After witnessing exponential growth in the last three years, the demand for warehousing space in the organised sector has dropped considerably during the first half of this year in Bengaluru.
The absorption of warehousing space during the first six months of 2019 stood at 2 million sq. feet, a decline of 47.3% year on year. During the first half of last year, the absorption stood at 3.8 million sq. feet.
The decline in the absorption of space is attributed to the prevailing economic slowdown in the country. However, the growth of the e-commerce sector has brought some cheers to the warehousing developers in Bengaluru. The IT city has been witnessing a surge in demand for warehousing space over the last three years.
While Bengaluru continues to be led by consumption-led warehousing demand, the share of the e-commerce sector has strengthened the requirement for warehousing space. Major e-commerce occupiers such as Amazon, Flipkart, Myntra, Aditya Birla, Madura Garments and Decathlon among others have driven the demand for warehousing space, particularly in the eastern and the north-western corridors in the city, according to a report by Vestian Global Workplace Solutions, a workplace solutions firm specialising in commercial, residential, industrial, retail and hospitality sectors.
“Presently, there is considerable market demand for warehousing space from the e-commerce segment as well as from other sectors such as FMCG, pharmaceutical and manufacturing companies. The growth corridors towards the eastern, north-western and southern peripheral markets hold immense potential to cater to this demand,” Shrinivas Rao, CEO, APAC, Vestian Global Workplace Solutions said.
In 2017, the warehousing transaction volume grew 92% to touch 2.5 million sq. feet as compared with 1.3 million sq. feet in 2016. Majority of the demand for warehousing space emanated from the e-commerce sector, followed by other sectors such as third-party logistics and FMCG firms. Other factors such as GST implementation, focus on ‘Make in India’ initiative, development of multimodal transport networks, have boosted demand for organized warehousing as well, the report said.
The growth in warehousing space absorption further strengthened in 2018 with a number of large-scale transactions inked during the period. The absorption in 2018 stood at a whopping 6 million sq. feet, a growth of 140% over 2017. The primary driver for warehousing space this year was again from the e-commerce sector and third-party logistics players.
Key growth corridors
Bengaluru enjoys a significant position in the consumption market, given the influx in population in the last couple of decades, particularly the growth of the IT sector. In line with the trend witnessed in many cities, Bengaluru has seen a gradual shift towards an organised market.
The city has a number of warehousing clusters along Tumakuru road towards the north-west, Devanahalli towards the north, Old Madras Road and its adjacent neighbourhoods in the eastern region, Hosur Road and adjoining areas in the south and Mysuru road in the north-western region of the city.
Average warehousing rentals in the city vary between Rs 14 per sq. feet per month and Rs 24 per sq. feet per month. The rentals are relatively higher in the southern corridor on Hosur road and Soukya road, primarily on account of factors such as higher land costs due to their proximity to IT hubs.
The rentals in warehousing facilities operating in locations such as Dobaspete in the north-western corridor and Hosur and Shoolagiri in the southern peripheral corridor account for a lower range of values.
Outlook for coming years
The warehousing sector in Bengaluru is expected to continue its growth momentum. With industry-supportive initiatives like the grant of infrastructure status and implementation of GST, the sector is expected to move ahead at a faster pace.
Of late, the real estate companies are showing a lot of interest in developing warehousing space.
While city-based developer Embassy Group announced plans to invest around $1 billion (over Rs 7,100 crore) through Embassy Industrial Parks, a joint venture with global private equity firm Warburg Pincus, others such as Brigade Group have implied an interest in the segment as well. Prestige Group already has a warehousing and logistics facility operational in Malur at the KIADB Industrial Park, part of it being leased to Flipkart and Dhoot Transmission.