IndoSpace - Quarterly Review, January 2020

Quarterly Review, January 2020

Importance of Tier II and III Markets in Logistics

According to JLL Industrial Research, Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata,Mumbai MR, NCR Delhi, and Pune are India’s Tier I cities that have benefitted from the primary wave of growth in warehousing and logistics.

Tier II and III cities are expected to be the prime beneficiaries of the next phase of economic and infrastructure development. Thirty of these cities carry approximately 60-65 mn. sq. ft. of warehouse stock. Of these cities, those strategically located near other major markets, thus allowing for transportation to their feeder locations in less than six hours, are likely to profit more.

GROWTH IN CONSUMPTION AND
E-COMMERCE INDUSTRY

GROWTH IN CONSUMPTION AND E-COMMERCE INDUSTRY

As the Indian development index continues to rise, consumption in Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai MR, NCR Delhi, Pune, and in India’s Tier II and III cities is also expected to keep pace. Increasing disposable incomes, aspirations, and affordability have led to the boom of e-commerce, which is also one of the major drivers for warehousing space in India.

In 2018, the e-commerce retail logistics market was estimated at USD 1.35 billion and its growth can be as much as a CAGR of 36% in the next five years. Tier II and III cities will comprise nearly 45% of the total consumer base by 2020, almost doubling from 25% in 2011.

E-commerce and 3PL players have started operations in these locations, also generating demand for organised warehousing spaces in Tier II cities and last-mile centres for in-city distribution. (IBEF, Sep. 2019).

SIGNIFICANCE OF REMOVAL OF
CROSS-STATE BORDER TAXATION
WITH GST

SIGNIFICANCE OF REMOVAL OF CROSS-STATE BORDER TAXATION WITH GST

The widespread implementation of GST (Goods and Services Tax) in 2017 has removed logistics and storage barriers associated with state

The widespread implementation of GST (Goods and Services Tax) in 2017 has removed logistics and storage barriers associated with state borders. This has led to the creation of a ‘Single Market’, where supply chain dynamics are key to selecting warehouse locations. Now, consolidation of warehouses into bigger spaces at strategically located hubs as well as smaller ‘spoke’ warehouses close to consumers is a major factor contributing to consumer satisfaction.

INDOSPACE DOMINATES IN
INDIA’S NORTH AND SOUTH

INDOSPACE DOMINATES IN INDIA’S NORTH AND SOUTH

IndoSpace has an established presence with large industrial and logistics parks in several key Tier II and III cities in Punjab, Andhra Pradesh, and Tamil Nadu.

INFRASTRUCTURE BACKBONE
AND COST-EFFECTIVENESS

INFRASTRUCTURE BACKBONE AND COST-EFFECTIVENESS

There has been a major push from the government to improve the country’s capacity for logistics infrastructure:

WAREHOUSING IN
EAST INDIA

WAREHOUSING IN EAST INDIA

East India comprises the states of West Bengal, Bihar, Jharkhand, and Odisha. According to the Ministry of Statistics and Implementation, in 2017–18 West Bengal ranked 6th,

contributing 5.85% to India’s GDP, whereas the states of Bihar, Odisha, and Jharkhand contributed 2.84%, 2.55%, and 1.62% respectively, to India's GDP.

KOLKATA – EAST INDIA’S
BIGGEST HUB

KOLKATA – EAST INDIA’S BIGGEST HUB

The capital of West Bengal is one of the oldest operating ports in India. With a container capacity of 7,96,000 TEUs, it handled 63.7 million tonnes of cargo in 2018–19. Kolkata is also the largest metropolitan city in

East India and a major consumption centre. The city and its suburbs are now one of the fastest emerging warehousing and logistics hubs – the biggest in East India, with a stock of nearly 20 mn. sq. ft.

In recent years, the stock share of Grade A facilities in the region has outgrown that of Grade B. As of Q3 2019, the city’s Grade A

In recent years, the stock share of Grade A facilities in the region has outgrown that of Grade B. As of Q3 2019, the city’s Grade A facilities measured over 10.5 mn. sq. ft. as opposed to 9.3 mn. sq. ft. of Grade B.

facilities measured over 10.5 mn. sq. ft. as opposed to 9.3 mn. sq. ft. of Grade B.

MAJOR PLAYERS PREFER
GRADE A COMPLIANT BUILDINGS

MAJOR PLAYERS PREFER GRADE A COMPLIANT BUILDINGS

Due to large demands in consumption, 3PL/Logistics and E-commerce are the major players in Kolkata’s warehousing market, contributing more than 50% of the total transactions concluded in the city between 2016 and Q3 2019.

Other East Indian cities like Patna, Ranchi, Bhubaneshwar, Cuttack, and Raipur have also become active warehousing markets catering to the large hinterlands of Tier II and III cities. The estimated stock of Patna and Bhubaneshwar ranges from 1.5 to 2 mn. sq. ft. in H1 2019.

IMPACT OF WATERWAYS
CONNECTING THE HINTERLAND

IMPACT OF WATERWAYS CONNECTING THE HINTERLAND

India's hinterland connectivity is based on road and rail, with domestic coastal and inland waterways playing a limited role. New ports with world-class equipment, better capacity, and efficient operations coupled with enhanced connectivity to the hinterland via waterways can significantly improve turnaround time and lower logistics costs in India. In East India, National Waterway 1 (NW-1) will be the country’s longest waterway with a length of 1,620 km. It is the Ganga-Bhagirathi-Hooghly river system which stretches from Allahabad

(Prayagraj) to Haldia. NW-1 will have fixed terminals at Patna, Farakka, and Haldia and floating terminals at most riverside cities such as Kolkata, Bhagalpur, Varanasi, and Prayagraj. Eleven major power plants are located on the banks of NW-1 with a combined capacity of 12,000 MW, along with several chemical and food exporters that are located in UP and West Bengal. PepsiCo India is the first company to use inland waterways for container movement by transporting its products from its plant in Kolkata to Varanasi.

RETAIL BOOST FOR WAREHOUSING
AND LOGISTICS IN INDIA

RETAIL BOOST FOR WAREHOUSING AND LOGISTICS IN INDIA

THE RETAIL INDUSTRY IS ACCESSIBLE TO INDIAN CUSTOMERS THROUGH THESE THREE PLATFORMS:

Online retailers offer the gamut: groceries, electronics, other FMCDs, apparel, and more. Major e-commerce platforms also have strategic expansions to cater to the growing number of sale seasons. Overall, there is increased focus on ‘One-day Delivery' or 'Express Delivery’ of products for increased consumer satisfaction.

Offline retailers include single- and multi-brand retail as well as big box retail stores such as Metro Cash & Carry, Walmart, and Home Town. Large international retail brands like H&M, and Uniqlo have also taken significantly large warehouse spaces in key cities for inventory storage.

Omnichannel is what brands choose to find the optimum mix. Pepperfry and Urban Ladder are just two brands that successfully opened ‘customer experience centres’ that send orders via online channels to inventoried warehouses.

IMPACT ON INDIAN WAREHOUSING

Between 3PL, white goods, FMCG, and specialised retail, warehouse space soared to almost 80% of total demand during the first nine months of 2019, much higher than 2016.

E-commerce is now a major retail touchpoint for Indian customers and is also a major contributing factor to the significant surge in 3PL demand.

A SUMMARY OF 2019

Overall, the Indian warehousing sector in 2019 was bullish with a 25% year-on-year growth in total stock of warehousing space (Grade A and B) in top eight cities - Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai Metropolitan Region, NCR Delhi, and Pune. The overall vacancy in the market continues to be below 10% even after a sizeable rise in new supply supported by healthy demand.

MARKET OVERVIEW 2019

Total warehousing space at the end of 2018: 169 mn. sq. ft.
Total warehousing space at the end of 2019: 211 mn. sq. ft.
Year-on-year growth of ~15%
Net absorption: 36.4 mn. sq. ft.

CITY-WISE NET ABSORPTION

NCR Delhi, followed by Mumbai MR and Bengaluru remained the top 3 cities in terms of warehouse space absorption in 2019. These 3 cities together account for more than 20 mn. sq. ft. of absorption. Other cities such as Kolkata, Chennai, and Pune also continued to show a strong performance.

3PL DRIVES MAJOR
DEMAND IN WAREHOUSING

3PL DRIVES MAJOR DEMAND IN WAREHOUSING

The 3PL sector emerged as the largest occupier of space as it achieved two-pronged growth: one from the sector’s self-expansion and the other from demands transcending from other sectors who are shifting to asset or liability-free model of leases through 3PL players.

3PL sector has benefitted immensely by the growth of e-commerce companies, which have been outsourcing their space requirements to 3PL players. Additionally, other sectors such as auto & ancillary, and engineering too, have warmed up to the idea of routing their requirements through 3PL players.

MARKET MOVEMENT (OCT–DEC 2019)

For business enquiries
M : +91 74001 00222
E : leasing@indospace.in
www.indospace.in

Disclaimer: This newsletter has been produced solely as a general guide and does not constitute advice. We have used and relied upon information from sources generally regarded as authoritative and reputable, but the information obtained from these sources has not been independently verified by Jones Lang LaSalle & IndoSpace. Whilst the information contained in the newsletter has been prepared in good faith and with due care, no representations or warranties are made (express or implied) as to the accuracy, completeness, suitability, or otherwise of the whole or any part of the publication. Jones Lang LaSalle & IndoSpace, their officers and employees shall not be liable for any loss, liability, damage, or expense arising directly or indirectly from any use or disclosure of or reliance on such information.

QUARTERLY REVIEW, JANUARY 2020

GROWTH IN CONSUMPTION ANDE-COMMERCE INDUSTRY