Realty builds on data centres, warehousing amid Covid-19 pandemic

Propelled by online retail and a shift to virtual working and learning, the two segments are driving business for logistics firms at a time when demand for office space has shrunk

HDFC Chairman Deepak Parekh’s comments at the company’s 44th annual general meeting that future demand for commercial properties will come from warehousing and data centres are not without proof.

While office absorption fell by 22 per cent in H1 this year, as companies leased less space because of the pandemic, the growth in warehousing and data centres has come as a boon for property developers.

Riding on a strong demand from e-commerce, retail and pharma, the warehousing segment saw a sharp rise in absorption. Net absorptions in warehousing in H1 2021 clocked 14.3 million square feet, despite the second wave of the pandemic. The whole of 2020 had seen absorption of 22.2 million sq ft, property consultant JLL said. And the pre-pandemic year of 2019 had registered 36.4 million sq ft of absorption.

“The demand or absorption by end-2021 is expected to reach close to a healthy 30 to 32 million sq ft,” said Chandranath Dey, head – Operations, Business Development, Logistics & Industrial Consulting, and Ports, Airports & Global Infrastructure at JLL, India.

This figure is likely to touch 100 million sq ft over the next three years, CBRE, another property consultant, said recently.

“Occupiers across these sectors have started to increasingly prefer large-sized spaces to consolidate operations, especially post the implem­entation of the GST (goods and services tax). Bac­ked by increasing online retail de­mand amidst the pandemic, e-commerce and 3PL (third party lo­gistics) players are further expected to lead warehouse leasing over the next few years,” a CBRE report said.

Almost all the big players in the segment — such as Blackstone-owned Embassy Industrial Parks (EIP), Warburg Pincus-backed Stellar Value Chain Solutions and TVS Industrial & Logistics Parks — have seen a growth of anything bet­ween 30 per cent and 100 per cent in H1CY2021.

For instance, EIP, which was bought by Blackstone earlier this year, has signed about 850,000 sq ft of leases across the Delhi National Capital Region (NCR) and Pune in H12021, which is more than double of what it signed in H12020, according to sources in the know. The company declined to comment.

Stellar Value Chain Solutions has, meanwhile, leased a total warehousing area of over three million sq ft, which is 50 per cent higher than last year, said its chairman Anshuman Singh. Singh said in H2, the company will lease 100 per cent more than last year and will more than double its topline in warehousing this year compared to the last.

Similarly, TVS ILP has seen a 32 per cent growth on a compounded annual growth rate (CAGR) this year over last.

“Due to the pandemic, the buying habits of society have significantly altered in favour of e-commerce. This has led to increased demand from e-commerce companies for quality warehouses,” said Ravi Swaminathan, vice chairman, TVS Industrial & Logistics Park, which has 15 million sq ft of warehouses in various stages of development.

Swaminathan expects a growth of 20 per cent this year. “This is subject to pandemic restrictions in the form of lockdowns and free movements of labour and construction materials. As a company, we are expecting to maintain the same growth momentum this year,” he said.

Many players are scaling up the business to handle the growing demand for warehousing.

Welspun One Logistics Parks, which is part of the Welspun group, plans to invest $265 million in the next three to four years to develop a leasable area of 7 to 8 million sq ft in Mumbai, Pune, Bengaluru, NCR, Chennai, Kolkata, and Lucknow. The company will also be developing warehouses in high-potential tier 2 and 3 markets, said Anshul Singhal, managing director, Welspun One Logistics Parks.

IndoSpace, the largest logistics firm in the country, plans to invest $300 million to acquire land across major warehousing hubs — and add four million sq ft of warehousing portfolio by the end of 2021.

Digital drive

With the growing need for digital connectivity to work, learn and play leading to a sharp rise in data usage, the demand for data centres, too, has soared. Betting on this demand, several global operators such as Yondr, Digital Realty and EdgeConneX have set up joint ventures with Indian companies or Indian arms of global companies or fund managers.

Real estate demand for data centres is set to see an upward momentum by 15-18 million sq ft in the next four to five years, property consultant Savills said recently. It estimates that data centre demand in India between 2021 and 2025 will touch over 2,500 megawatt (Mw) with the adoption of 5G, internet of things (IoT), artificial intelligence (AI), increased use of cloud services and in smart cities.

Data centres have been one of those real estate asset classes that are least affected by the Covid-19-related crisis across the globe including in India, said Savills. “The Indian data centre market,” it added, “is likely to exhibit a higher growth rate than the world average.”

Indian data centres witnessed a record absorption of 102 Mw during 2020, as various organisations leaned on them to keep their businesses operational, JLL said.

“Absorption momentum has continued in the first half of 2021 and is estimated to have reached the halfway mark. Increasing cloud ad­option, growing digital economy, regulatory incentives and imminent data localisation me­asures will provide further impetus to gro­w­th in 2021 and the next few years.” said Rachit Mo­han, Head, Data Centre Advisory (India), JLL.

Shobhit Agarwal, MD of Anaroc­k Capital, added that like warehousing, data ce­­ntres are also emerging as a separate class on their own and will not replace office buildi­ngs in terms of absorption of commercial properties.

The shift to the virtual is clearly finding resonance on the ground.