Warehousing demand has seen strong growth in the last few years and has recorded a significant 44 percent CAGR since 2017, mostly after introduction of the goods and services tax (GST), according to a report by Knight Frank.
In its latest report ‘India Warehousing Market Report – 2020’, Knight Frank India has estimated that existing land committed to warehousing across the top eight cities has the potential to add 193 million square feet of capacity.
“The currently committed land for warehouse is estimated at 21,163 acres, which has the potential of adding 63 percent more supply to the existing 307 million square feet of warehousing stock,” it said.
Hyderabad, Ahmedabad and Chennai, three of the eight markets, ranked high on the Knight Frank’s Development Potential Multiple.
Despite economic slowdown, the warehousing leasing activity saw healthy demand in Mumbai (8 percent YoY), Pune (42 percent YoY) and Ahmedabad (5 percent YoY) in FY20, it said.
“Rents in Grade A properties for FY20 remained stable, ranging Rs 13-32 per sq ft a month. Cap rates saw a significant decline in the previous decade from 12-15 percent in 2011 to 8.5-9.5 percent in 2019,” it said.
The GST led to a transformative shift to efficiency-based location and size strategy rather than the erstwhile tax saving-focused objective. The real estate asset class has seen a robust compounded annual growth rate (CAGR) in FY17-20. Post-GST, the asset class has received US$ 6.5 billion institutional investment commitments.
Shishir Baijal, Chairman & Managing Director, Knight Frank India, said, “Despite the economic slowdown and the pandemic, the warehousing market has remained resilient, recording 44 per cent CAGR in the last three years. Demand has especially been strong from industries, like 3PL, e-commerce, FMCG and pharmaceutical, which is expected to continue in FY21.”
The warehousing segment had been gaining traction with investors in the last few years due to the potential of India’s domestic consumption and overall GDP growth, he added.