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For India's industrial and logistics sector, 2023 brought remarkable expansion in both absorption and supply, according to a comprehensive report by Savills India. The sector experienced a 6.7% increase in absorption, reaching an impressive 49.4 million sq. ft., up from 46.3 million sq. ft. in 2022. Tier I cities took the lead, absorbing 75% of this growth, while tier II and III cities played a vital role as emerging sourcing hubs, accounting for the remaining 25%.
Major developers responded to the surging demand by delivering projects, contributing to a substantial new supply of 62 million sq. ft. in 2023. Tier I cities once again dominated, providing 75% (46.2 million sq. ft.) of this supply, while tier II and III cities contributed 25% (15.8 million sq. ft.). This increased supply underscores the industry's commitment to meeting the rising demands.
Grade A space emerged as a key player, constituting 53% of the overall supply in 2023, up from 48% in 2022. The demand for such graded and compliant buildings also surged, with Grade A absorption accounting for 54% in 2023, reflecting a significant increase from the 42% recorded in the previous year.
The manufacturing sector played a pivotal role in this growth, boosted by initiatives like the Production Linked Incentive (PLI) Scheme. The sector's absorption share skyrocketed from 16% in 2022 to an impressive 27% in 2023. This upward trajectory is expected to continue, with the contribution projected to exceed 30% of total absorption in the next two years.
The 3PL sector took the lead in absorption, making up 39% of the total in 2023. Retail followed with a 14% contribution, while FMCD/FMCG accounted for 6%. Other sectors, including cold storage, chemical storage, FTWZs, ICDs, and Urban Warehousing, collectively made up around 10% of the total absorption.
Delhi-NCR maintained its position as the top contributor, providing 22% of the total supply, closely followed by Mumbai and Pune, each with 11%. Bengaluru and Chennai contributed 10% and 9%, respectively, to the overall supply. Meanwhile, tier II and tier III cities combined accounted for 22% of the total supply.
In terms of absorption, Delhi-NCR led with a 15% contribution in 2023, followed by Mumbai at 14%, and Bengaluru and Pune, each at 12%. Manufacturing and warehousing players were active in 2023, acquiring over 1,950 acres of private land nationwide, signalling strategic investments in the sector's future growth.
The e-commerce industry emerged as a driving force behind the warehousing revolution. With a focus on ESG standards, the e-commerce sector transformed warehouses from basic storage facilities into sophisticated, modern complexes. Cities like Patna, Ranchi, Lucknow, Guwahati, Rajpura, and Ambala witnessed exponential growth, expanding urban distribution and reaching tier II & III cities. The e-commerce sector is projected to contribute over 12 to 15 million sq. ft. between 2025 and 2030, with a significant portion originating from tier II & III cities.
As occupier preferences shift to meet ESG standards, demand for Grade A warehousing and ready-fitted-out factory space is expected to rise. Over the last 2-3 years, Grade A space has consistently contributed more than 40% to total absorption and is poised for substantial growth in the future.
Rental values are anticipated to increase marginally across cities for compliant buildings in 2024, with growth ranging from 2% to 6%, depending on location and city. The sector's journey in 2023 paints a picture of resilience, adaptability, and a promising future.
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