft)Projected Transactions FY22 - FY26 mn sq m (mn sq ft)ChangeE-commerce3.4 (37)9.1 (98)165%3PL4.9 (53)7.7 (83)56%Other Sectors3.4 (37)4.9 (53)43%FMCD0.7 (8)0.9 (9)20%FMCG0.8 (8)0.9 (10)15%Retail1.4 (15)1.5 (16)7%Miscellaneous0.4 (4)0.4 (4)1%Total15.1 (162)25.4 (273)68% Source: Knight Frank Research Notes: Warehousing transaction includes light manufacturing/ assembling apart from storage. Other Sectors include all manufacturing sectors (automobile, electronics, pharmaceutical, etc.) excluding FMCG and FMCD. Miscellaneous category includes services such as telecom, real estate, document management, agricultural warehousing and publishing. In FY2021, the warehousing transactions in the top 8 Indian cities registered a decline of 23% YoY to 31.7 mn sq ft. This decline can be attributed to the disruption caused by the pandemic and the associated lockdowns that brought economic activity to a near halt and adversely impacted occupier decisions. Chennai was the only city to witness a growth of 4% YoY to 3.5 mn sq ft in FY 2021, compared to 3.4 mn sq ft in FY 2020. While Bengaluru transaction levels remain stable, Ahmedabad and Pune were the worst-hit markets with a decline of 42% YoY each. Occupiers showed a marked preference for Grade A properties as they are much better geared toward tackling exigencies such as those posed by the pandemic. Increased demand by e-commerce companies also resulted in increased preference for Grade A properties. 65% of all transactions during FY 2021 were in Grade A properties with the exception of Bengaluru and Ahmedabad, more than half the area transacted in all the top markets occurred in Grade A properties. The report also evaluates 13 secondary markets. These markets show strong future potential as their current share in transactions have grown consistently from 12% in FY2019 to 23% in FY2021. Secondary markets accounted for 0.9 mn sq m (9.7 mn sq ft) of warehousing transactions during FY 2021. Shishir Baijal, Chairman & Managing Director, Knight Frank India, said, “The past five quarters have been nothing short of a roller coaster ride as successive infection waves adversely impacted human life. During this period, most commercial real estate asset classes have been impacted by the headwinds including the Indian warehousing sector. But inherent strength of the Indian economy, strong domestic consumer base and some unique opportunities arising out of the pandemic have mitigated the impact on the warehousing sector.” He added, “Supply chain disruptions from the pandemic have intensified the need for more institutional players in the warehousing segment which will ensure institutionalisation of the warehouse space, leading to greater participation from the big developers. In the short run occupier activities will be dictated by the intensity of the pandemic however in the long -term perspective the sector should gain momentum aligning itself to India’s economy development trajectory.” The warehousing space per capita in India is significantly lower than in developed economies. With the critical business objectives that a supply chain serves, industrial and warehousing spaces have a long runway for growth in this country. This premise also builds a pathway to progress on the maturity curve for the sector and promotes increased institutional participation.TOTAL WAREHOUSING TRANSACTIONS ACROSS THE 8 PRIMARY MARKETS:Source: Knight Frank ResearchEXISTING AND PROJECTED SECTOR SPLIT OF WAREHOUSE DEMAND:The e-commerce sector is expected to see the maximum growth in warehousing transaction volumes among all sectors over the FY2022-26 period, with its share of annual transactions growing from 31% currently to 37% in FY2026. E-commerce, 3PL and other sectors are expected to account for 86% of the total warehousing transacted space in the next five years (FY2022-26) compared to 78% of the transacted space during FY 2017-21. Source: Knight Frank Research Notes: Warehousing transaction includes light manufacturing/ assembling apart from storage. Other Sectors include all manufacturing sectors (automobile, electronics, pharmaceutical, etc.) excluding FMCG and FMCD. Miscellaneous category includes services such as telecom, real estate, document management, agricultural warehousing and publishing.ANNUAL WAREHOUSING TRANSACTION: Though there is a YoY fall in transaction volumes in FY 2021, demand has grown at a CAGR of 23% in the FY 2017-21 periods.Warehousing leasingFY 2021% ChangeCAGRCityin mn sq m (mn sq ft)FY 2021 YoYFY 2017-21NCR0.6 (6.9)-20%25%Mumbai0.5 (5.8)-23%39%Bengaluru0.4 (4.3)0%35%Chennai0.3 (3.5)4%17%Kolkata0.3 (3.1)-22%23%Ahmedabad0.3 (3)-42%14%Pune0.3 (2.8)-42%9%Hyderabad0.2 (2.4)-30%18%Total2.9 (31.7)-23%23% Source: Knight Frank ResearchCOMPARING INDIAN WAREHOUSING MARKET WITH OTHER COUNTRIES The E-commerce sector has been reported as a major demand driver for warehousing markets all across the globe. The e-commerce market in India is still in its infancy, with market penetration at 4.7% (2019 est.). The growth potential for the segment has been substantial in mature markets of UK and USA. The entry of Indian business giants in the space signifies that the e-commerce segment is at the cusp of its next phase of growth. The table below depicts the massive gap between the size of the Indian warehousing market and more mature markets of the USA, China and the United Kingdom. India has a per capita warehousing stock of just 0.02 sq m compared to the USA, China and the United Kingdom that have 4.4 sq m, 0.8 sq m and 1.09 sq m respectively.CountryGDP Constant Prices (USD tn)Population (mn)GDP Per Capita (USD)Warehousing Stock (mn sq m)Warehousing Stock Per Capita (sq m)United States of America (USA)18.332855,7531,4464.4United Kingdom2.96743,710731.09China11.51,3978,2421,0600.8India2.91,3662,15230.90.02 Source: World Bank, China Logistics Research Association, Knight Frank ResearchSTOCK SPLIT BY GRADE The Report highlights that the development of Grade A warehousing facilities has increased in recent years, currently constituting 35% of the total stock compared to 34% in FY 2020. Pune (71%) and Chennai (71%) have the highest concentration of Grade A stock due to their primary demand base of auto and auto ancillary occupiers. Mumbai (18%) and NCR (29%) being older markets have a significantly lower proportion of Grade A warehouses. MarketGrade AGrade BPune71%29%Chennai71%29%Hyderabad56%44%Kolkata56%44%Bengaluru42%58%Ahmedabad30%70%NCR29%71%Mumbai18%82%Total35%65%Source: Knight Frank ResearchSECONDARY MARKET DEMAND SURGES As per the report, warehousing demand in secondary markets has grown 31% YoY compared to a 23% YoY de-growth for primary markets, in FY 2021. The secondary markets contribute around 23% of overall warehousing demand in India. Among the secondary markets, Indore and Jaipur noted exponential growth of 306% and 219% respectively in FY 2021. Row LabelsFY 2021mn sq m (mn sq ft)YoY GrowthAmbala-Rajpura0.11 (1.2)-47%Lucknow0.1 (1.1)157%Bhubaneswar0.01 (0.1)-73%Coimbatore0.11 (1.2)31%Guwahati0.08 (0.8)14%Indore0.12 (1.2)306%Jaipur0.1 (1)219%Ludhiana0.04 (0.5)31%Patna0.02 (0.2)-69%Siliguri0.04 (0.4)100%Vadodara0.04 (0.5)183%Surat0.08 (0.8)80%Vapi0.06 (0.6)296%Source: Knight Frank ResearchWAREHOUSE RENTRent growth faced significant headwinds in the challenging market with occupiers negotiating hard for incentives like rent-free periods and delaying contractual escalations to tide over liquidity issues. MarketFY 2020 INR/sq.m./month (INR/sq. ft./month)FY 2021 INR/sq.m./month (INR/sq. ft./month)YoY ChangeMumbai235 (21.9)218 (20.2)-7%Bengaluru212 (19.7)202 (18.8)-5%Ahmedabad171 (15.9)167 (15.5)-3%Chennai235 (21.8)229 (21.3)-3%Hyderabad214 (19.9)210 (19.5)-2%Kolkata223 (20.8)221 (20.6)-1%Pune249 (23.1)248 (23)-1%NCR191 (17.7)193 (17.9)1%Source: Knight Frank Research Image Source

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