Quick commerce dark stores poised to boost India's real estate demand

Q-commerce majors rush to grab these mini warehouses to cut logistics costs and attain the last-mile delivery objective

Quick commerce (q-commerce) companies are poised to significantly impact India’s real estate landscape as they expand their dark store networks to meet the growing demand.

 

In 2023, the demand for dark store space in India reached an impressive 24 million square feet (msf). According to a joint study by JLL and Miebach Consulting, this demand is projected to grow at a compound annual growth rate (CAGR) of 12 per cent, reaching 37.6 msf by 2027.

 

According to Deloitte, the country’s q-commerce market is estimated to grow up to $40 billion by the calendar year (CY) 2030 at a CAGR of 45 per cent.

   

The real estate requirements for dark stores are different when compared to retail outlets. Dark stores are mini warehouses spanning an area of 2,500 to 4,000 square feet (sq ft). These urban, micro-fulfilment centres are located in strategically identified, densely populated locations. 

 

The locations are identified on factors such as consumer demand, lease rentals, traffic during peak hours, space for logistical operations, and delivery partners to move in and out.

 

"Consumer habits are shaped in a way that they expect quicker delivery and are more used to online shopping. Dark stores are located in a way that the q-commerce platforms can deliver in 15 to 30 minutes,” said Vimal Nadar, senior director and head of research, Colliers India.

 

Ajay Rao, the founder and chief executive officer of Emiza, a warehouse and 3PL firm based out of Mumbai, said the prices of real estate assets were “going through the roof”.

 

Earlier, properties that were on a main road or the high streets were in demand. But dark stores changed the scenario as they can be anywhere. Property prices, which were lagging, are now beginning to shoot up, not just in Tier-I, but in Tier-II cities as well. Real estate prices are also going up significantly wherever the quick commerce companies are expanding,” he said.

 

Cost-effective logistics, rent-generating asset for real estate

 

Q-commerce majors see dark stores as a way of cutting logistics costs and attaining the last-mile delivery objective. Real estate costs in urban locations for logistic activity cannot meet retail rental expectations. Hence, in Indian cities, urban logistics spaces are most successful when built on low-value brownfield spaces such as abandoned industrial facilities, underutilised parking facilities, mixed-use buildings, or other smaller spaces to function as in-city warehouses, as land is scarce and expensive. For q-commerce players, it is possible to save anywhere between 10 and 30 per cent of logistics costs, according to JLL.

 

“Vacant retail spaces are being transformed into dark stores, maintaining occupancy rates in commercial properties and providing e-commerce companies with prime delivery locations,” said Balbir Singh Khalsa, executive director, industrial capital markets, Knight Frank India.

 

For landlords, dark stores generate rental income in the range of Rs 40 to Rs 200 per square foot per month, notes Savills India Research. Among the top seven Indian cities, dark stores in Delhi have the highest rental value of Rs 150–200 per square foot per month.

 

“Today, it’s not just B2C; even B2B is seeking quick, just-in-time (JIT) orders to be delivered to their doorsteps. This shift has significantly boosted leasing activity for dark stores in densely populated urban centres, particularly in central business district (CBD) and secondary business district (SBD) areas of metropolitan regions,” Srinivas N, managing director, industrial and logistics, Savills India, said, adding that this trend extends to Tier-II and Tier-III cities.

 

Growing demand

 

In FY24, Blinkit added 149 new dark stores, taking the total count to 526. It aims to get to 1,000 stores by the end of FY25. Zomato’s warehousing capacity increased 28 per cent year on year (Y-o-Y) to 4.8 million sq ft in FY24, largely driven by store expansion.

 

According to the company’s report, Blinkit more than doubled revenue on a Y-o-Y basis in FY24, primarily driven by an increase in the throughput of existing stores and geographical expansion across new and existing cities.

 

Swiggy addressed the importance of dark stores through its draft red herring prospectus (DRHP) submitted to the Securities and Exchange Board of India (Sebi) ahead of an initial public offering (IPO) of more than Rs 10,000 crore.

 

The company stated that the success of its q-commerce business depends partly on the location, size, and density of the dark stores. The number of active dark stores operated by Swiggy increased to 523 in FY24 from 421 in FY23.

 

The food delivery major aims to set up 538 new dark stores by FY28, incurring a cost of Rs 559.10 crore.

 

Third-party logistics (3PL) player Delhivery is also set to launch dark stores to execute two to four-hour delivery for D2C brands.

 

“The increase in consumer demand and eventually that of dark stores by q-commerce companies will require newer spaces. The q-commerce companies shall need to expand their network. It’s beneficial to the real estate sector because it offers one more alternative asset class to cater to and also possesses immense growth potential, considering the consumer behaviour of online shopping,” said Nadar.

 

Compliance concerns

 

However, dark store operators are facing several challenges, including traffic congestion, a lack of availability of space that complies with regulations such as the fire no objection certificate (NOC) and approved plans, and limited availability of supply.

 

“There is also a challenge in terms of the hygiene levels and the accessibility of properties. Many properties are not conforming to regulatory norms. And you can see many dark stores coming under scrutiny for issues related to compliances and hygiene standards,” Rao said.

 

The expansion of dark stores brings zoning and regulatory challenges, particularly concerning the use of residential areas for commercial purposes, Khalsa said, adding that addressing these will be crucial for developers and investors.