The industrial and logistics sector witnessed an absorption of 13.5 mn sq. ft. in Q1 2024 compared to 11.0 million sq. ft. in Q1 2023, representing 22.7% Y-o-Y growth. Tier I cities witnessed 78% of the absorption, while tier II and III cities accounted for the remaining 22%, a new report by Savills India has shown.
The overall absorption during Q1 2024 is led by sustained demand from the 3PL (third party logistics) and manufacturing sectors as well as a surge in demand from the FMCG (fast moving consumer goods) sector. In addition, the uptake of manufacturing warehouses has significantly contributed to the overall absorption, the report said.
The report suggests that the sector witnessed a fresh supply of 12.9 mn sq. ft. in Q1 2024, indicating a 4% growth rate from Q1 2023 levels, of which 9.8 mn sq. ft. (76%) was from tier I cities and 3.1 mn sq. ft. (24%) from tier II and III cities.
In Q1 2024, Delhi-NCR remained at the top with the highest contribution of 23% to total supply, closely followed by Bengaluru and Kolkata with 12% and 10% respectively. The tier II and tier III cities together accounted for 24% of the total supply, the report showed.
Delhi-NCR leads the pack with the highest contribution of 21% in Q1 2024
In terms of absorption, Delhi-NCR led the pack with the highest contribution of 21% in Q1 2024, followed by Pune and Bengaluru, each at 12%. The contribution of Pune to the overall absorption increased from 7% in Q1 2023 to 12% in Q1 2024, while it decreased for Mumbai from 14% in Q1 2023 to 7% in Q1 2024, the report showed.
Tier I cities covered in the report included Ahmedabad, Bengaluru, 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 and Indore.
Grade A space accounted for 45% of the supply and 41% of the absorption in Q1 2024. Changing occupier preferences to meet ESG (Environmental, Social, and Governance) standards are likely to drive demand for Grade A warehousing and ready-fitted-out factory space, the report said.
3PL accounted for 36% of the overall absorption in Q1 2024
The demand composition has remained nearly unchanged in the recent past with most demand segments growing at comparable rates. 3PL, the largest constituent of demand, accounted for 36% of the overall absorption in Q1 2024. Tier II and III cities witnessed a surge in 3PL absorption, as growing supply chain outsourcing creates avenues for more warehousing spaces.
The manufacturing sector, supported by various government incentive schemes, has played a significant role in driving demand. This is one of the demand-constituents that rose noticeably from 16% in 2022 to 23% in Q1 2023. It holds a stabilized 25% share in Q1 2024.
The FMCD (fast moving consumer durables) sector too has gained momentum and witnessed 13% of total absorption witnessed in Q1 2024 compared with 7% in Q1 2023.
Others, including manufacturing warehousing, cold storage, chemical storage, FTWZs (free trade warehousing zones), ICDs (inland container depot), and urban warehousing, contribute around 14%.
“The growing trend of supply chain outsourcing has resulted in increased expansion of 3PL players in tier II and III cities, leading to higher demand for warehousing space. Manufacturing sector continues to account for over 25% of the total absorption, with improved manufacturing activities likely to drive increased uptake of manufacturing warehouses as well,” said Srinivas N, Managing Director, Industrial and Logistics, Savills India.
The e-commerce sector is likely to witness a surge in activity going forward. The sector is amplifying its urban distribution and extending its reach to tier II and III cities. The tier II and III cities are likely to witness significant growth as prominent hubs for sourcing, consumption, and distribution, he added.
