Thursday, December 2

Demand for mid-sized and small warehouses on the rise in Kolkata and its periphery

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Abhishek Law

Absorption of large warehousing space, of 100,000 sq ft and above, has taken a beating in and around Kolkata following a slowdown in economic activity. Post pandemic, large companies are re-negotiating lease and rent agreements.

However, the positive side to the situation is that the demand for smaller warehousing space is on the rise in the city and its periphery, especially from e-commerce and FMCG players who want to negate future supply chain disruptions.

According to market sources in Kolkata, warehousing space ranging between 20,000-30,000 sq ft is witnessing the highest demand, while mid-sized ones of around 20,000 -60,000 sq ft are popular in the peripheries. Most negotiations began post May as lockdown was being relaxed and there were hints of further unlocking.

The demand is primarily from e-commerce players who are keen on ramping up presence or from FMCG companies who would want to move in stocks quickly across channels.
Post-lockdown phenomenon
Sources said, post the lockdown, a number of items were stuck in warehouses off the city limits or mid-way thereby delaying deliveries or supplies.Wary of such disruptions now, several e-commerce and FMCG stockists now are looking for smaller warehouses or distribution centers in or near Kolkata to enable faster delivery.

“E-commerce companies, due to a strong demand wave for essential services, will continue to expand their footprint by leasing multiple mid-sized facilities to negate supply chain disruptions,” Swapan Dutta, Branch Director, Kolkata, Knight Frank India told BusinessLine.

Discarded places like older factory units/sheds within the city are being re-developed as warehousing spaces, said sources. Rents have nearly doubled in a three-month-period from ₹15-20 per sqfeet/ month to around ₹30 per sq ft/month.

Most new agreements (for smaller spaces) is for a six-year period with a three-year lock-in clause. The six year time-frame is seen as a bridge period between economic recovery and completion of construction of the large warehouse spaces which are happening right now.

“Various clusters of Kolkata will see requirements of mid-size warehouses go up. However, the shift in demand patterns and enquiries for in-city warehouses may put land prices in peripheral warehouse clusters under pressure in mid to near term,” Dutta added.
Slowdown in demand for large spaces
Knight Frank India in a recent survey said that in FY20, Kolkata saw a warehouse leasing activity of 3.93 mn sq ft, a 14 per cent year-on-year decline. However, the compounded annual growth rate (CAGR) was a high 43 per cent (from FY17-20).

Dankuni (30 kms off Kolkata) and the suburban cluster surrounding the city has been garnering nearly 52 per cent share of warehousing transactions in FY20, followed by areas around the National Highway-16, which saw the remaining 48 per cent transactions.
Rent Re-negotiation
Rentals in Grade A properties for FY2020 have marginally moved up to ₹17-26 sq ft/ a month from ₹16-25 sq ft/ month in FY19 while land rates have largely remained stable since the lockdown was announced in the third week of March, the report said.

Companies have already started negotiating rents. Around 15-20 per cent discount on annual rent is being sought. “Either companies, like those in the auto sector, are asking for a 15-20 per cent waiver in annual rents or some have sought relief for a period of lockdown when there was no economic activity,” a property consultant maintained.

Source: Business line 

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