A Colliers report reveals an 11% YoY surge in industrial warehousing leasing to 7.2 million sq ft across India's top five cities in Q4 FY23, largely driven by third-party logistics firms. Demand from retail and FMCG sectors also tripled YoY. Despite the demand surge, supply fell 8% YoY due to increased raw material and logistics costs. With vacancy rates dropping and rental prices rising, the sector shows resilience amidst challenges.
Unprecedented levels of leasing activity have been reported in the industrial warehousing sector across India's top five cities, with an 11 per cent year-on-year surge to 7.2 million square feet, according to a recent Colliers report. This was driven largely by third-party logistics operators, who made up an impressive 41 per cent of the total leasing during the last quarter.
The demand from retail and fast-moving consumer goods (FMCG) sectors also noted an impressive year-on-year growth, tripling in this period. This upswing is in harmony with the increase in private domestic consumption. Leading the demand were Delhi-NCR, accounting for 29 per cent of total leasing, closely trailed by Mumbai, with a 25 per cent share. An impressive annual growth of 37 per cent in leasing was witnessed in Mumbai, spearheaded by logistics firms.
Despite this surge, supply saw an 8 per cent year-on-year drop to 5.8 million square feet, due to rising raw material costs and augmented logistics expenses influencing the completion of new projects. Developers are likely to tread carefully in the coming quarters, focusing on generating supply in response to market demand, as per Colliers' analysis.
Vacancy rates in the top five cities fell by 170 basis points year-on-year during Q1 2023, to 8.1 per cent. All markets, excluding Delhi-NCR, reported single-digit vacancy levels, upheld by consistent demand from third-party logistics, FMCG, and engineering companies. Against the backdrop of buoyant demand and limited supply, rental prices across the top markets reported an annual increase. Key markets witnessing this uptick included Chakan in Pune and Bhiwandi in Mumbai, with rental increases of 14 per cent and 6 per cent respectively.
In conclusion the industrial warehousing sector demonstrated significant resilience and growth potential during Q4 FY23, led by third-party logistics firms. However, supply constraints remain a challenge due to high raw material costs and logistics expenses. As the sector aligns itself to the new dynamics, it will be essential to monitor how developers navigate these challenges while meeting market demand.
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