Modern warehouses to become nerve centres for Indian e-commerce players

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Modern warehouses to become nerve centres for Indian e-commerce players

December 9, 2014 / By Suvishesh Valsan

Retail real estate in India has witnessed interesting transitions over the past decade, from the dominance of unorganised mom-and-pop stores to organised shopping centres, and thereafter, the emergence of large-format, developer-managed shopping malls. More recently, the advent of e-commerce is gradually attracting the fancy of Indian consumers. Estimates from Gartner Inc. suggest revenue from the online retail platform is growing at 60-70% per annum, making India one of the fastest growing e-commerce markets in Asia-Pacific[1]. The trend poses a risk to malls that are old styled, poorly designed and strata sold. Already, vacancy rates in such malls have reached 20%, compared with under 10% in well designed and managed malls.

The warehousing sector will likely experience a similar impact from the proliferation of e-commerce. Retail accounts for a significant share of the overall warehousing demand in India. E commerce has made significant inroads and the industry will increasingly rely on strong back-end support through logistics and warehouses. Existing warehouses in clusters such as Bhiwandi (near Mumbai) and Bhiwadi (near Delhi) do not have the necessary features for growth alongside e-commerce. According to an E&Y report on warehousing[2], close to 85% of warehouses that exist in India are old in terms of design and structure.

Constructing a modern warehouse may return investment yields similar to that of an old warehouse, although demand is shifting towards the former. Following the impending introduction of the Goods and Services Tax, which will uniformly tax the interstate movement of goods, modern warehouses will enjoy better economies of scale. Old warehouses may meet with a similar fate as their counterparts in the retail mall space.