Who would’ve thought that the warehouse industry will someday become one of the most profitable aspects in the CRE industry? Several studies have shown that warehouses in India are turning out to be good prospects for commercial real estate brokers and owners alike when put in comparison with modern office setups and central business districts.
Despite the lower yields the sector has been facing for years, how is so that the present scenario of warehouses in India is showing signs of improvement? And, how is it that big warehouses are becoming valuable than office buildings? Too many questions to ask. It is better to dig deeper to understand the important points that have changed the way warehouses are functioning in the country.
For the advancement of the warehouses in India, few essential factors are to be held responsible:
- The vast growth story of the e-commerce sector – If only the Indian e-commerce was to be handed with the
the responsibility of the ascend of the warehouses, there would be several sub-factors that would come into the light and require to be dealt with separately. However, e-commerce isn’t the just the factor, indeed a critical reason why big warehouses are doing well. Big online retailers like Amazon and Flipkart have expanded their reach in every small town of the country, and to move such a large inventory you need big warehouses that can support the technology and manpower effectively. The breakneck growth of e-commerce in the past decade has seen profit margins soaring from 3.5-10%. And, despite this massive rise some experts still believe that it is still in its infancy. With improved technology adopted by the e-commerce giants, managing big warehouses has become a lot easier, which simply means that the demand for warehouses in India is going to have a great future ahead.
- The rise of the secondary markets – With primary markets performing well, is it expected that the secondary markets are where the majority of activity is going to happen. In 2017 the industrial area in Thane, Panvel, Bhiwandi, Bangalore, and Secundrabad has seen a monumental advancement in warehouse leasing. It is almost the same story in around other growing cities like Ranchi, Bhubaneshwar, Chandigarh, Hisar, Agra, etc. which lies in proximity to the big metros. Considering the growth big warehouses have shown in the last few years, it will certainly attain the highest levels of developments. With the demand soaring for more square feet of space, the sector is also going to push the jobs in these secondary markets. When big e-commerce giants come into foray along with the rapidly changing modern domestic companies the absorption rate is naturally going to be higher.
- The demand of the office sector – Apart from the online markets, both logistics companies and wholesalers want more square feet of big warehouse space for their use. As a result, CRE developers are now moving onto the establishment of big warehouses and several projects are already in the pipeline.
With these factors, big warehouses have a strong impression on the parallel running office space sector. Though the occupancy rates are at peak levels and rents are holding steady in the office sector, but the rentals are gradually coming down and as a result office sector hasn’t seen a good rise. Adding to the factor is the edgy competitiveness, due to which several warehouse owners and investors do not hesitate to lease out their space for a trendy office. Several bigger international brands are adopting the trend of warehouse offices which is only aggravating the climb of big warehouses.
There is a stiff contest between big warehouses and the office sector, this paradigm shift of the warehouse sector will help it cement themselves as the most valuable asset class in the CRE industry.