Warehousing & Logistics leasing in 2023 exceeded pre-pandemic level by 15%

The data released by Vestian Research showed that the absorption has been on the rise since 2021 when it was 30.2 msf

The absorption in the Warehousing & Logistics sector in 2023 at 37.8 million sq ft (msf) was 15 per cent higher than 33 msf in 2019, according to data released by Vestian Research on Wednesday. It was 21 per cent higher than 31.2 msf in 2022. 

The data further showed that the absorption has been on the rise since 2021 when it was 30.2 msf. 

The sector received investments worth $646 million in 2023, accounting for 15 per cent of the total institutional investment received in the real estate sector. However, investments declined by 65 per cent in 2023 over the previous year as investors opted for wait-and-watch mode amid global macroeconomic uncertainty.

Vestian said that in the past decade, third-party logistics (3PL) companies emerged as a preferred choice for several businesses as these companies can optimise cost while providing flexibility to their clients in case of demand uncertainty. 

As a result, the share of 3PL companies increased over the years. It reached 44 per cent of the overall absorption in 2023, followed by Engineering and Manufacturing companies with 18 per cent share and Retail, which accounted for 11 per cent of the total absorption. 

Mumbai contributed the highest to the overall absorption in 2023 with a 27 per cent share. Its share has increased from 19 per cent in 2022. In absolute terms, absorption increased by 69 per cent in the city, reaching 10.2 msf in 2023. 

However, heightened real estate activities during the year resulted in an annual appreciation of 4 per cent in rentals in Mumbai.

On the other hand, Kolkata witnessed the highest annual decline of 23 per cent, reaching 1.6 msf in 2023. Its share has also declined from 7 per cent in 2022 to 4 per cent in 2023. 

"Limited availability of Grade A warehouses in the city posed a challenge in meeting growing demand, leading to a decrease in absorption. Moreover, restricted absorption activities in the city during 2023 exerted pressure on rentals, resulting in an annual decline of 5 per cent," it said. 

In the National Capital Region, absorption increased by 21 per cent as compared to the previous year. However, its share in the total absorption remained constant. 

"The city's strategic location and thriving e-commerce markets were major demand drivers. Robust demand for warehouses in the city resulted in an annual appreciation of 2 per cent in rentals," it said. 

Pune registered a substantial annual growth of 35 per cent in 2023, reaching an absorption of 7 msf. This growth can be attributed to the presence of the trade hub of Chakan MIDC, which hosts large manufacturing and logistics parks.

The southern cities (Bengaluru, Chennai, and Hyderabad) collectively contributed 27 per cent to the total absorption in 2023, after reporting a decline from 34 per cent share in 2022. In absolute terms, absorption decreased by 5 per cent in these cities, reaching 10.2 msf in 2023.

Shrinivas Rao, chief executive officer at Vestian, said, "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 the Indian warehousing sector as investments were on a downward trend in 2023."

Vestian also said that the sector is expected to expand at an annual growth rate of 10 per cent-13 per cent for the next couple of years, predominated by third-party logistics and e-commerce enterprises.