_E-tail demand underpins warehouse development in India

All these factors are driving a strong e-commerce boom in India. From $3 billion in 2014, the e-tail market size is projected to grow by 65% annually to $70 billion by the end of 2019.

However, the share of e-tail in total retail revenue is only 11% in the 7 major cities. Currently, the e-tail market is dominated by 3 large players that are continually expanding footprint to strengthen supply chain efficiencies and enhance storage capacity through outsourcing to third-party logistics players (3PL), investing in own captive arms and partnerships with smaller warehouses, amongst others. The demands of a seamless, 24x7 interactive environment provided by e-tailers is made possible only through the efficiencies generated by the logistics processes. With multifold increase in the volume of e-tail transactions, there is also a need for e-businesses to manage the corresponding volume of goods returned, damaged or exchanged. The logistics sector specific to e-commerce retailing in India was valued at USD 0.46 billion in 2016 and is projected to witness a CAGR of 48% in the next 5 years to reach USD 2.2 billion by 2020.

Being one of the major consumption economies in the world, e-commerce boom in India is certainly on the cards, which is driving investments into the sector. The household consumption as a percentage of GDP in India is 79.8%, which is one of the highest in the world. Also, the implementation of the Goods and Services Tax (GST) will help in consolidation and reduction of costs and have a positive impact on delivery timelines.

The emerging trend of outsourcing e-commerce retail fulfillment centres to logistics services providers (LSPs) and 3PLs will prompt these players to step up their game and expand strategically to capture opportunities emerging out of the e-commerce landscape. Having a warehouse within 60–90 minutes of driving distance from consumers has fueled space take-up of warehouses in prominent peripheral clusters around some metropolis which is slowly extending to Tier-II cities as well. For example, the National Highway-48 caters to the major consumption markets of Delhi and Gurgaon and has emerged as a popular choice amongst e-commerce players.

As the e-commerce segment matures, it provides ample opportunities for developers to construct quality warehouse stock dedicated to its needs. The smart warehousing model of developed markets has had a major impact on shaping up the warehousing real estate landscape in India. Large e-commerce occupiers like Amazon have brought international standards of warehousing demand to India and helped identify certain specifications that developers should use as a rule of thumb. Top real estate developers have already started paying attention to e-tail occupier expectations in terms of specifications.

Key takeaways for warehouse developers

From 1.3 million sq m (14 million sq ft) in 2016, the total warehousing requirement will increase almost two-fold to 2.7 million sq m (29 million sq ft) in 2020. To capitalise on this growth in demand, we suggest developers adopt the following best practices and shift from unorganised to organised developments.

I. Standardise warehouse development aspects – To fulfil the orders faster, international best practices such as Flow, Accessibility, Space and Throughput (FAST) should be adopted for warehouse design to build better quality assets with superior support infrastructure. Since e-tail occupiers prefer vertical storage density, warehouses with a higher clear height of 40–50 feet can be considered future proof as building structure is a long-term investment and cannot be changed later.

II. Invest in large contiguous tracts of land – Constructing warehouses requires land parcels of 20–25 acres, as Fulfilment Centres are huge facilities with ground coverage of 50–52% ranging between 93,000– 465,000 sq m (100,000–500,000 sq ft) in size. A long-term land acquisition strategy will prepare landlords and developers to cater to forthcoming warehousing demand due to the e-retail boom. Investing in large contiguous land parcels will help developers plan for long-term supply of warehouses.

1) Offer flexible pricing arrangements – Some pricing arrangements, such as below, can be adopted. 

a) Pay-as-use option wherein the e-tailer can pay for the actual space utilised and pallet space usage
b) Aggregate Model, wherein value-added services are provided, and rents are derived based on a percentage of product prices or actual revenue

III. Warehouse Facilities Management – Well planned warehouses with clearly defined common area maintenance scope such as offering ancillary infrastructure, access control, traffic management, parking management for idle trucks, external and internal maintenance, reserved truck parking bays, etc. can help them build long-term relationships with tenants. 

Blurred state boundaries and growth in the e-tail segment have brought the Indian warehousing sector at an inflection point. E-tail warehousing requirements are not only expanding the market but also helping the largely fragmented Indian warehousing sector evolve from a nascent stage into a mature market.

Click here to know more: India Warehousing Market Report - Insight Series