Demand for e-commerce and pharmaceutical services have ensured that India’s industrial and logistics real estate industry has remained the most resilient asset class in the first quarter of 2020. As COVID-19 has significantly impacted businesses and economy worldwide, consumers have shifted consumption activity to online transactions, according to JLL’s recently released report ‘COVID-19: Industrial & Logistics Sector in India. Impact and Opportunities’.

India’s warehousing sector, driven by new supply in eight major metros including Ahmedabad, Bengaluru, Chennai, Hyderabad, Kolkata, Mumbai, Delhi-NCR and Pune, saw an approximately 15 per cent contraction (in million sq ft) during January-March, the first quarter of 2020. Net absorptions stood at 5.9 million sq ft in the midst of the lockdown across the country starting March 2020.

“The quarterly new supply addition is higher than the average quarterly new supply addition of first quarter in the last three years (between 2017-2019), which demonstrates that the impact of lockdown has likely not set in yet,” says the report.

“Modest absorption amid the COVID-19 uncertainties hints that the fundamentals of the industrial and logistics sector is strong and set to take a faster revival route among major real estate asset classes,” says Ramesh Nair, CEO and Country Head, India, JLL.

The projected supply of speculative spaces may be delayed by a quarter or two, which will also be influenced by factors including protracted labour shortages, added the report.

Short-term demand to contract

“The extended lockdown in the country will also impact the under-construction projects resulting in an attenuated supply in the short-term. However, absorptions and demand in warehousing sector is likely to take a positive turn in the medium-to-long term phase,” says Yogesh Shevade, Head-Industrial Services, India, JLL.

Pent-up demand and project closures may be pushed by two quarters with an expected spark in activities by Q4. However, the fundamentals of the sector remain strong and the biggest advantage for India remains in the potential to capture manufacturing demand as companies re-position their global supply chains from a business continuity planning (BCP) standpoint.

Impact on logistics sector

However, after the lockdown, a change in consumer behaviour is expected to benefit e-commerce and e-payments, which is already being observed through movements of essential commodity. The report highlights that the medium-term will experience an uptake in demand of urban logistics and in-city warehousing. The logistics sector is expected to see long-term growth as e-commerce expands and with enhanced infrastructure support.

Impact on occupiers

“Occupiers will re-align their overall real estate strategy based on post-COVID-19 scenarios, such as labour, consumer demand and government support,” says the findings of the report. Facility management will be re-examined intensively, and short term rental deferment and rent holidays will be considered as alternative to rental re-negotiations. Longer-term, increased warehouse space offloading to 3PL for storage by small and medium occupiers will become more common.

Investments: Slow but steady

In the short-term, a tightening of the debt/equity influx from Sovereign Wealth Funds (SWFs) will limit inbound activity. In the medium-term, demand for portfolio valuation and business restructuring opportunities along with holding up of capital rates is expected.

Indian industrial investors will explore diversified products for cost efficiency. New investments will remain cautious in the rest of 2020. However, some good opportunities may present themselves, adds the report.

Post-COVID-19: Impact and opportunities