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The leasing of warehousing space stood at over 10 million square feet last year in eight major cities and the demand is expected to rise once the GST law gets implemented, according to property consultant CBRE.
The warehousing sector is likely to witness consolidation as players would focus on supply chain efficiencies after GST law comes into force.
"Demand for warehousing space continued to remain strong during 2016. Slightly more than 10 million sq ft of space was leased across leading cities," CBRE said in a report that tracks Delhi-NCR, Mumbai, Bengaluru, Hyderabad, Chennai, Kolkata, Pune and Ahmedabad markets.
The companies from engineering and manufacturing sector and e-commerce leased 22 per cent of the total space transacted in 2016, while the third party logistics companies absorbed 21 per cent and FMCG firms 17 per cent.
In anticipation of the Goods and Services Tax (GST), the consultant said that few firms have deferred their investment decisions, which got reflected in the year-on-year sectoral space take-up.
For instance, the share of third party logistics companies declined from 31 per cent in 2015 to only 21 per cent in 2016, while the space take-up by electronics retailers increased by 29 per cent last year.
CBRE report also highlighted that the share of relatively smaller cities such as Hyderabad, Chennai, Kolkata and Pune increased in the overall space take-up. Collectively, these cities leased 49 per cent of the total space leased in 2016, as compared to 25 per cent during 2015.
On the outlook, the consultant said that the GST would be the overarching theme for warehousing activity in coming quarters.
Citing a survey of leading occupiers of warehousing space, CBRE said that about 63 per cent of respondents felt that the implementation of the GST will be positive for their overall business operations.
In the post-GST era, most warehousing space requirements would be driven by consolidation and expansion activity of occupiers. Nearly 28 per cent of respondents said they would consolidate, while 23 per cent stated that they would further expand their operations, according to survey findings.
As the warehousing sector moves towards a more systematic mode of operation, the sector is likely to witness the inflow of more institutional funding and formal sources of capital, the consultant said.
Indian warehousing sector is poised for structural changes in its operation dynamics after implementation of GST. The current system of interstate taxation results in domination of the warehousing sector by unorganised players, it noted.
"Once the GST comes into play, the focus of players is likely to be on supply chain efficiencies which will result in consolidation of warehouses. This will result in increased demand for larger, better quality warehouses thereby providing an ideal platform for the emergence of large scale nationwide players," the report said.