Warehousing absorption to grow 83% on e-commerce, manufacturing expansion

Third party and e-commerce accounted for 60% of total absorption in 2020, followed by manufacturing at 24%. That year, investments of over $1-bn were made in industrial & warehousing market

Industrial and warehousing space absorption is expected to grow by 83 per cent to 47.7 million sq ft in 2021, driven by robust expansion in e-commerce and manufacturing, and rising demand in tier-I and tier-II cities, according to global property consultancy firm Savills India.

The third party and e-commerce sectors continued to drive warehousing demand, accounting for 60 per cent of the total absorption in 2020, followed by manufacturing sector at 24 percent. The growing number of firms in these sectors and the huge Indian consumption market have whipped up the investment prospects of India’s warehouse sector. In 2020, the industrial and warehousing market garnered investments in excess of $1 billion. 

Among the major cities in India, NCR led with the highest absorption in 2020 at 25 per cent followed by Pune at 15 per cent. Mumbai and Chennai saw absorption at 13 per cent each while Kolkata stood at 12 per cent. The Tier-II cities such as Ludhiana, Lucknow, Coimbatore, Jaipur, Guwahati, Bhubaneswar, Nagpur and Patna witnessed around 3 million sq ft in 2020. These cities are likely to gain momentum in 2021 with e-commerce and 3PL firms capitalizing on consumption-driven growth and pushing the demand for warehousing space, it said.

On the supply side, Savills India expects a 113 per cent increase in supply to 47.9 million sq ft in 2021. Despite construction activities getting affected due to the lockdown, the top-8 cities of India witnessed a fresh supply of 22.4 million sq ft last year. NCR accounted for 22 per cent of the total supply witnessed in 2020 followed by Chennai (20 per cent), and Bengaluru (12 per cent). The overall industrial and warehousing space stock is expected to increase by 21 per cenr at 278 million sq ft in 2021 as compared to 230 million sq ft last year.

“Growing demand for cold chain, pharmaceutical warehouses as well as growth in e-commerce and organised retail are likely to drive warehousing demand in 2021. In addition, strong macro-economic fundamentals and government’s policy support in implementation will continue to fuel growth for the entire sub asset class of industrial and logistics,” Srinivas N, managing director, industrial and logistics, Savills India.

Warehousing vacancies have also decreased by 170 basis points from 10.2 per cent in 2019 to 8.5 per cent in 2020 and rental values remained stable in 2020 across the major cities.

“India is emerging as an alternate manufacturing investment destination. Foreign manufacturing companies are planning to shift their bases to India. This would lead to an increased demand for both ready high spec fitted out and custom built industrial spaces across India particularly from growing sectors such as FMCG, energy, automobile, electronics, pharmaceutical, medical devices among others,” said Srinivas N.

Moving ahead, improved specifications and strong compliance will set the pace and lead to the growth of the industrial and allied sectors. Diverse investment opportunities and growing interest in developing infrastructure around Integrated Industrial Townships, highways, ports, inland waterways, inland container depots (ICD’S), and free trade and warehousing zones (FTWZs) will boost the sector. Automation and manpower will steer disruptions in the years ahead, Savills said.

Industrial & logistics--Changing dynamics

..	Pre Covid preiod -2019

Lockdown period-2020

Post lockdown period -2021

Supply

41Mn sq. ft.

22 Mn sq. ft.

48 Mn sq. ft.

Absorption

36 Mn sq. ft.

26 Mn sq. ft.

48 Mn sq. ft.

Stock

205 Mn sq. ft.

230 Mn sq. ft.

278 Mn sq. ft.

Source: Savills India