Industrial and logistics leasing record a dip of ~9% YoY during the first half of 2022: CBRE

CBRE South Asia Pvt. Ltd, in its latest report, ‘CBRE Industrial & Logistics Figures H1 2022’ revealed that the industrial and logistics (I&L) sector leasing in India stood at 12.8 million sq. ft., recording a dip of about 9% Y-o-Y during the first half of 2022. Further, it states a dip of 17% in the space take-up on a half-yearly basis, compared to 15 million sq. ft. recorded in H2 2021, due to a slowdown in supply addition. 

However, giving a positive outlook, the report highlighted that leasing activity would improve as continued land acquisition and development completions are lined up in H2 2022.  

Dominating the leasing space were, Delhi-NCR, Mumbai, and Bangalore, which accounted for more than half of the overall space take-up. 

During H1 2022, 3PL players continued to drive the leasing activity with a share of 46% in the overall transaction activity, registering an increase of 10% Y-o-Y. Demand from stakeholders across the supply chain, including wholesalers, retailers, and e-commerce players on account of holding forthcoming higher safety stock, led to increased leasing activity by 3PL players. Other major leaders of leasing activity were occupiers from engineering & manufacturing (17%, up by 6%), followed by retail (13%), and e-commerce (6%). 

Supply addition decreased by about 32% during the first half of 2022 compared to 15 million sq. ft of project completions in H2 2021. Mumbai topped the supply addition, followed by Kolkata, together accounting for about half of the project completions. 

While the share of medium-sized (50,000 – 100,000 sq. ft.) and large-sized (more than 100,000 sq. ft.) transactions increased on a half-yearly basis by 3% and 7% respectively. The share of small-sized transactions (less than 50,000 sq. ft.) witnessed a drop of 36% as compared to 47% in H2 2021, the report highlighted. The Large sized deal closure was dominated by Delhi-NCR and Mumbai, which together accounted for about 41% of large-sized deals. With a total share of more than 60%, the large-sized deal was driven by the 3PL sector followed by engineering & manufacturing. 

Further, led by the sustained demand for investment-grade assets, rental values increased in select micro-markets of Hyderabad, Ahmedabad, Bangalore, Pune, Mumbai, and Delhi-NCR during H1 2022.

Instances of key investments in the I&L sector during H1 2022 included Ascendas India Trust’s investment of about USD 28 million in Arshiya Group’s assets in Mumbai, and another USD 28 million in Casagrand’s assets in Chennai. Overall, the I&L sector attracted about USD 144 million across greenfield and brownfield assets from global and domestic players during H1 2022.

While global supply chain pressures are easing, we anticipate occupiers to continue to follow ‘just-in-case’ strategies alongside ‘just-in-time’ ones to maintain agility. Increased focus on upgradation/expansion opportunities in tier I cities; new market penetration in lower tier cities and extension of local distribution networks in emerging logistics hubs are expected to drive leasing in the future.”

~ Anshuman Magazine, Chairman & CEO – India, South-East Asia, Middle East & Africa, CBRE

Focus on operational efficiencies could lead to growth in ‘flight-to-quality’ leasing. In line with the demand, we anticipate development completions by organized players to increase in the coming quarters. Investment activity is expected to continue from global and local players, with both greenfield and brownfield acquisitions remaining attractive.”

~ Ram Chandnani, Managing Director, Advisory & Transactions Services, CBRE India

Outlook & Trends – 2022

Leasing sentiments to remain positive: Overall leasing in 2022 is expected to touch 28-32 million sq. ft., with a growth of up to 12% Y-o-Y. Space take-up would be led by continued expansion of 3PL, e-commerce, engineering & manufacturing, retail, and FMCG firms. Delhi-NCR, Bangalore, Mumbai, and Chennai would continue to drive transaction activity, while markets including Ahmedabad, Kolkata, and Pune are expected to witness increased momentum of leasing activity.

Supply addition to pick up the pace: As supply chain bottlenecks have started to ease, project completions are expected to improve in H2 2022. Overall, about 25-28 million sq. ft. of new warehouses are estimated to become operational in 2022, registering a growth of up to 12% Y-o-Y. Supply addition is expected to be dominated by Mumbai, Delhi-NCR, Chennai, and Bangalore.

Moving closer to key nodes: Occupiers are likely to continue to lease more space to cut down on transportation costs. E-commerce and 3PL players would thus prefer to take up space closer to consumer hubs. Moreover, 3PL occupiers dealing with cargo handling would focus on securing warehouses closer to key transportation nodes. Similarly, engineering and manufacturing players are likely to prefer warehouses in proximity to industrial hubs.

Labour-saving building technologies to rise: Occupiers and developers are likely to adopt a broad range of advancement automation with the support of Big Data analytics, sensors, and Internet of Things (IoT)-powered technologies to reduce labour dependencies.   

New-age supply to accommodate vertical storage: Warehousing facilities with features such as high ceilings to accommodate automated stacking systems, sufficient loading/unloading zones, and power backup provisions are likely to gain more traction.

Rental growth to continue: Sustained growth in rentals across the cities is expected, owing to increased space take-up and the addition of investment-grade supply. Rental growth in key micro-markets across cities would continue in H2 2022, especially, in investment-grade, tech-enabled, and strategically located assets.

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