FCC

Industrial and Warehouse Sector Absorption Up 7% in H1 2023

2023-07-07

The industrial and warehouse sector absorbed 22.4 million square feet in H1 2023, a 7% rise over the 20.9 million square feet absorbed in the first half of 2022. According to a recent study conducted by Savills India, a multinational real estate advisory firm, Tier I cities accounted for 75% of total absorption in the first half of 2023, while Tier II and III cities supplied the remaining 25%.

According to the findings, the industrial and warehouse sector saw a new supply of 27.4 million sq.ft. during the same time, representing a 36% increase from the 20.2 million sq.ft. recorded in the first half of 2022.

The rising emphasis on quality and compliance, as well as changing occupier preferences to satisfy ESG (Environmental, Social, and Governance) requirements, has resulted in a significant increase in demand for Grade A warehouse and ready-fitted-out manufacturing space in recent years.

The country's overall absorption of Grade A space has increased dramatically, from 36% in the first half of 2022 to 53% in the first half of 2023.

Tier II and III cities are also seeing substantial expansion as important sourcing and consumption hubs, facilitating distribution. This has led in a 22% year-on-year increase in absorption in these cities, rising from 4.1 million square feet in the first half of 2022 to 5.0 million square feet in the first half of 2023. Mumbai had the greatest absorption among Tier I cities, accounting for 18% of overall absorption in the country, followed by Delhi-NCR at 14% and Pune at 10%. Both Bengaluru and Chennai absorbed 9% of the total.

“Driven by inherent domestic demand and the expansion of distribution networks in tier II and tier III cities, the industrial and logistics sector is on a growth path. The 3 PL, manufacturing, urban warehousing and retail sectors are likely to contribute significantly to the absorption. We expect absorption in excess of 40 million sq. ft in 2023.”

The manufacturing sector, which has gained impetus due to increased activity backed by different incentive schemes, has also played a significant role in driving up demand, accounting for around 40% to 50% of overall demand. According to the report, the 3PL industry continued to drive warehouse demand in H1 2023, accounting for 44% of total absorption, a significant rise from 37% in H1 2022.