Warehousing & Logistics Absorption in 2023 Sees 21% Growth

Warehousing and logistics experienced a significant uptick in absorption, recording a total of 37.8 million square feet, marking a 21% increase compared to the previous year. This upward trend in absorption has been consistent since 2021, steadily growing year after year. Despite a slowdown in investments in 2023, absorption not only surpassed the pre-pandemic levels of 2019 by 15% but also attracted investments totaling USD 646 million, constituting 15% of the overall institutional investment in the real estate sector.

However, investment activity witnessed a substantial 65% decline in 2023 compared to the preceding year, as investors adopted a cautious “wait-and-watch” approach amid global macroeconomic uncertainties.

Over the past decade, third-party logistics (3PL) companies have emerged as the favored choice for numerous businesses. These companies excel in cost optimization and offer flexibility to clients facing demand uncertainties. Consequently, the share of 3PL companies in overall absorption rose to 44% in 2023, followed by engineering and manufacturing companies with an 18% share, while retail accounted for 11% of the total absorption.

Mumbai played a pivotal role in the overall absorption, contributing 27% in 2023, a significant increase from the previous year’s 19%. The city witnessed a remarkable 69% increase in absorption, reaching 10.2 million square feet, driven by heightened real estate activities. Rental rates in Mumbai experienced an annual appreciation of 4%.

Conversely, Kolkata faced the highest annual decline of 23%, reaching 1.6 million square feet in 2023. The city’s share also decreased from 7% in 2022 to 4% in 2023, primarily due to limited availability of Grade A warehouses hindering the meeting of growing demand. The constrained absorption activities in 2023 led to a 5% annual decline in rentals.

NCR observed a 21% increase in absorption compared to the previous year, maintaining a consistent share in total absorption. The city’s strategic location and thriving e-commerce markets were key demand drivers, resulting in a 2% annual appreciation in rentals.

Pune experienced substantial annual growth of 35% in 2023, reaching an absorption of 7.0 million square feet. This growth can be attributed to the presence of the trade hub of Chakan MIDC, hosting large manufacturing and logistics parks.

The southern cities, including Bengaluru, Chennai, and Hyderabad, collectively contributed 27% to total absorption in 2023, showing a decline from their 34% share in 2022. In absolute terms, absorption decreased by 5% in these cities, reaching 10.2 million square feet in 2023.

 “Recent announcements of infrastructure development in the interim budget may have a positive impact on the sector. However, 2024 can be a challenging year for Indian warehousing sector as investments were on a downward trend in 2023,” said Shrinivas Rao, FRICS, CEO, Vestian.

The sector is expected to expand at a CAGR of 10%-13% for next couple of years, predominated by third-party logistics and e-commerce enterprises. Grade A facilities are likely to be in demand due to their efficient and cost-effective methods.

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