Warehousing space demand to grow eight per cent annually: Knight Frank

With investment returns of 22-24 per cent per annum, Pune offers the best investment opportunity in India

Warehousing space demand in seven major cities in India is likely to grow eight per cent annually to touch 839 million sq ft in the next four years driven mainly by manufacturing and e-commerce sectors, says a report. Apart from the pharmaceutical sector, auto and auto ancillary and chemical are the largest demand drivers of warehousing space.

According to the report by property consultant Knight Frank India, the seven cities are National Capital Region, Mumbai, Chennai, Bengaluru, Hyderabad, Pune and Ahmedabad. Investment in warehousing could give a return in the range of 10–24 per cent per annum, said the report, ‘India Warehousing Market.’ With investment returns of 22-24 per cent per annum, Pune offers the best investment opportunity in India.

“The total warehousing space requirement in these markets is expected to grow at a compounded annual growth rate (CAGR) of eight per cent from 621 million sq ft in 2016 to 839 million sq ft by 2020,” the report said.

Over the next four-year period, an incremental 218 million sq ft warehousing space would be required. About 54 million sq ft will be required annually in these seven markets.

At present, 17 million sq ft of space is transacted annually in these top seven warehousing market.

“While factors such as Goods and Services Tax (GST) and ‘Make in India’ initiatives will push the requirement from the manufacturing sector, it is the E-tail sector that will lead in terms of growth for warehousing space,” the report said.

The requirement from the e-tail segment will more than double from 14 million sq ft in 2016 to 29 million sq ft by 2020, resulting in an annual growth rate of 19 per cent. In the traditional brick-and mortar retail, the demand for space is expected to grow by 6 per cent annually to touch 154 million sq ft in 2020 from 120 million sq ft currently.

The demand for space from manufacturing sector is likely to reach at 656 million sq ft in next four years from 487 now, thereby growing by 8 per cent annually.

Knight Frank said the biggest challenge that India’s warehousing market currently faces is the acquisition of a feasible land parcel. Land cost constitutes the largest component of a warehousing project. The demand drivers considered for the warehousing market are the manufacturing and consumption sectors. However, Knight Frank did not consider requirements from agriculture and export-import (EXIM) for analysis in this report.