Graph & Analysis

Organized warehousing is 7 to 10 years old story in India. Currently it is growing at brisk rate between 15% and 20 % annually for next 3 to 5 years. It is currently in growth phase and moving into matured stage. Growth of e-commerce industry firstly fueled the development of large warehousing in peripheral regions of Tier 1 cities now it is also making way deep in Tier 2 and 3 locations of India. In addition, the product type has also evolved significantly- apart from large warehousing spaces, urban logistic space (smaller spaces within cities) is witnessing high growth. This segment will keep evolving with growth of e-commerce industry and advancement of technology.

Datacenters have been in center stage since 2018. Post outbreak of COVID, the attention towards this segment has increased multifolds. There are multiple reasons for growth of datacenter in India including Growing internet and mobile broadband penetration, surge in data usage, increased adoption of cloud service and proactive government policies on data security in India. Industry capacity to grow about two times to ~ 1,200 MW by 2025 in India. Currently, this segment is registering a CAGR of 22%. Datacenter is in growth phase and will keep growing in future as well. It is expected to remain in this phase for next 7 to 10 years.

Co-Working has entered in highest growth period in the last 12 months. The demand of managed offices/ co-working/ flexible space is expected to grow between 20% and 30% (in terms of seat absorption) owing to companies adopting hybrid model of work. In 2021, Co-working accounted for 15% of the total office space absorption. In 2022, Co-working is accounting between 18% and 22% of the total office absorption and expected to account over 35% of total office pie by 2025. Therefore, this sector will be the focal point in office space in coming years.

Co-Living sector witnessed good growth pre pandemic period. However, it has gone through a tough period during pandemic as expected and many operators have shelved the business or bought over by larger players. Most of the Co-Living facilities have occupancy over 80% in major cities and operators have started signing additional space for future growth. This sector has crossed the initial stage and is entering the growth phase. In the next 5 years, this sector is likely to reach its peak.

There are other newer products namely flatted factories and BTR (Built-To-Rent). They are all in the nascent phase and the product has to be aligned to the market requirements and is yet to be tested in real environment before it witnesses growth.

Office has witnessed good traction in H2 2021; leasing traction in Q1 2022 is higher compared to the last 2 years. Despite, IT/ITeS sector performing extremely well supported by hirings, net absorption of office space is less than 50% as compared to absorption in the year 2019. The current leasing activity is lesser compared to hiring activities mainly due to change in working behavior of the workforce. We expect the ratio of actual hire to physical space will drop considering hybrid model is the future. Office sector is expected to grow at slower pace in coming years compared to 2015-19 cycle.

Retail is at the cusp of recovery phase; this sector has been in slowdown phase for many years now largely on account of penetration of e-commerce. Retail real estate is expected to keep evolving with technology improvements. However, we expect it to start doing well in short term onwards. Even though, demand size has been shifted here compared to expectation in last one decade.

Hospitality sector overall is expected to be entering in expansion phase with rise in affordability and changing consumer behavior. However, different product namely leisure and business products will perform differently. We are expecting many new developments in leisure segment across different parts of the country.

Residential has entered its dream run phase. It has been performing very well since Q4 2020 and expected to be in expansion mode for the next 3-5 years more. Different residential products are in demand on account of improved affordability. Yes, we are living in high inflation phase and cost of living is rising at brisk rate, we are expecting income growth is dominant sector will also remain healthy to keep demand of this segment going.

• The e-commerce sector will drive bulk of the volume, as the accelerated growth trajectory that the pandemic pushed the sector toward is expected to sustain. Most consumers that were forced to shop online will continue to do so and the existing brick-and-mortar stores will also look to leverage online channels to push sales. The 3PL sector will sustain market share as e-commerce and other sectors increasingly outsource their warehousing requirements to specialists in the field.
• Indian e-commerce market is on the cusp of its next phase of growth with Indian business giants such as the Reliance and Tata groups have entered in this field along with global players including Amazon and Walmart to capture this growing market. A growing economy like India with the second largest population in the world still holds massive potential for its warehousing market which will fructify over the next few years.
• It is estimated that the e-commerce sector will consume the most space in the next five year (2021-2026). Similarly, 3PL and Other Sector companies are expected to take up more space in the next five years compared to the preceding period. These three occupier groups are expected to account for almost 90% of the total transacted space in the next five years.

• The eight prime markets of India held an estimated 252 mn sqft of warehousing stock at the end of H1 CY 2021. The Mumbai & Delhi NCR market accounts for 40% of this stock. The larger warehousing markets of Mumbai and Delhi NCR have a significantly lower proportion of Grade A warehouses as they are much older markets and the bulk of their stock had been built before the demand for Grade A warehousing gathered momentum. Bangalore, Pune, and Chennai have the higher levels of Grade A stock due to their primary demand base of ecommerce, auto and auto ancillary occupiers.
• Prominent cities or Tier 2 markets that are witnessing increased warehousing developments are Guwahati, Coimbatore, Bhubaneshwar, Lucknow, Visakhapatnam, Kochi, Vapi and Surat. Annual demand in these markets have grown significantly; from a share of 10% in 2015 the absorption in these markets have grown to 20% of the total demand across top 8 markets in the year 2020. We expect this trend to continue, and tier 2 locations will have a share of 25% of the prime markets in next few years.
• Absorption is likely to grown between 18% and 22% annually for most of the markets. Rental escalations for Grade A space are expected to be between 4% and 6% and 3% to 5% for Grade B spaces in the coming three years.

• Modern Indian warehousing story started between 2005 and 2010 when logistics companies built the first Grade A warehouses in the country. A growing economy with a consumption base of over 1.35 bn people, made the Indian warehousing market a compelling investment proposition. Since last one decade, growth witnessed in the e-commerce and 3PL sectors caused warehousing demand to grow at a CAGR of 35% in the last 5 years.
• Currently, proportion between Grade A & Grade B warehousing spaces is 45% and 55% respectively. Since 2016, Grade A spaces have been growing at 30% and whereas Grade B facilities have witnessed CAGR of 12%. We are expecting going forward the CAGR gap between Grade A and Grade B to further widen as Grade A spaces offers opportunity in the secondary investment market.
• In addition to the attractive domestic consumption story, the Indian government's focus on manufacturing with the Make in India initiative and Production Linked Incentive (PLI) scheme among others, and with India being among the possible beneficiaries of the global companies looking to disperse manufacturing capacity across Asia, the sector is likely to see a surge in demand from different sectors.