The Industrial and Warehousing sector witnessed robust absorption of 27.3 million square feet in the first half of 2024, reflecting a 21.9% increase year-over-year compared to the 22.4 million square feet absorbed in the first half of 2023, according to the latest findings by Savills India, a global real estate advisory firm.
The 3PL sector played a significant role, driving demand with a 33% share, followed by the manufacturing sector at 22% and the FMCG/FMCD sector at 17%. Notably, the uptake of manufacturing warehouses significantly contributed to the overall absorption. Tier I cities captured a dominant share of the absorption (78%), while Tier II and III cities accounted for the remaining 22%. The report further indicates that the sector witnessed a supply addition of 28.2 million square feet in the first half of 2024, with 77% concentrated in Tier I cities and the remaining 23% in Tier II and III cities.
Tier I cities include Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, Delhi-NCR, and Pune. Tier II and Tier III cities include Guwahati, Bhubaneshwar, Patna, Hosur, Coimbatore, Rajpura, Lucknow, Jaipur, Nagpur, Surat, Indore, Kochi, Hubli, Vizag, Belgaum and Anantapur.
While the first half of 2024 saw a slight dip in the share of Grade-A space in both supply (49% down from 52% in H1 2023) and absorption (39% down from 53% in H1 2023), this is considered temporary. The growing focus on Environmental, Social, and Governance (ESG) standards among occupiers is expected to significantly boost demand for Grade-A space in the future. By the end of 2024, the contribution of Grade-A space to both overall supply and absorption is projected to exceed 60%.
In H1 2024, 3PL sector accounting for 33% to total absorption witnessed in the country down from 44% of total absorption witnessed in H1 2023. This decline was attributed to reduced supply chain outsourcing to 3PL partners by FMCG/FMCD companies to reduce operational costs. As a result, the FMCG/FMCD sector contribution to overall absorption increased to 17% in H1 2024 from 6% of the total absorption in H1 2023. In addition, the demand for warehousing space by FMCG and FMCD occupiers is on the rise due to improved demand for FMCG and FMCD products in tier I, II, and III cities, as well as improved demand in rural markets.
The E-Commerce is also likely to witness a continued surge, it is adopting new business models for increasing urban distribution and extending the reach in tier-II & III locations. The growth in cities like Patna, Ranchi, Lucknow, Guwahati, Rajpura, Ambala, etc., has been remarkable.
The manufacturing sector’s contribution to overall absorption experienced impressive growth, increasing from 16% of total space absorption in 2022 to 22% in H1 2024. The sector has gained momentum with a host of incentive schemes, including the Production Linked Incentive Scheme (PLI).
The retail sector accounted for 7% of the overall absorption in H1 2024. The other sectors including cold storage, chemical storage, FTWZs, ICDs, and Urban Warehousing contribution was around 15% during the same period.
