Almost 25 percent of India’s total demand for warehousing space in 2014 were driven by e-retail, findings of CBRE’s latest special report, “India Online Retail Driving Realty” shows.
Transactions worth more than 3.5 million sq. ft. of office space either closed or in various stages of negotiation by leading e-tailers by the end of 2014, a growth of more than 400 percent year-on-year.
Bangalore, Chennai, Gurgaon and Mumbai are among the most preferred tier I markets for e-tailers for both office and warehousing space.
Looking ahead, demand for warehousing space, called “fulfillment centers,” is estimated to touch almost 3-4 million sq. ft. by the end of 2015, a growth of more than 100 percent year-on-year.
“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,” said Anshuman Magazine, Chairman and Managing Director of CBRE, South Asia Pvt. Ltd.
“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,” he added.
India’s current foreign direct investment (FDI) policy does not allow for FDI in business-to-consumer e-commerce, while 100 percent 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.
According to the report, 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.
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.
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.