01 April 2016 07:46:17 IST

FDI in e-commerce: demand for office space to go up

About 10% of the total office market demand is currently driven by e-commerce companies

With the government announcing 100 per cent FDI in e-commerce category, office and warehousing space is likely to witness a spurt in activity. Industry watchers and developers note that ecommerce companies will fuel demand in top four metros besides cities like Pune and Hyderabad for its proximity to provide quality skilled professionals.

E-commerce and start-up firms had leased 4.3 million sq ft in 2015 compared to just 0.54 million sq ft in 2014, as per property consultancy CBRE.

“Around 10 per cent of the total office market demand is currently driven by e-commerce companies. This segment was not there till two years ago,” said Rajat Gupta, Managing Director - transaction services at CBRE South Asia.

Anuj Puri, Chairman & Country Head, JLL India, said, “India is already host to some of the largest global e-commerce players. The announcement that 100 per cent FDI will now be allowed in e-commerce is going to open the floodgates to a host of other players in this segment. The impact that this development will have on Indian real estate will be significant. In the first place, the new players — like their predecessors — will require large office spaces to house their back-end teams. They will naturally direct this requirement to the country’s top seven cities.”

Ashish Shah, COO, Radius Developer too echoed a similar sentiment. Shah points that there will be an upswing from top four metros and its peripheries.

“E-commerce players typical need two types of space – warehousing and other to house their vendors and software-led operations to complete fulfilment soon. We see a whole new gamut of companies coming in next 6-8 months.” In January this year, Amazon had taken close to 30,000 sq ft space in Radius’s commercial project in Mumbai.

Last year, Flipkart completed India’s single largest office space leasing deal, signing up for a 2 million sq ft custom built office campus in Bengaluru. Snapdeal.com had also relocated to 450,000 sq ft campus. Players like Ola, Peppery Fry and Jabong too were among key space occupiers. A CBRE report also noted that demand for warehousing space rose by nearly 40 per cent during last year to an all-time high of about 10 million sq ft driven by demand from logistics, FMCG, e-commerce and engineering & manufacturing firms.

According to the report, Delhi-NCR and Mumbai witnessed bulk of the leasing activity and constituted close to 50 per cent of the total space absorption in 2015. Logistics and e-Commerce players remained the dominant drivers of demand in these two micro-markets. Bangalore and Chennai were among the other leading cities that were on the radar of warehousing space occupiers during the year.

Developers like Lodha, Hiranadani, Radius are also putting their focus back on commercial properties as the rental yield is much higher such projects.