Despite economic uncertainty and decreased investment, the warehousing and logistics industry demonstrated resilience in 2023, with warehouse space usage increasing by 21% to 37.8 million sq ft, surpassing pre-pandemic levels. Institutional investment decreased by 65%, totalling USD 646 million, as investors adopted a cautious approach. Third-party logistics (3PL) firms played a crucial role, representing 44% of total absorption. Mumbai led in absorption, while Kolkata experienced a decline due to warehouse shortages. NCR saw a 21% rise in absorption, driven by its strategic location and e-commerce growth. Southern cities remained significant players despite challenges. While 2024 poses uncertainties, long-term growth prospects remain optimistic, with a predicted CAGR of 10%-13% driven by e-commerce expansion and infrastructure development.
The warehousing and logistics industry showed incredible endurance in 2023 in the face of a lack of investment, despite the continuing economic uncertainty. The use of warehouse space increased by 37.8 mn sq ft, a remarkable 21% over the previous year in spite of a decline in investments, indicating an improvement that exceeded pre-pandemic levels.
The industry confronted the challenge of dried-up capital in 2023; institutional investment as a whole was USD 646 million, a substantial 65% decrease from the year before. Due to the ongoing global macroeconomic uncertainty, which caused this loss, investors decided to take a cautious "wait-and-watch" stance and avoid making large capital commitments in an unsettling market.
A number of factors contributed to the spike in absorption, one of which was the rise in popularity of third-party logistics (3PL) firms as go-to partners for enterprises looking to save costs and increase flexibility in the face of changing market conditions. These 3PL businesses represented a significant 44% of total absorption in 2023, highlighting their critical role in influencing demand and the industry's environment. Furthermore, engineering and manufacturing firms made a substantial contribution, accounting for 18% of the total, with the retail sector contributing 11%.
Mumbai emerged as the absorption leader geographically, accounting for a substantial 27% of the total absorption in 2023. The city saw a noteworthy surge in absorption, with an absolute 69% increase, driven by increased real estate activity and a 4% yearly appreciation in rentals. On the other hand, absorption in Kolkata declined, falling by 23% a year, mostly as a result of a shortage of Grade A warehouses and a decrease in absorption activity.
A 21% rise in absorption was observed in NCR over the previous year, thanks to its advantageous location and growing e-commerce marketplaces. Its percentage of the overall absorption stayed steady despite this expansion, indicating the balanced growth in many areas. The existence of Chakan MIDC, a trade hub that is home to sizable manufacturing and logistics parks, is also responsible for Pune's notable yearly growth of 35% in 2023.
In 2023, the combined absorption of southern cities like Bengaluru, Chennai, and Hyderabad accounted for 27% of the overall absorption. Despite a decrease from the 34% share in the previous year, these cities continued to play a major role in the sector's overall performance. Notwithstanding obstacles including scarce supply of Grade A warehouses and muted absorption efforts, the South remained a key player in propelling expansion and promoting innovation in the logistics and warehousing industry.
Industry experts predict a difficult year marked by uncertainty and shifting market dynamics for the Indian warehousing business in 2024. Regarding the industry's long-term growth prospects, however, optimism is still present since growth is anticipated to occur at a compound annual growth rate (CAGR) of 10%–13% for the coming years. It is anticipated that factors including the expansion of e-commerce and third-party logistics businesses, along with the development of infrastructure, will increase demand for Grade A facilities and accelerate the growth trajectory of the industry.
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