Third-party clients fill warehouses as e-commerce inflows wane: Knight Frank

While the e-commerce sector registered tepid demand for warehousing in FY23, 3PL players followed by manufacturing and retail sectors drove the market.

While the e-commerce sector registered tepid demand for warehousing in FY23, third-party logistics (3PL) players followed by manufacturing and retail sectors drove the market, a new report by property consultancy Knight Frank India revealed on Tuesday.

As warehousing activity in the top eight markets of India including Mumbai, NCR, Bengaluru, Pune, Kolkata, Hyderabad, Chennai and Ahmedabad sustained record-high transactions reaching 51.3 million square feet (msf) in FY23, the 13 secondary markets studied by the consultant registered a 15 per cent growth - at 15.75 msf - on the back of increased traction. The compound annual growth rate (CAGR) from FY17-23 has been pegged at 24 per cent.

“The performance of warehousing was better than housing and office sector. While the pandemic was the major disruptor, GST and infrastructure status are the main catalysts for this growth,” said Shishir Baijal, Chairman and Managing Director, Knight Frank India.

Among the major occupier groups, 3PL players secured the highest market share of transactions at 39 per cent in FY 2023, followed by the manufacturing sector (23 per cent) and retail (13 per cent) as demand for hard format stores improved post-pandemic.

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“The volume transacted by the e-commerce sector experienced a 71 per cent YoY decline in FY23 due to the excess capacity built during the pandemic to meet the surge in consumption,” the report noted, adding that this decline in demand is expected to be temporary till existing capacities are exhausted.

“It will take another 9-15 months before ecommerce players start occupying more (warehouse) spaces,” said Balbir Singh Khalsa, Executive Director (Industrial & Logistics), Knight Frank India.

While FY23 saw occupier demand sustain at the record levels seen in FY22, rents in most markets have maintained the upward trajectory they set in the previous year. Bengaluru topped the list with an 8 per cent increase followed by NCR (7 per cent) and Ahmedabad, Mumbai and Kolkata (5 per cent). Inflationary trends in steel and cement caused by a supply crunch due to the pandemic and the more recent rate hikes are major causes for this trend.

The development of Grade A warehousing facilities has continued to increase in recent years and currently constitutes 40 per cent of the total stock compared to 38 per cent in FY 2022. This comes in response to increased demand for flexible and sustainable warehousing.

Strong transaction volumes, in tandem with comparatively lower supply in FY 2023, have brought down vacancy levels to 12.2 per cent during the year. In contrast to Grade A vacancy which is now in single digits at 9.5 per cent, that of Grade B stands at 14 per cent.