By: Anshuman Magazine, CMD, CBRE South Asia
Track2Realty: As e-commerce attains new heights and presents a number of opportunities for the real estate sector in general—and the warehousing segment in particular—CBRE recommends strategies for landlords and e-retailers for attaining a win-win scenario.
Landlords are advised to focus on assigning priority to the sector, understand sector specific requirements and consider e-retailers as anchor tenants. Offering flexible transaction terms and setting realistic rental expectations are other long-term strategies for developing a mutually beneficial relationship.
E-commerce players for their partmay consider built-to-suit (BTS) facilities in smaller cities, while following a mix of BTS and leased facilities in bigger metropolitan cities. Together with a clear strategy for national expansion, a focus on developing region-specific real estate strategies may be considered as well. The impact of regulatory changes, such as the implementation of the Goods and Services Tax (GST), should also be considered for long-term expansion plans.
Recommendations for landlords
Assigning Sector Priority: E-commerce retailers should be treated as anchor tenants. Landlords can derive multiple benefits from e-commerce retailers’ rapid take-ups of large-sized floor plates.
Aligning Sector Specific Requirements:Familiarization with the strategy and expansion models of e-retail majors will be key; while developing quality bespoke warehousing and logistics facilities for such clients.
Collaborating on BTS Facilities: Developers, particularly those in smaller cities, should align their development experience with e-retail expectations.Levying development costs on the occupier/tenant should be avoided, while focusing on long-term opportunities offered by the segment.
Flexible Transaction Terms: Developers in smaller cities and state capitals are advised to offer attractive transaction terms and longer term periods to capture the large space requirements of the sector.
Realistic Rental Expectations: Reduced vacancy pressure is likely to provide room for rental rise in coming years. However, this must be considered within the broader context of sectoral growth, future expandability and the extent of new supply.
Recommendations for e-retailers
Larger Regional Hubs: To improve bottom lines, e-retailers should shift the main mode of transportation from air to surface delivery. This will transition the business from a typical break bulk activity mode to a regional consolidation mode with larger spokes.
Think National, Act Regional: When expanding nationwide, e-retailers should focus on developing region-specific real estate strategies, according to infrastructure availability, market strength and consumption patterns.
Tracking the Pipeline: Business strategy, inventory pressures and future growth in consumer demand should be considered when planning and developing new real estate facilities.
Expecting Realistic Transaction Terms: E-retailers should aim to secure more realistic transaction terms, for example on lease terms and asset pricing. Focusing on an excessively long lease term might be unrealistic in the Indian market.
Regulatory Adjustments: E-retailers should be aware of the likely impact of the implementation of the Goods and Services Tax in 2015/16 in streamlining tax / duties across states.
Large domestic ventures and international giants are likely to continue dominating the Indian e-Commerce market in forthcoming years. These firms have already executed a number of innovative moves to stay ahead of the competition. These include the revolutionary concept of ‘Cash on Delivery’ to suit Indian sensibilities, shortened delivery timelines with the introduction of assured delivery within two days, and that of promised delivery to customers in select cities within nine hours of placing an order.
E-retailers are building up their technology platforms and investing in infrastructure. As most goods ordered online in India are moved by air, many are setting up regional warehouses and signing up more suppliers across the country to ensure timely delivery to customers that will also be more cost effective. In addition, many are also experimenting with neighborhood grocery stores and fuelling stations as delivery points.
Agreements have also been struck with the Indian Postal Service to reach inaccessible locations. A few are working with external logistics firms to cut back on excessive documentation and on multiple state taxes for products shipped by road.