JLL India article | Grade A Warehouse - Will it be the first choice?

There is growing preference for Grade A warehousin g spaces in the country. Operational efficiency and better management will hold the key for occupiers and companies willing to make it big

Chandranath Dey, Head of Industrial Operations, Business Development, Industrial Consulting & Supply Chain Consulting, JLL India

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 mn sq ft against Grade B absorption of 9.8 mn 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 mn sq ft against Grade B absorption of 14.14 mn sq ft.

Few advantages that Grade A warehousing space has:

·         Operational efficiency: Up to 30% additional open space; up to 30% space for internal cargo handling and up to 40% 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%) and storage height facilitates heavy/odd-dimension cargos and increases pallet position for standardised cargo, especially for long term storage.

·& nbsp;        Prevention: Improved firefighting system, drainage 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 and 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, 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.

However, there are challenge: High cost of land sometimes 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 use r?

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

Source: JLL Research

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.

Global scenario

Globally, Grade A warehouse follows the following criteria:

·         Additional height and higher floor load bearing capacity. 

·         Better infrastructure with access to mechanised MHEs, fire detection and prevention systems, clean environment.

·         Land use with space for parking heavy vehicles/MHEs movement, multi-modal connections.

Going Forward

Grade A absorption share grew from 50% to 56% share of 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. A growing economy and a preference for well-oiled, organized spaces, along with GST will drive the demand for Grade A warehousing spaces.