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India's warehousing market experienced an unprecedented surge in demand during the financial year 2022-23, reaching a historic high of 51.3 million square feet (msf), as reported by Knight Frank India. This represents a compound annual growth rate (CAGR) of 24% from FY17 to FY23.
Major cities like Mumbai, Bengaluru, and Kolkata witnessed a significant increase in transaction volumes, driven by the third-party logistics (3PL), manufacturing, and retail sectors. The 3PL sector led the way with a remarkable 34% year-on-year (YoY) growth, while manufacturing also experienced a substantial rise in demand with a 23% YoY growth. However, the e-commerce sector recorded a decline in demand due to the excess capacity built during the pandemic and a shift towards flexibility.
The government's initiatives such as "Make in India" and the Production Linked Incentive (PLI) scheme have played a crucial role in boosting the prospects of the manufacturing sector. Additionally, the decentralization of manufacturing capacity from China has benefited India, with companies like Apple increasing their manufacturing operations in the country.
Warehousing rents in seven of the eight primary markets grew between 3% and 8% YoY in FY23. This increase can be attributed to inflationary trends in steel and cement caused by supply disruptions during the pandemic and recent rate hikes.
While the warehousing market thrives, the office and residential sectors are yet to reach similar highs since the pandemic. Mumbai and the National Capital Region (NCR) led the market in terms of overall transaction volumes, while Bengaluru and Kolkata experienced the highest percentage growth in annual transacted volumes.
The e-commerce sector witnessed a significant decline of 71% YoY in FY23, primarily due to the excess capacity built during the pandemic. However, this decline is expected to be temporary, with a revival in the sector anticipated once the excess capacities are exhausted.
The retail sector has experienced a rebound in consumer demand for hard-format stores, leading to an increase in warehousing space take-up. Retail sector occupiers accounted for 13% of the total space transacted in FY23, reaching a new high for the sector.
Industrial use of warehousing space, involving manufacturing activities in sectors such as automobile, FMCG, and FMCD, represented approximately 13% of the volume transacted in FY23. Pune, Chennai, and Ahmedabad are key markets in India with significant industrial bases, and the industrial-use property market is expected to gain traction due to the government's focus on strengthening India's manufacturing capabilities.
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