– by Chandranath Dey
With rising levels of maturity, the industrial and logistics sector is becoming more organized as well as standardized. 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 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 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 maximize 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 standardized cargo, especially for long term storage.
- Prevention: Improved firefighting system, drainage system, floor-height, and construction quality provides additional protection from unexpected threats and minimizes the risk of probable in-store damages.
- Operational time management: Provision for sufficient parking, material handling, and marshaling space optimizes 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 the 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 labeled 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 challenges: 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-user?
A JLL Industrial research on comparing Grade A & Grade B warehousing cost to end-users / 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.
Globally, Grade A warehouse follows the following criteria:
- Additional height and higher floor load-bearing capacity.
- Better infrastructure with access to mechanized MHEs, fire detection and prevention systems, clean environment.
- Land use with space for parking heavy vehicles/MHEs movement, multi-modal connections.
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.