Players Prefer Grade-A Warehouses & Emerging Locations

Chandranath Dey, Head - Industrial Operations, Business Development, Industrial Consulting & Supply Chain Consulting, JLL India Boasting of having 15 years of experience in the industrial, logistics & real estate verticals, Chandranath has been handled 150+ projects across India and abroad, including large scale port and airport related projects, industrial parks, SEZ, FTWZ, logistics parks, and many others.

There is growing preference for Grade-A warehousing spaces in the country. Operational efficiency and better management holds the key for occupiers and companies willing to make it big. Additionally, they are looking at deeper penetration in tier-II & III cities. With rising levels of maturity, the industrial and logistics sector is becoming more organised as well as standardised. Grade-A space is one of the stepping stones in this process as it provides an ease in time bound supply, customer satisfaction, risk free environment and rationale in working capital requirement.

There has been a quantum leap in demand for Grade-A space over Grade-B in the last year.While in 2017, overall India absorption in Grade-A space was 9.9 million sq.ft. against Grade-B absorption of 9.8 million sq.ft. year 2018 witnessed a significant jump of preference for Grade-A space. In 2018, at a pan India level, Grade-A absorption was 17.66 million sq. ft. against Grade-B absorption of 14.14 million sq. ft. Moreover, penetration to tier-II and III cities also remain on the radar of players.

Few advantages that Grade-A warehousing space has:
•Operational Efficiency:Up to 30 percent additional open space up to 30 percent space for internal cargo handling and up to 40 percent storage height to enhance traffic & cargo movement, use of modern MHEs and maximise storage load.

•Wider Cargo Lines: Additional floor load capacity(up to 50 percent) and storage height facilitates heavy/odd dimension cargos and increases pallet position for standardised cargo, especially for long term storage.

•Prevention:Improved fire fighting system, drain age system, floor height and construction quality provides additional protection from unexpected threats and minimises risk of probable in store damages.

•Operational Time Management:Provision for sufficient parking material handling and marshalling space optimises operational time and cost not only for
vehicles and MHE operation but also for sorting/ identification of products.

•Clientele: Planned storage space efficient material handling space safety & security and better access/connectivity are the predominant criteria for the MNC/and the national brands.

Warehouses are the basic foundations for the supply chain of any company that relies on distribution of its products from factories to shops and to end users. For this companies might choose to lease or own spaces depending on the total costs involved.

Grade-A warehouses are labelled on the basis of their superior construction quality, location, space, amenities and clients, among others. As online retail grows, Grade-A warehouses have become a workplace of choice too, for many without a college degree. This is helpful for many from the employment perspective.

Warehouses are the basic foundations for the supply chain of any company that relies on distribution of its products from factories to shops and to end users

However there are challenges; high cost of land some times comes as a challenge for investors interested in Grade-A warehouses. Land cost constitutes a major component of a warehousing project investment.

The incremental cost
This said, what could be the incremental cost to the end user?

A JLL Industrial research on comparing Grade-A & Grade-B warehousing cost to endusers/occupiers reveals the following:

While the above comparison shows the rental premium paid on Grade-A space to be higher, per pallet or per tonnage rental is lower due to operational advantages in Grade-A space. This in turn influences preference among tenants towards Grade-A spaces. Moreover, newer locations are also being looked at with keen interest.

Global Scenario
Globally, Grade-A warehouses follow the following criteria:
•Additional height and higher floorload bearing capacity.
•Better infrastructure with access to mechanised MHEs,fire detection & prevention systems and clean environment.
•Land use with space for parking heavy vehicles/MHEs movement multimodal connections.

Going Forward
Following the global scenario, in India too Grade-A absorption share has grown from 50 percent to 56 percent of the total India absorption levels from 2017 to 2018. It is expected to further grow as occupiers look for spaces with higher specification as per requirements. The liquidity infused by global investors is prompting the market to move towards organised and globally accepted warehousing space. We expect technology to be one of the most important aspects to optimise cost in construction. While in operation a mechanised and automated material handling facility will bring in the much needed efficiency enhancement.

Moreover,uniformity of taxation has created the need for consolidation and creation of bigger warehouses. Further, keeping the cost effectiveness in mind, players want to improve the effectiveness of the space. As a result, deeper penetration in tier-II and tier-III cities is also being looked at.

A growing economy and a preference for well-oiled, organized spaces, along with GST will drive the demand for Grade-A warehousing spaces.