·       3PL segment drove H1 2024 demand with 36% share, followed by engineering and FMCG segments

·       About 7.5 mn sq ft of new supply was recorded in Q2 2024, highest in last 2 years

With about 13 million sq ft of leasing activity in H1 2024 and 17% YoY growth, industrial & warehousing demand across the top five cities remained healthy. Chennai and Delhi NCR led the demand, cumulatively accounting for about half of the overall leasing in H1 2024. Third Party Logistics (3PL) players continued to be the top occupier of warehousing space, contributing to about 36% share in overall demand during the first half of the year. Interestingly, demand in Chennai almost doubled in H1 2024, compared to the same period last year and was largely driven by warehousing requirements of 3PL players. At a micro market level, warehousing space uptake was more than 1.5 million sq ft each in Bhiwandi (Mumbai), Chakan-Talegaon (Pune) and Oragadam (Chennai).

Trends in Grade A Gross absorption (mn sq ft)

Note: Data pertains to Grade A buildings. Absorption does not include lease renewals, pre-commitments and deals where only a Letter of Intent has been signed.

“On a quarterly basis, Q2 2024 saw about 6 million sq ft of industrial & warehousing demand across the top five cities, a 48% rise YoY. With 1.8 million sq ft of leasing and 30% share, quarterly demand was significantly driven by Delhi NCR. The demand in the region was led by large uptake of industrial and warehousing space in Farukhnagar and Sonipat micro markets. Taking cognizance of healthy demand across major cities and supportive government policies, developers have been infusing high quality warehousing facilities replete with technologically advanced features. With significant completions in first half of the year, 2024 is likely to witness Grade A supply infusion to the tune of 20-25 million sq ft.,” says Vijay Ganesh, Managing Director, Industrial & Logistics Services, Colliers India.

3PL demand remains steady in H1 2024, leasing by other segments on the rise

While 3PL players continued to dominate the demand with about 36% share, space uptake by players from engineering, FMCG and electronics segments was significant with 12-16% share each. Interestingly, both engineering and electronics segments witnessed over 1.7X times leasing activity in H1 2024, compared to the corresponding six-month period of 2023. Going ahead, driven by conducive industry-specific policies and an enabling regulatory framework, diverse segments are likely to propel the industrial and warehousing space demand in India.

“With strong macroeconomic indicators, India’s industrial and warehousing market continues to grow, and the momentum is likely to continue in the second half of the year. Upward trend in indicators such as Manufacturing PMI and IIP reflects healthy industrial activity which is likely to spur demand for industrial and warehousing spaces. Interestingly, the manufacturing PMI has been in expansionary zone since July 2021 and remained close to 60 in the last few months. Furthermore, recent budgetary announcements will improve logistics efficiencies, catalyze demand and attract investments in the industrial and warehousing sector. Additionally, increasing platform level investments will lead to influx of superior quality industrial and warehousing space in the next few years.” says Vimal Nadar, Senior Director & Head of Research, Colliers India.

With supply infusion exceeding the demand for Grade A warehousing spaces, overall India vacancy levels increased by 210 basis points (bps) on an annual basis and stood at 12.2% at the end of H1 2024. Developer anticipation of heightened demand in upcoming quarters, have resulted in fresh supply of 14.4 million sq ft in H1 2024, a 35% YoY rise. With about 5.7 million sq ft of new industrial and warehousing developments, Delhi NCR accounted for about 40% share in overall completions in first half of the year. Notably, Q2 2024 witnessed about 7.5 million sq ft of completions in top five cities of the country, a 53% YoY rise. Q2 2024 also marked the highest quarterly supply infusion in the last 2 years. Amidst healthy demand and high-quality supply infusion, rentals in key micro markets saw an appreciable uptick.

Trends in Grade A Supply (mn sq ft)

Source: Colliers

Note: Data pertains to Grade A buildings

Large sized deals account for 35% of the total leasing

During H1 2024, large deals (>200,000 sq ft) accounted for about 35% of the demand. Although a vast majority of these larger deals came from 3PL players, electronics and FMCG occupiers too had large warehousing space requirements. On a city level, Chennai followed by Delhi NCR dominated the chunk of large-sized deals.

Also Read: Industrial & Warehousing sector records 21.9% annual demand growth in H1 2024

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The sector received investments worth USD 646 Mn in 2023, accounting for 15% of the total institutional investment received in the real estate sector. However, investments declined by 65% in 2023 over the previous year as investors opted for wait-and-watch mode amid global macroeconomic uncertainty.

Yearly Absorption Trend

In the past decade, 3PL companies emerged as a preferred choice for several businesses as these companies can optimize cost along with providing flexibility to their clients in case of demand uncertainty. As a result, the share of 3PL companies increased over the years and reached 44% of the overall absorption in 2023, followed by Engineering and Manufacturing companies with 18% share. Retail accounted for 11% of the overall absorption in 2023.

Sector-Wise Absorption (Mn sq ft)

Mumbai contributed the highest to the overall absorption in 2023 with 27% share. Its share has increased from 19% a year earlier. In absolute terms, absorption increased by 69% in the city, reaching 10.2 Mn sq ft in 2023. Heightened real estate activities during the year resulted in an annual appreciation of 4% in rentals.

On the other hand, Kolkata witnessed the highest annual decline of 23%, reaching 1.6 Mn sq ft in 2023. Its share has also declined from 7% in 2022 to 4% in 2023. Limited availability of Grade A warehouses in the city posed a challenge in meeting growing demand, leading to a decrease in absorption. Moreover, restricted absorption activities in the city during 2023 exerted pressure on rentals, resulting in an annual decline of 5%.

Absorption increased by 21% in NCR compared to the previous year, however, its share in the total absorption remained constant. The city’s strategic location and thriving e-commerce markets were major demand drivers. Robust demand for warehouses in the city resulted in an annual appreciation of 2% in rentals.

Pune registered a substantial annual growth of 35% in 2023, reaching an absorption of 7.0 Mn sq ft. This growth can be attributed to the presence of trade hub of Chakan MIDC, which hosts large manufacturing and logistics parks.

The southern cities (Bengaluru, Chennai, and Hyderabad) collectively contributed 27% to the total absorption in 2023, after reporting a decline from 34% share in 2022. In absolute terms, absorption decreased by 5% in these cities, reaching 10.2 Mn sq ft in 2023.

Shrinivas Rao, FRICS, CEO, Vestian said, “The Union Budget 2024-25 is expected to set the tone for next couple of years. Recent announcements of infrastructure development in the interim budget may have a positive impact on the sector. However, 2024 can be a challenging year for Indian warehousing sector as investments were on a downward trend in 2023.”

The sector is expected to expand at a CAGR of 10%-13% for next couple of years, predominated by third-party logistics and e-commerce enterprises. Grade A facilities are likely to be in demand due to their efficient and cost-effective methods.

Also Read: Industrial & Warehousing demand consolidates in 2023, at about 25 mn sq ft

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By Varun Singh

Demand for warehouses has seen a healthy incline in India. Projections till December 2022 indicate a record net absorption of 42.5 million sq ft in 2022 as against 39 million sq ft. in 2021.

3PL/ logistics has remained the largest sector in terms of warehousing demand over the years. Due to a behavioral change from making offline purchases to online, demand for e-Commerce has gained significant traction over the last few years. However, the demand from e-Commerce players has cooled down in H1 2022, given that e-Commerce players have added adequate capacity in 2021.

According to the JLL report ‘India Warehousing Market: Present and Future,’ Grade A stock in India for the year 2021 was at 134 million sq ft. translating to a 3-year CAGR of 27%.

With rising disposable incomes and consumption-led demand, retail demand expanded strongly in H1 2022. Engineering and auto and ancillaries are the other main drivers of demand in H1 2022, since manufacturing companies have been incentivized with favourable government policies to attract MNCs as well as domestic investments.

“There are three main drivers in the logistics and industrial sector: the growth witnessed in manufacturing, and warehousing sectors, and the keen interest shown by investors as they continue to remain bullish. Within the manufacturing sector, the Government of India continues to incentivize growth via attractive policies, wherein we have seen significant investments from MNCs as well as domestic companies who have ambitious plans to ramp up. In terms of the warehousing sector, we have witnessed unprecedented growth driven by 3PL/ logistics players, retail, and e-commerce in Tier I as well as Tier II cities. The average sizes of Grade A warehouses have increased by 2x from 80,000 sq. ft. in 2016 to 160,000 sq. ft. in H1 2022,” said Sanjay Bajaj, Managing Director (Logistics and Industrial) India, JLL.

We have seen a large amount of private equity/ Indian Corporate developers focusing on this sector who wish to build compliant, sustainable, and technologically advanced industrial parks for occupants,” he added. 

Rentals Go up

After the slow growth in the warehousing rental values over the past 5 years, H1 2022 witnessed upward corrections in the rental values due to increasing land prices and construction costs. The rent index in H1 2022 observed a significant jump reaching 129

With the increasing demand in the market, there is a significant dip in overall vacancy to reach 11.4% in H1 2022. The Grade A vacancy has also reached 7.7% in H1 2022 and is projected to reduce further in 2025 on the back of strong demand for quality and compliant spaces.

There has been an evolution of the warehousing space in India. There is a shift from mere storage spaces to highly sophisticated warehousing management systems. This shift towards sophisticated, cutting-edge storage has resulted in a two-fold increase in the average size of Grade A warehouses in India. The warehouse size has expanded not only in terms of area but also in terms of average height, which has increased from 9 m in 2016 to 12 m in 2021. The average volume of Grade A warehouses has grown by 3x over the past 5 years.

The industrial and warehousing sector has recovered very sharply since COVID-19 – the reasons for the sharp recovery being – India is in a more favorable position given the changing global supply chain dynamics, strong government policies, and strong domestic demand.

Also Read: Industrial and warehouse logistics park supply estimated at 330 mn sq ft by 2023

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The Pune industrial and warehousing market has grown rapidly, with the current stock at 33.2 million sq ft in 2021. The forecasted supply is close to 60 million sq. ft until the end of 2025. As we have seen, over the past few years, Grade A supply has attracted quality tenants. Pune has been a manufacturing hub since the 1960’s, and has attracted several large multinational corporations, focused on auto, auto and ancillaries, electronics, white goods, and some of the newer industries like Electric Vehicles (EVs) and renewables.

The supply is predominantly concentrated in the Northern part of the city namely Chakan and Talegaon and the Eastern belt starting from Phulgaon to Ranjangaon. Chakan and Talegaon account for almost ~70% of the industrial & warehousing supply, owing to the excellent ecosystem set up by the MIDC, including the physical infrastructure, roads, water, power, and connectivity to National Highways and JNPT. 

The Pune story in numbers

Micro markets grow substantially

Pune witnessed peak demand of 6.5 million sq ft in 2021, indicating clear resurgence of the economy as well as customer sentiments, led by manufacturing, 3PL and e-commerce. Additionally, the city witnessed increased interest from global investors and funds, evaluating further investments. Projected growth in demand is ~15-16% in 2022 to take it to 7.5 million sq. ft by the end of 2022.  

Talegaon is an upcoming industrial and warehousing market in proximity to Chakan, connected via the NH4. The micro-market has limited ready supply on offer for clients. Chakan – Talegaon cluster is the largest warehousing hub in the city, with a concentration of Grade A spaces, and has the largest amount of demand contribution on an annualized basis. Pimpri-Chinchwad Municipal Corporation (PCMC), India’s oldest automobile industrial area has more than 4,000 auto and ancillary units. PCMC is characterized by SMEs MSMEs and Large Indian and Multinational corporations operating within the micro-market.

“The Pune market has been characterized by excellent demand-supply dynamics over the few years, which resulted in vacancy levels hovering around the 10%. We expect the healthy demand-supply dynamics to continue over the next few years, making Pune one of the most attractive markets in the country for the development of industrial parks and warehouses,” said Sanjay Bajaj, Managing Director – Logistics and Industrial, India, JLL & Pune, JLL.

Key lease transactions in the last 2 years (2020-2021) done by JLL

Looking ahead

The year 2022 looks extremely promising for the Industrial & warehousing sector of Pune. Historically, considering the slump in demand during COVID the city has witnessed approx. 4 million sq. ft of annual absorption from 2017-to 2021. JLL excepts 2022 demand to be quite solid, owing to the renewed confidence in the Indian economy and special focus on the manufacturing sector as well as the buoyancy of E-commerce and 3PL players, which shall further propel demand. This could potentially lead to the all-time high demand of ~7.5 million sq. ft.

Also Read: RBI makes Homebuyers happy, Repo rates unchanged

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