The top five cities in India have shown substantial industrial and warehousing leasing activity, with Mumbai and Chennai leading the demand accounting for 55% of the share. In Q1 2024, the leasing of industrial and warehousing spaces in Chennai remained strong and showed a significant increase compared to the same period last year. Bhiwandi in Mumbai was the most active market across the top five cities, with a demand of 1.7 million sq ft of Grade A space, said Colliers.
During the last quarter, the demand for industrial and warehousing space was mainly driven by third-party logistics players (3PL), who accounted for more than 40% of the total warehousing demand. Chennai witnessed a healthy 3PL activity, contributing to around 43% of the overall demand in the top five cities. On a Pan-India level, the demand for warehousing space was mainly dominated by retail players, who accounted for 16% of the demand, followed by engineering and automobile players with 12% share each, the report mentioned.
“While 3PL players continued to drive industrial & warehousing leasing activity, demand from Retail, Engineering and Automobile players too accounted for a significant share in Q1 2024. It is noteworthy to see that the cumulative share of these three sectors have risen from 26% in Q1 2023 to 40% in Q1 2024. This signifies changing consumption patterns and hints at opportunities emerging in the sector from the steady demand diversification.” says Vijay Ganesh, Managing Director,Industrial & Logistics Services, Colliers India.
Both retail and E-commerce segment witness over 2X surge in leasing.
The E-commerce industry has also exhibited remarkable growth after the onset of Covid-19, with a 2.3 times increase in leasing during Q1 2024 as compared to the same period in 2023. This growth can be attributed to the increasing focus on digital infrastructure and changing consumption patterns. Going forward, the E-commerce industry is expected to witness further growth, leading to a surge in demand for warehouses. Additionally, the emergence of Quick Commerce (Q-commerce) players is likely to fuel demand for larger hub-warehouses, the report said. Warehousing space uptake by retail players also witnessed heightened traction in Q1 2024 and witnessed more than twice the demand a year ago. The expansionary activity is being driven by strong retail activity across cities, especially in large department stores. Favorable consumption pattern has the potential to translate into healthy demand for warehousing space in the upcoming quarters.During Q1 2024, large deals (>200,000 sq ft) accounted for 51%of the demand, a significant rise from about 40% share during 2023. Amongst these larger deals, 3PL companies continued to account for the bulk of share. However, the rise in share of large deals was driven by large space uptake, particularly by retail and E-commerce players during the quarter. Chennai followed by Mumbai dominated the proportion of large-sized deals across the top five cities.
“While the average quarterly industrial and warehousing space demand in the last two years has been at around 6 mn sq ft, average incremental supply has been comparatively lower. With continued healthy leasing activity in last few quarters, developer confidence seems to have significantly improved. With a Grade A supply pipeline of about 23-25 mn sq ft for the year 2024, supply is likely to closely follow demand trend across the top five citiesof the country. Overall, an upbeat start to the year holds potential to translate into a healthy performance by the industrial & warehousing sector in 2024.” says Vimal Nadar, Senior Director & Head of Research, Colliers India.
Amidst steady leasing, new supply also inched towards 7 million sq ft during Q1 2024, the highest in the last two years. Around 33% of the new Grade A developments in the first quarter was concentrated in Delhi NCR. Supply infusion during the quarter was almost in line with the leasing activity, indicating improved developer confidence for the industrial and warehousing sector. At 11% by the end of first quarter, vacancy levels however increased by 120 bps as compared to Q4 of last year on account of churn and exits in the industrial and warehousing space. Amidst healthy demand and supply, rentals remained range bound and rose by about 8% in select micro markets of Chennai and Pune.
