Sailing through global headwinds on the back of strong and sustainable fundamentals amidst infrastructure and connectivity boost, the Warehousing and Logistics sector is set to scale new heights this year.
According to a report by Vestian, during H1 2023, the warehousing and logistics sector recorded 49% of total absorption registered over the entire previous year. This represents a YoY growth of 17% , bringing it to an estimated 15.4 million sq ft absorption. Shrinivas Rao, CEO, Vestian expects that with continued infrastructure developments , the absorption in 2023 is likely to match that of 2019 which marked a four-year high.
NCR commanded the highest share at 31% of the total absorption during H1 2023, up from 21% a year earlier. This indicates a robust demand for warehousing and logistics facilities in and around Delhi, Noida, and Gurugram which are prominent commercial and industrial hubs. Western cities of India, Mumbai and Pune, accounted for 42% of the total absorption during H1 2023, increasing from 35% in H1 2022. This could be attributed to the higher demand for warehousing facilities in these cities.
The micro-markets of Bengaluru and Hyderabad witnessed a drop in demand for warehousing facilities due to the limited supply of Grade A warehouses in the regions during the analysis period.
Micro-markets of NCR quoted the highest weighted average rentals of INR 22.5 per sq ft per month, complementing the region’s highest absorption amid strong demand and a competitive market. Therefore, the weighted average rentals increased by 4% within a year. Bengaluru closely followed the NCR market with INR 22.0 per sq ft per month, showcasing the city’s prominence in the logistics sector.
3PL companies continued to be the major demand driver in H1 2023 with 26% of the total share. Engineering & manufacturing and FMCG companies accounted for 16% and 11% share respectively.
Despite sustained leasing activities during H1 2023, institutional investments were reduced by 69% over H1 2022, as we saw investors opt for wait-and-watch mode amid global uncertainty. However, the trend for overall institutional investments remains the same.
Regarding warehousing trends, Shrinivas Rao states that vertical stacking and in-city warehousing are gaining prominence to improve efficiency and reduce cost. There is a focus on ESG factors within the sector which again is in alignment with clients’ environmental and social objectives and goals.
The emergence of tier-2 cities as warehousing hubs and extensive use of AI and ML technologies to improve efficiency may shape the future of the warehousing and logistics sector in India. Additionally, the ‘Make in India’ campaign and ‘China plus One’ strategy coupled with upcoming mega infrastructure projects may provide impetus to the Indian manufacturing industry, leading to an increase in demand for warehouses.