Resilient fundamentals foster rental stability in prime warehouse markets across APAC in H1 2021: Knight Frank

Prime warehouse rents in NCR, Mumbai and Bengaluru remain stable

Despite correction Mumbai remains the most expensive warehousing rental market in India

by Priya J

Mumbai, August 2021:  Knight Frank, a leading global property consultancy, in its latest report - Asia Pacific Warehouse Review: H1 2021 cited that despite a weak economy, rentals for prime warehouse markets across Asia-Pacific (APAC) region remained largely unchanged. The region saw a marginal fall of 0.1% year-on-year (YoY) in H1 2021. The outlook on the rents of prime warehouse markets in H2 2021 is expected to remain stable.

The report tracks the prime warehouse rental performance across 17 key cities in the APAC region. As per the report, 13 of 17 APAC markets recorded stable or increased rents in H1 2021. Rents in Jakarta and Beijing saw the sharpest increase, 5.6% and 4.4% respectively, in the APAC region. The most expensive warehousing rental market in the region, Hong Kong SAR, is expected to remain stable. 

With reference to the Indian markets, National Capital Region (NCR) witnessed a marginal warehouse rental increase of 1.1% YoY in H1 2021. Mumbai and Bengaluru witnessed a decline of 7.8% and 4.6% respectively. The rental forecast for the next 12 months for these cities is expected to be stable. 

According to the recently launched ‘India Warehousing Market Report – 2021’, Knight Frank India projected the warehousing transactions for the top eight Indian cities (primary markets) to grow at a compound annual growth rate (CAGR) of 19% to 76.2 mn sq ft (7.08 mn sq m) by Financial Year (FY) 2026 from 31.7 mn sq ft (2.95 mn sq m) in FY 2021. Despite decline, Mumbai remained the most expensive prime warehouse rental market in the country, attracting USD 2.93/ SQ M per month. Bengaluru is the second most expensive prime warehousing market in India, recording rental at USD 2.72 / SQ M per month. Rental for prime rental asset class in NCR recorded at USD 2.59/ SQ M per month. Owing to increased input costs, the Indian asset owners are not expected to reduce the rents in the next 12 months.

According to Shishir Baijal Chairman and Managing Director, Knight Frank India, “The warehousing sector in India witnessed a marginal impact of the second wave of pandemic as the occupiers were well geared for negating the exigencies. More than half of the area transacted in top Indian warehousing markets were recorded in the prime asset properties. The warehousing markets in primary and secondary Indian markets are likely to remain resilient in coming months.”

Shishir further added, “Rents for warehouses in Mumbai, Bengaluru have corrected while NCR has seen marginal YoY growth in H1 2021. While higher construction costs, due to the increasing prices of steel and other input materials are expected to leave little room for asset owners to compromise on rent in the next 12 months, the improving but uncertain demand environment due to an evolving pandemic could still cause significant headwinds for rental growth. This stalemate could well break towards the end of the 12-month period as vaccinations gather pace and occupiers eventually submit to higher rents due to inflationary pressures.”

Asia-Pacific Prime Warehouse Rents

City	Country/Region	USD/SQ M/Month	YOY % change (H1 2020 - H1 2021)	Forecast for next 12 months
Brisbane	Australia	7.18	2.0%	Increase
Melbourne		6.31	0.6%	Increase
Sydney		7.62	0.8%	Increase
Tokyo	East Asia	12.36	0.0%	Increase
Beijing		9.49	4.4%	Increase
Guangzhou		5.85	-1.6%	Increase
Shanghai		7.58	1.9%	Increase
Hong Kong		26.52	0.2%	Stable
Taipei		12.76	2.9%	Increase
Bengaluru	India	2.72	-4.6%	Stable
Mumbai		2.93	-7.8%	Stable
NCR		2.59	1.1%	Stable
Jakarta	Asean	4.92	5.6%	Stable
Kuala Lumpur		4.93	0.0%	Stable
Singapore		13.76	-3.9%	Increase
Bangkok		4.93	0.5%	Stable
Manila		4.81	0.0%	Stable

Source: Knight Frank Research

Tim Armstrong, head of occupier services & commercial agency, Asia Pacific at Knight Frank said, “Despite operating under the shadow of the pandemic, warehouse markets across the region have remained largely stable, driven by sustained demand from the e-commerce sector. Recent events that have impacted commitments to customers have put the development of supply chain resilience into focus and major occupiers are responding by re-configuring their strategies through building out inventory buffers and expanding urban distribution nodes. This will have positive knock-on effects for demand to strengthen for logistics spaces. Developers in the region remain on the hunt for opportunities to capitalise on growth trends, indicating sustained confidence in the region’s warehouse markets.”

Highlights of the report:

·         Mumbai, NCR and Bengaluru market to remain stable with respect to market and rents.

·         13 of 17 cities recorded stable or rising rents in H1 2021.

·         Market conditions for 17 cities tracked are expected to remain stable or improve over the next 12 months.

·         Jakarta recorded the healthiest rental growth at 5.6%, followed by Beijing at 4.4% and Taipei at 2.9%.

·         Mumbai stood at bottom of the table with decline of 7.8% in the 6 month rental change. The city still remains the most expensive prime warehousing rental market in the country.