E-retail drives India’s demand for warehousing space

Demand for warehousing space—termed as fulfillment centers—is estimated to touch almost 3-4 million sq. ft. by the end of 2015; a growth of more than 100% year-on-year

Anshuman Magazine CBRE delivery e-commerce E-retail India last mile warehouse

Almost 25 per cent of the total warehousing/logistics space uptake across the country in 2014 was by e-retail players, while the uptake of logistics space rose by more than seven times over that of 2013. India’s online retail sector saw exponential growth, as a number of local market-specific services—such as cash on delivery (COD), multiple payment options, and EMI options—assisted in developing the growth curve of e-commerce in the country, according to the findings of CBRE’s latest special report, India Online Retail Driving Realty.

Commenting on the findings of the report, Anshuman Magazine, chairman and managing director of CBRE, South Asia Pvt. Ltd. said, “the statistics of this report are proof of the increase in infrastructure development within India along with industry-specific aspects, such as the depth of internet penetration, and the development of core infrastructure such as highways and new warehousing facilities. This is now being supported further by the new Government. While such macro level changes will benefit e-retailing, the momentum reported in the segment over the past couple of years also calls for a detailed regulatory framework to drive it forward.” 

Growth in the e-retail segment is likely to stimulate demand for warehousing/logistics space as well as commercial office space. Funds—both off-shore and domestic—have begun to gain a foothold in the segment too. A significant share of fresh foreign fund inflow is expected to get channelised into building warehouses, expanding product lines, upgrading and expanding the supply chain, as well as into possible acquisitions. The year 2014 saw investments worth more than US$ 2.2 billion being raised by e-retail majors in India.

The warehousing and logistics real estate segment benefited immensely from the expansion in e-commerce over the last two years, with 2014 witnessing considerable traction from leading players for leasing large sized warehouses and storage spaces in peripheral locations of key cities. According to CBRE Research, the emerging retail segment took up approximately 1.7 million sq. ft. of warehousing space across Mumbai, Chennai, Bangalore and the Delhi National Capital Region in 2014.

The last couple of years also saw the segment becoming a new addition to the mix of major office space demand drivers in India, as online retailers increased their footprints for front-end as well as back-end requirements. By the end of 2014, approximately 3.5 million sq. ft. of office space had either been leased or was in various stages of negotiation by e-commerce firms across the country—a growth of more than 400 per cent year-on-year.

India’s current foreign direct investment (FDI) policy does not allow for FDI in business-to-consumer e-commerce, while 100 per cent FDI is allowed in business-to-business e-commerce. The department of industrial policy (DIPP), however, has been pushing the new government to allow for increased foreign participation in this segment. 

Key e-commerce players have also been observed to spread their wings towards tier II cities from their tier I hubs. Tier II and III cities and towns in India are ripe for the picking, mainly because of the relative absence of organised retail in these markets. Moreover, since the unorganised retail sector cannot provide the large product selection offered by big organised retail chains, it represents a large opportunity for online retailers operating in the country.

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