ECommerce Firms Have Almost Stopped Leasing Office Space; Paytm Hints At Massive Consolidation In Ecommerce Market

Due to slowdown in funding and focus on cost-cutting measures, India ecommerce firms have virtually stopped leasing out new office space, all over India. As per a latest Knight Frank report, office space leasing by ecommerce firms have crashed down by 78% during first 6 months of 2016.

Last year, during the same period, 4.2 million sq feet of office space was rented by ecommerce firms from top 6 Indian cities: Delhi-NCR; Mumbai, Pune, Bengaluru, Hyderabad and Chennai. However, in 2016, it has been reduced to mere 0.9 million sq feet, a drop of 78%.

The biggest impact of this slowdown in real estate absorption by ecommerce firms has been witnessed in Bengaluru, where the drop was massive 95%.

Last year during January-June period, total of 3.25 million sq feet of office space by grabbed by ecommerce companies, which was 53% of the total office space rented out in the entire city. But this year, for the same period, only 1.4 lakh sq feet of office space was rented by ecommerce firms in Bengaluru, resulting in a direct crash down of 95%, which is just 3% of the overall office space consumption in the city.

Only 4 transactions materialized in terms of office space rental by ecommerce firms from Bengaluru, which were carried over by MakeMyTrip and Redbus. Comparably, last year Amazon and Flipkart, both had collectively leased out 3.2 million sq feet of office space, besides Booking.com, TinyOwl and GroupOn pitching in with large deals.

Delhi-NCR witnessed marginally less drop, compared to other cities as office space leasing by ecommerce firms dropped to 3.5 million sq feet from 3.7 million sq feet last year.

Overall, pan-India, office space leasing increased by 12% to 20 million sq feet, from 17.9 million sq feet last year.

Knight Frank India National Director (Occupier Solutions Group) Viral Desai said, “E-commerce segment had a share of about 30 per cent in the overall office space absorption during 2015. But their share has dropped significantly in the first half of 2016,” told reporters here. The pace at which the e-commerce players were growing is now challenged.”

Paytm Hints At Massive Consolidation in Ecommerce Space

Meanwhile, Paytm founder Vijay Shekhar Sharma hinted at massive consolidation within Indian ecommerce space, as he said that within next 6-9 months, only two major players will remain in the market: Amazon and Paytm.

He said, “The ecommerce business and market is reaching maturity of players. The next 6-9 months, it will be decided who the key contenders of the business are. Logically, to fight Amazon, you need the might of a strategic player – that is why it makes a lot of sense for people to align with Alibaba versus a lot of others”

Besides, he also informed that Paytm’s new ecommerce unit would be up and running by Diwali this year, with a new name and identity. He said, “We are going to make the marketplace separate, then we will be able to raise money, or do M&A, which means we will look to acquire correct optimum sized (companies) to become larger”

As we had shared earlier, Paytm’s sole focus is converging on their new payment bank; besides expanding user base of their mobile wallet.

If we talk about consolidation, then it is highly probable that Flipkart and Paytm can combine their forces to fight the might of Amazon in near future. This theory became stronger after Flipkart started delivering Paytm’s orders via their dedicated logistics arm Ekart.

Will Paytm and Flipkart merge to create a new ecommerce entity by Diwali? We will keep you updated as more news come in. Meanwhile, do share your opinions on the current state of ecommerce in India by commenting right here!