India Major Report - India Online Retail Driving Realty (Part II) May 2016
This special report, the second in the CBRE Research series Online Retail Driving Realty, discusses how the industry has changed over the past year. In 2014, e-commerce retailers were trying to drill the online purchase model into the Indian mentality, but in 2015 the focus was more on building the customer base and expanding operations across the country.
Demand for warehousing space has continued to increase, with e-commerce’s share of overall warehousing demand growing from just 2% in 2012 to 22% in 2015. Most demand has been centered around the urban clusters of NCR, MMR and Bangalore. The expansion of the e-commerce sector has also led to strong demand for Grade A office space, with close to 2 million sq. ft. leased to such firms during 2015, representing growth of 170% y-o-y.
In 2014, most e-commerce players were testing the water, but during 2015 they expanded their operations across the country, a trend which is likely to continue throughout 2016. This has led to increased pressure on warehouse developers to develop better quality space. E-commerce players are trying to reduce their dependence on 3PL firms and are also investing in smaller warehouses around their mother-hubs to mitigate risks.
The coming year is likely to see e-commerce players try and move away from air freight as they look to bring down delivery costs. Developers will have to be more realistic towards rental expectations, considering the long term lease model typically followed by e-commerce players. As demand for Grade A warehousing facilities rises, last mile Grade B facilities are likely to suffer from vacancy pressure.