The road ahead – The logistics sector in Asia Pacific

 ‘The road ahead – The logistics sector in Asia Pacific’.

 

Key Highlights:

• Overall industrial leasing in top eight cities of India stood at 11 mn sq. ft. in H1 2020 
• Guwahati, Lucknow, Patna, Jaipur, Coimbatore, Rajpura, Indore, Vijayawada, Hosur, Kochi are expected to be the next industrial growth markets 
• Occupiers to further embrace technology, innovative solutions, modern processes and digital transformation to meet evolving consumer habits
• India logistics sector remain firmly on the radar of investors globally
• India is experiencing the dual thrust of two major reform initiatives – Atmanirbhar Bharat (Self Reliant India) and Make in India
• Manufacturers will be positioned to realize the benefits of conversion of CAPEX (land & building) to OPEX (rent), ready-to-occupy and built-to-suit industrial spaces, higher specifications, faster entry, and pre-approved usage associated with built spaces
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Investors and occupiers to (re) imagine India industrial real estate

At USD 195 Bn, Industrial is now the second largest investment asset class globally: JLL Report

 

• Overall industrial leasing in top eight cities stood at 11 mn sq. ft. in H1 2020 
• Guwahati, Lucknow, Patna, Jaipur, Coimbatore, Rajpura, Indore, Vijayawada, Hosur, Kochi are expected to be the next industrial growth markets 
• Occupiers to further embrace technology, innovative solutions, modern processes and digital transformation to meet evolving consumer habits

 

Investors and occupiers are reimagining India logistics real estate strategies to take advantage of ongoing structural shifts and evolving market maturity across the country, according to JLL’s  ‘The Road Ahead – The Logistics Sector in Asia Pacific’ report.

“India logistics sector remain firmly on the radar of investors globally. Recent signs show the market becoming increasingly sophisticated. The inflow of capital into logistics has resulted in more complex transactions and greater participation by both established and new investors into the sector, which we expect to continue in the future as well,” said Ramesh Nair, CEO & Country Head (India), JLL.

As investors continue to reimagine their logistics strategies throughout the COVID-19 environment, JLL forecasts several key themes to gather momentum in India and reinforce the structural shift occurring in the sector.

• Pursuit of platform deals: There is an increasing trend towards acquiring logistics platforms rather than individual assets in India including the recent Blackstone–AllCargo and Blackstone-Hiranandani transactions. Investors will increasingly pursue this route to gain captive tenant networks and achieve scale quickly in India.
• Rapid institutionalisation: The world’s largest investors are investing more into logistics real estate. Blackstone’s acquisition of the GLP portfolio in the US during the third quarter of 2019 for USD 18.7 billion is the largest real estate deal in history.
• Value upside: While growth in values is likely to slow in coming few years, investors’ confidence in the structural drivers for the logistics sector is expected to remain intact. Capital values are forecasted to stay relatively firm, with modest yield compression expected in some markets across the region.

The pandemic and lockdown, as expected, has affected the India logistics sector with overall leasing or absorption in top eight cities in India standing at 11 mn sq. ft. in H1, 2020 (Jan-Jun) as against a 12-quarter average or 7.3 mn sq. ft. However, there has been additional spike in short-term demand / temporary warehouses, (lease tenure of 6 – 11 months) demonstrating the underlying strength of the sector looking for substitute locations or business continuity planning locations for occupiers to mitigate for delays in delivery of under construction projects.

E-commerce continues to drive a reimagination of the Indian logistics sector. According to e-Marketer, online retail sales as a proportion of total retail sales stands at 14% globally in 2019. India has a huge growth opportunity with the e-commerce penetration rate standing at close to 5%. To fulfill potential, e-commerce and other sectors will increasingly push the sector in a three-dimensional growth path:

•           Length - Across the length of a city (suburban and in-city warehouses)

•           Breadth - Across the breadth of the county (tier 1 & tier 2)

•           Height – Early shoots of multi-storied warehousing

“The pandemic will accelerate trends already in play across the sector, such as increased internet penetration rates, expansion of online grocery, omni-channel retailing, rise of temperature-controlled storage and the integration of technology into logistics and warehousing. Led by occupier and investor commitments, the sector is well placed to respond to the post-COVID-19 recovery,” said Yogesh Shevade, Head - Industrial Services, JLL India. 

Key shifts influencing occupier decision-making, expected by JLL to accelerate, include:

• The evolution of last mile logistics: Faster last mile delivery focus of e-commerce boosts the in-city / urban logistics sector where conventional retail spaces, sheds, banquets, marriage halls are being considered for alternative usage for in-city warehousing across top cities.
• Rise of third-party logistics: Outsourcing of logistics will be evaluated by many companies to achieve efficiency.
• Frozen is the New Fresh: Temperature Controlled storage requirements will be gaining with consumers looking for ‘hygienic and safer’ frozen commodities.

On the manufacturing front, India is also experiencing the dual thrust of two major reform initiatives – Atmanirbhar Bharat (Self Reliant India) and Make in India. While, Atmanirbhar Bharat boosts domestic manufacturing and reduces imports, Make in India is expected to capitalize on regionalization of international supply chains and reimagine India as a global manufacturing hub.

“Manufacturing firms, especially in the ancillary and assembly space, will find solace in built manufacturing spaces on lease. Additionally, manufacturers will be positioned to realize the benefits of conversion of CAPEX (land & building) to OPEX (rent), ready-to-occupy and built-to-suit industrial spaces, higher specifications, faster entry, and pre-approved usage associated with built spaces,” said Chandranath Dey, Head - Industrial Operations & Business Development, JLL India.