Record Industrial & Warehousing Space Absorption

The Indistrial & logistics sector is on a high with record space absorption in the new year, spurred by Grade supply across India, especially in Tier 2 and Tier 3 cities.

According to Savills India Q1 2023 Report that looks at key trends and statistics of industrial and warehousing, the sector witnessed absorption of around 11 mn sq. ft in the first quarter. Notably, Tier I cities observed 77% of the absorption, while tier II and III cities accounted for the remaining 23%, as per the report. Tier 1 cities included Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, Delhi-NCR and Pune while Tier 2 cities included Guwahati, Bhubaneshwar, Patna, Hosur, Coimbatore, Rajpura, Lucknow, Jaipur, Nagpur and Indore.

The report suggests that the sector witnessed a fresh supply of 12.4 mn sq. ft in the same period, of which 9.2 mn sq. ft (74%) was from tier I cities and 3.2 mn sq. ft (26%) from tier II and III cities. Additionally, the market is witnessing a surge in new projects that boast of improved specifications and high-quality Environmental, Health, and Safety (EHS) standards. This trend has led to a consistent increase in the percentage of grade-A supply across cities in recent years. In Q1 2023, grade A space accounted for 52% of both the total absorption and supply in the market, highlighting the significant demand for quality space.

Over the years, five cities have consistently contributed the most to industrial and warehousing segment absorption in India: Delhi-NCR, Mumbai, Bengaluru, Chennai, and Pune. In Q1 2023, Delhi-NCR remained at the top with the highest absorption rate of 19%, closely followed by Mumbai with 14%. Bengaluru and Chennai recorded absorption rates of 9% and 8%, respectively. Together, Tier II and Tier III cities accounted for 23% of the total absorption.

Over the last 2-3 years, the 3PL sector has been a major contributor to the growth of the warehousing industry, accounting for 40-50% of the total demand. The manufacturing sector has also gained momentum, with increased activity supported by various incentive schemes, including the PLI.
In the first quarter of 2023, the 3PL sector continued to be the driving force behind warehousing demand, accounting for 40% of total absorption. The manufacturing sector followed closely behind, accounting for 23%, with the retail sector at 11% and FMCG/FMCD at 7%.

According to Srinivas N, Managing Director, Industrial & Logistics, Savills India, the sector is poised for significant growth in 2023, with a projected absorption of over 40 msf. This demand is expected to be driven by emerging Tier 2 and Tier 3 cities, a growing need for urban warehousing, and a major transformation in the Indian manufacturing sector. This shift is further supported by the Performance Linked Initiatives (PLIs) and efficient multimodal connectivity plans designed for local and global distribution purposes.