Industrial & Warehousing demand in India stable in H1 2023: Colliers

Industrial & Warehousing demand in India stable in H1 2023: Colliers

According to a report by Colliers, a professional services and investment management company, the demand for industrial and warehousing spaces in the top five cities in India remained stable during the first half of 2023 (H1 2023). Approximately 11 million square feet (sq ft) of space was leased during this period, comparable to the leasing activity observed during the same period in the previous year.

This indicates that despite various challenges and uncertainties in the market, the demand for industrial and warehousing facilities has remained consistent. The stability in need reflects the continued importance of these spaces for various industries and businesses.

The report does not mention specific cities, but it is likely that the top five towns refer to major urban centres in India, such as Mumbai, Delhi-NCR (National Capital Region), Bangalore, Chennai, and Hyderabad, which are known for their robust industrial and commercial activities.

The stable demand for industrial and warehousing spaces can be attributed to several factors. With the growth of e-commerce and the logistics sector, there is an increasing need for storage and distribution centres to support the movement of goods across the country. Additionally, the manufacturing sector’s expansion and the rising demand for industrial products also contribute to the sustained demand for industrial spaces.

As the Indian economy continues to recover and grow, the demand for industrial and warehousing spaces is expected to remain resilient. Companies are likely to continue investing in these facilities to optimize their supply chains, improve operational efficiency, and meet the increasing consumer demand for products and services.

The report’s findings provide valuable insights for investors, developers, and businesses looking to invest in or lease industrial and warehousing properties in India. It highlights the ongoing importance of these spaces in supporting various sectors of the economy and indicates a positive outlook for the commercial real estate market in the country.

As per the report by Colliers, the demand for industrial and warehousing spaces in India’s major cities was dominated by Delhi-NCR, which accounted for 25.0% of the total demand during the first half of 2023 (H1 2023). Delhi-NCR is a significant commercial and industrial hub in the country, comprising the capital city of New Delhi and its surrounding regions.

Following closely behind, Mumbai recorded a share of 24.6% in the total demand for industrial and warehousing spaces. Mumbai is another major economic centre and a crucial port city in India, making it an essential location for businesses seeking distribution and logistics facilities.

These findings highlight the continued importance of Delhi-NCR and Mumbai in driving industrial and warehousing demand in the country. Both regions have robust economic activities and serve as key transit points for the movement of goods and services.

The strong demand for industrial and warehousing spaces in these cities can be attributed to various factors. Delhi-NCR and Mumbai have well-developed transportation networks, including airports, seaports, and railways, which make them strategic locations for businesses looking to establish distribution centres and warehouses to serve the domestic and international markets.

Additionally, a large consumer base and a thriving manufacturing sector in these regions contribute to the high demand for storage and logistics facilities. The growth of e-commerce and the expansion of organized retail also play a significant role in driving the demand for modern warehousing spaces.

Given the continued growth and economic significance of Delhi-NCR and Mumbai, investors and businesses are likely to continue showing interest in these regions for their industrial and warehousing requirements.

The stable demand in these cities underscores their attractiveness as key real estate markets in India and reinforces their status as major contributors to the country’s economic growth. The report by Colliers indicates that Mumbai stood out with a remarkable 28% year-on-year (YoY) increase in demand for industrial and warehousing spaces during the first half of 2023. This growth was significantly higher than other major cities in India, where most witnessed only single-digit changes in demand for such properties.

The substantial surge in leasing activity in Mumbai can be attributed to the expansion initiatives taken by players in the 3PL (Third-Party Logistics) sector. The 3PL sector plays a crucial role in logistics and supply chain management, providing services to businesses that prefer to outsource their distribution and fulfilment operations. The growth of the 3PL sector indicates an increasing need for modern and well-equipped warehousing facilities to cater to the rising demands of e-commerce, retail, and other industries.

Mumbai’s status as a major economic and commercial hub makes it an attractive location for businesses seeking to expand their operations and optimize their distribution networks. The city’s strategic location, access to major ports, and well-connected transportation networks further enhance its appeal for industrial and warehousing activities.

The rise in e-commerce and the push for efficient last-mile delivery services have fueled the demand for modern warehousing spaces near urban centres, where a large consumer base resides. Mumbai’s dynamic and evolving business landscape and population density contribute to the high demand for industrial and warehousing spaces in the city.

The notable growth in leasing activity in Mumbai reflects the resilience and potential of the industrial and warehousing sector in the city, even amid the challenges posed by the ongoing COVID-19 pandemic and economic uncertainties.

As the logistics and supply chain landscape continues to evolve, Mumbai is likely to remain a key market for businesses seeking strategic warehousing locations and efficient distribution solutions. despite the challenges posed by global economic headwinds, the industrial and warehousing sector in India has been experiencing steady growth. Several factors contribute to this positive trend, making the sector resilient and attractive to investors and businesses alike.

1. Rising Capital Investments: Increased capital investments in the industrial and warehousing sector have been instrumental in driving its growth. Both domestic and foreign investors are recognizing the potential of this sector, leading to the development of modern and well-equipped industrial and warehousing facilities across the country.
2. Growth in Manufacturing Output: India’s manufacturing sector has been witnessing steady growth, fueled by the government’s ‘Make in India’ initiative and other policy enablers. With the increasing focus on domestic manufacturing and exports, there is a growing demand for industrial and warehousing spaces to support production and distribution activities.
3. E-commerce Boom: The rapid expansion of the e-commerce industry has been a significant catalyst for the growth of the warehousing sector. E-commerce companies require efficient and strategically located warehouses to fulfil customer orders promptly, leading to the development of large-scale fulfilment centres across key cities.
4. Government Policy Enablers: The Indian government’s proactive approach in formulating policies that support industrial growth and ease of doing business has played a crucial role in the sector’s growth. Initiatives such as the implementation of Goods and Services Tax (GST) and the creation of dedicated industrial corridors have provided a conducive environment for industrial and warehousing development.
5. Supply Chain Optimization: Businesses are increasingly focusing on optimizing their supply chains to enhance efficiency and reduce costs. This has led to the demand for well-located and modern warehousing facilities that facilitate seamless logistics and distribution.
6. Urbanization and Population Growth: Rapid urbanization and population growth in India have increased consumer demand, necessitating efficient distribution networks and last-mile delivery solutions. This has further fueled the demand for industrial and warehousing spaces near urban centres.
7. Focus on Infrastructure Development: The Indian government’s emphasis on infrastructure development, including the construction of better roads, highways, and logistics parks, has improved connectivity and accessibility to various industrial and warehousing hubs.

These combined factors have contributed to the resilience and growth of the industrial and warehousing sector in India, making it an attractive investment destination for both domestic and international players. With the ongoing momentum and continued policy support, the sector is poised for further expansion, playing a vital role in India’s economic development and job creation.

The dominance of 3PL (third-party logistics) operators in the industrial and warehousing leasing market during the first half of 2023 is a clear indication of the crucial role they play in the supply chain and logistics ecosystem. The demand for industrial and warehousing spaces from these operators has been steadily growing, driven by the rising need for efficient and streamlined logistics solutions in the rapidly expanding e-commerce and retail sectors.

The key factors contributing to the significant presence of 3PL operators in the leasing market include:

1. E-commerce Boom: With the tremendous growth of e-commerce in India, the demand for efficient and scalable logistics solutions has surged. 3PL operators, with their expertise in managing complex supply chains and distribution networks, have become pivotal partners for e-commerce companies seeking reliable warehousing and distribution services.
2. Last-Mile Delivery Solutions: 3PL operators are at the forefront of providing last-mile delivery solutions, which are critical in meeting consumers’ expectations for fast and reliable deliveries. Their network of strategically located warehouses allows them to optimize the last-mile delivery process and ensure the timely fulfilment of orders.
3. Cost Optimization: Many businesses are opting for 3PL services to optimize their logistics costs. By outsourcing their warehousing and distribution needs to specialized operators, companies can focus on their core competencies while benefiting from the economies of scale and expertise that 3PL operators bring to the table.
4. Flexibility and Scalability: 3PL operators offer flexibility in warehousing solutions, allowing businesses to adjust their storage and distribution requirements based on seasonal demand fluctuations and changing market dynamics. This scalability is especially crucial in the dynamic and fast-paced world of e-commerce and retail.
5. Technology Integration: Leading 3PL operators invest in advanced technologies like warehouse management systems, automation, and data analytics to enhance efficiency and transparency in operations. These technological advancements further attract businesses seeking state-of-the-art logistics solutions.
6. Regional Distribution: With the vast geographic expanse of India, regional distribution centres are essential for efficient nationwide distribution. 3PL operators strategically position their warehouses in key locations, enabling businesses to reach consumers across various regions effectively.
7. Cost-Effective Solutions: For businesses, leasing warehouse spaces directly may involve significant upfront capital investment. Engaging 3PL operators allows them to access modern and well-equipped warehouses without the burden of ownership, providing cost-effective solutions for their logistics needs.

The robust presence of 3PL operators in the industrial and warehousing leasing market underscores their integral role in driving the efficiency and growth of supply chains in India. As e-commerce and retail continue to thrive, the demand for 3PL services is expected to grow further, making them a pivotal element in shaping the future of the industrial and warehousing sector in the country. The surge in leasing by FMCG (Fast Moving Consumer Goods) and engineering firms, along with a noteworthy rise in demand from the E-commerce sector, indicates a positive momentum in the industrial and warehousing market in India during the first half of 2023. This growth is underpinned by several key factors that have contributed to the overall upswing in the sector:

1. Increased Production Capacity: The industrial and warehousing sector has witnessed an uptick in demand as manufacturing industries expand their production capacity. With the Indian economy recovering from the pandemic-induced slowdown, businesses are scaling up their operations to meet the growing demand for goods and services.
2. Strong Government Policy Support: The Indian government’s focus on boosting the manufacturing sector and enhancing infrastructure has provided significant impetus to the industrial and warehousing market. Initiatives like “Make in India” and various incentives for manufacturing units have encouraged businesses to invest in their supply chain and logistics infrastructure.
3. Resurgence of E-commerce: After a temporary slowdown in the last few quarters, the E-commerce sector has bounced back strongly, driving a 68% year-on-year increase in demand for industrial and warehousing spaces. The growth of online retail and the need for efficient storage and distribution facilities have fueled the demand from E-commerce players.
4. Automation and Process-Driven Manufacturing: The adoption of automation and technology-driven processes in manufacturing has led to a more efficient and streamlined supply chain. Companies are increasingly seeking well-equipped warehousing facilities to accommodate automated systems, further boosting demand in the industrial and warehousing market.
5. Focus on Last-Mile Delivery: With the increasing expectations of consumers for faster and more reliable deliveries, FMCG and E-commerce companies are keen on enhancing their last-mile delivery capabilities. This has resulted in a higher demand for strategically located warehouses in key markets.
6. Surge in Export Opportunities: The growth of export-oriented industries, including engineering and manufacturing, has created a need for modern and well-connected warehousing facilities to meet international shipping requirements.
7. Evolution of Supply Chain Strategies: Businesses are reevaluating their supply chain strategies to ensure resilience and agility in the face of global disruptions. This has led to a demand for multi-modal logistics solutions and well-organized warehousing spaces.

The positive momentum in the industrial and warehousing market is a promising sign for India’s economic growth and its emergence as a key player in the global supply chain ecosystem.

As businesses continue to adapt to changing market dynamics and consumer preferences, the demand for industrial and warehousing spaces is expected to remain robust, further contributing to the sector’s growth in the coming years. The dominance of 3PL (third-party logistics) players in driving demand for industrial and warehousing spaces is expected to continue. Still, the market is witnessing steady momentum from other segments as well, according to Vijay Ganesh, Managing Director of Industrial & Logistics Services at Colliers India.

Amidst this steady demand for high-quality Grade A warehousing spaces, vacancy levels have shown a decline during the first half of the year, dropping by 110 basis points to reach 10.0%. This reduction in vacancy indicates a healthy absorption of available warehouse spaces in the market.

During the first half of 2023, the market witnessed the addition of 10.7 million square feet of fresh supply, representing a 10% decrease year-on-year. Developers have remained cautious and watchful of the evolving demand scenario, influencing their supply decisions. Despite the slight dip in fresh supply, developers are focusing on providing Grade A facilities that cater to the changing needs of businesses, including advanced automation and technology-driven solutions.

The steady demand, coupled with a controlled supply, has resulted in reduced vacancy rates, signalling a balanced market where occupiers can find suitable warehousing spaces to meet their operational requirements. The drop in vacancy levels indicates a preference for high-quality areas and a willingness of businesses to invest in modern warehousing facilities.

The industrial and warehousing market in India is undergoing significant transformation, driven by changing consumer behaviour, advancements in technology, and government support for the manufacturing and logistics sectors.

As businesses adapt to these changes and adopt more sophisticated supply chain strategies, the demand for Grade A warehousing spaces is likely to remain strong, and the market is expected to witness continued growth in the coming months.

Developers, in turn, are likely to respond to this demand by providing innovative and modern warehousing solutions that align with the evolving needs of businesses and support their growth aspirations. During the second quarter of the six-month period, the demand for industrial and warehousing spaces was moderate, with 4.0 million square feet of leasing. Pune led the demand during this quarter with a 26% share among the major markets.

Despite the challenging global economic conditions, India’s industrial and warehousing market remained resilient in the first half of the year. The market’s performance was supported by favourable demand-supply dynamics, which led to a drop in vacancy levels by 110 basis points to reach 10%. As a result, overall rentals experienced a marginal increase.

Encouragingly, India’s high-performance economic indicators have shown signs of improvement, with steady gains in manufacturing output and investments. These positive economic indicators bode well for the industrial and warehousing sector in the short to medium term.

The market’s ability to maintain resilience amidst global economic uncertainties, coupled with the drop in vacancy rates and steady rental growth, reflects the underlying strength of the industrial and warehousing sector in India. As the economy continues to rebound and businesses adapt to evolving consumer demands and supply chain dynamics, the demand for quality industrial and warehousing spaces is expected to remain robust.

Developers are likely to respond to this demand by providing modern and technologically advanced facilities to meet the evolving needs of businesses and support their growth strategies.

Overall, the industrial and warehousing market is poised for continued growth and remains an attractive sector for investors and occupiers alike.During the first half of 2023, the demand for industrial and warehousing spaces in India was predominantly driven by 3PL (third-party logistics) players, accounting for 37% of the total leasing activity. However, the share of leasing by 3PL players decreased from 53% in the same period in 2022, indicating a slight shift in demand patterns.

On the other hand, FMCG (Fast Moving Consumer Goods) players saw a significant three-fold rise in leasing activity. These companies expanded their presence in key markets such as Delhi-NCR and Mumbai, contributing to the overall growth in demand for industrial and warehousing spaces. The FMCG sector’s expansion was driven by increased production and distribution requirements to meet consumer demands and ensure efficient supply chain operations.

The trend suggests that while 3PL players continue to drive demand for industrial and warehousing spaces, other segments, particularly FMCG players, are also actively seeking quality warehousing facilities to support their growing operations. This diversification in leasing activity reflects the broader economic recovery and the expanding needs of different industries in response to changing market dynamics.

As the Indian economy continues to recover and businesses adapt to new challenges and opportunities, the demand for industrial and warehousing spaces is likely to remain buoyant. Developers and investors are expected to respond to this evolving demand by providing modern and well-equipped facilities to cater to the specific needs of different industries.

The industrial and warehousing sector is positioned for further growth and remains an attractive area for investment and business expansion in India. During the first half of 2023, large deals, defined as leasing transactions exceeding 100,000 square feet of industrial and warehousing space, accounted for approximately 75% of the overall demand in India. Among these larger deals, 3PL (third-party logistics) companies were the major contributors, securing a significant portion of the leasing activity, followed by FMCG (Fast Moving Consumer Goods) and Engineering players.

Mumbai and Pune emerged as the dominant players in attracting large-sized deals across the top five cities in India. These cities were favoured by companies seeking substantial industrial and warehousing spaces to support their growing operations and supply chain requirements. Mumbai, a major commercial and financial hub, and Pune, known for its manufacturing and automobile sectors, offered attractive locations and infrastructure for businesses needing large-scale warehousing facilities.

The preference for large deals indicates that businesses are increasingly looking to consolidate their operations and optimize their logistics and distribution networks. 3PL companies, which specialize in logistics services to various industries, continued to play a crucial role in driving demand for sizeable warehousing spaces to cater to their clients’ needs.

Furthermore, FMCG and Engineering players, witnessing notable expansions in their operations, also sought larger warehouses to efficiently manage their inventory and ensure seamless distribution to meet consumer demands.

Overall, the preference for large-sized deals in India’s industrial and warehousing sector underscores the need for modern and spacious facilities to accommodate the growing requirements of businesses across different industries. As the Indian economy continues to rebound and businesses adapt to changing market dynamics, the demand for large industrial and warehousing spaces is expected to remain robust. Developers and investors will likely respond by providing high-quality, large-scale warehousing solutions to cater to this growing demand from various sectors.