Surge in 3PL Demand Propels Growth in Warehousing Spaces

The demand for Grade A and Grade B warehousing spaces in India is experiencing a significant uptick, largely fueled by third-party logistics (3PL) players.

According to CBRE’s latest report released in January, the leasing activity in industrial and logistics spaces surged to 38.8 million square feet in 2023 from 36 million square feet in the previous year. Anshuman Magazine, Chairman & CEO, India, Southeast Asia, Middle East & Africa, CBRE, commented, “As we envision the future of the industrial and logistics sector, this robust growth is a testament to the sector’s resilience despite global economic challenges.”

The leasing momentum across the top eight cities remained strong in 2023, with 3PL players holding a substantial 45% share, as per CBRE. Additionally, a recent report by JLL highlighted a remarkable 15% year-on-year increase in the total stock of Grade A and B spaces across eight major cities, with 3PL logistics emerging as the largest segment in warehousing space demand.

The burgeoning demand for 3PL services can be attributed to several factors. Businesses increasingly prefer outsourcing their logistics and warehousing functions to focus on their core activities. Furthermore, the appeal of 3PL providers lies in their ability to offer flexible warehousing solutions that can adapt to market fluctuations, allowing businesses to meet seasonal demands without committing to year-round storage infrastructure.

Despite the dominance of 3PL in the warehousing space, there is a notable low penetration of Grade A warehousing facilities. Aloke Bhuniya, CEO at Ascendas Firstspace Development, emphasized, “Today, penetration in Grade A warehouses is less than 20%–25%. One of the factors behind this is that 3PL penetration in India is very low. Once 3PL players convince their clients to move into Grade A warehouses, it will be difficult for them to go back.”

India hosts a plethora of major 3PL players, both global and domestic, shaping the market landscape. These include global giants like DHL, Kuehne+Nagel, and DB Schenker, alongside Indian firms such as Mahindra Logistics, AllCargo Logistics, V-Trans, CEVA Logistics, FM Logistics, and Delhivery. Smaller players like Apollo LogiSolutions and Rhenus Logistics also contribute to the market dynamics. Noteworthy transactions in 2023 underscore the growing significance of 3PL in warehousing operations.

Industry experts highlight the rising popularity of multi-tenant warehousing facilities, driven by manufacturers’ preference for flexible, short-term commitments facilitated by 3PL providers. These facilities offer potential cost optimization and efficiency improvements.

Consolidation among 3PL players towards larger, single warehouses is streamlining operations and enhancing liquidity for both providers and developers. However, developers may face pricing pressure from 3PL companies operating on thin margins, potentially leading to downward rental rate pressures.

Despite these challenges, developers can leverage existing client relationships to secure favorable lending terms, mitigating the impact of downward rental pressures. Overall, the increasing reliance on 3PL providers underscores their pivotal role in shaping India’s industrial and logistics landscape, with multi-tenant warehouses emerging as a key trend in the evolving market scenario.

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