Bengaluru is likely to witness a surge in investment in developing premium warehousing parks to meet the growing demand for storage space from e-commerce and third-party logistics players, according to a white paper titled 'Ahead of The Curve - Bengaluru Warehousing' by India Sotheby’s International Realty with inputs from real estate data research company CRE Matrix. It also projected a requirement of over 250 acres of land in the peripheries of Bengaluru city, to develop warehouses to meet this growing demand.
This optimism comes despite the city’s warehouse absorption slipping to 3.94 million square feet (msf) in 2022 from 4.84 msf in 2021. It stems from the fact that demand has been outstripping supply, the past five years.
The report pegged the cumulative absorption of warehousing space in Bengaluru during the 2018-22 period at 16.34 million square feet, while the new supply was 10.5 million square feet. Market rentals saw an increase of 10% in 2022, surpassing the average rental hikes of 5-6% witnessed in previous years.
According to Harikesh Ananthamurthy, Senior Vice President - Capital Markets, India Sotheby's International Realty, manufacturing, third-party logistics players, e-commerce and retail sector will continue to drive the warehousing demand, with logistics players and e-commerce emerging as major occupiers.
"Warehousing is an integral part of the supply chain which till a few years back did not get its due. The government did not look at this area and it was assumed that warehouses are supposed to be outside the city, whereas it’s more critical to have smaller warehouses inside the city for better turnaround as there are traffic restrictions in major cities for trucks and pick up vehicles,' said Rahul Pillai, a logistics expert.
Despite significant money pumped into warehousing projects (cumulative institutional investments to the tune of $5.4 billion between 2019-2022 as per India Brand Equity Foundation), many got stalled due to Covid turning investor sentiment negative.
But this picture is changing.
"There is a huge amount of foreign investment coming into the warehousing space. Funds such as Indospace, ESR, Ascendas, as well as players like Welspun, Pragati, etc, have been very active in this space across the country. Recent entrants like Phoenix, RMZ, Prologis, Panattoni have also become aggressive," said Gagan Randev, Executive Director - Capital Markets, at the realty firm. "We now have Funds like GIC and Blackstone making big platform-level investments. We see these investments continuing since the space requirement is expected to grow by 50% between now and 2027," he added.
Land acquisition continues to be a challenge for the sector and the global headwinds could also play spoke in the wheel.