The industrial and warehousing sector in India has seen substantial growth in the first half of 2024, as per the latest report by Savills India. Absorption of space reached an impressive 27.3 million square feet, marking a 21.9% increase compared to the 22.4 million square feet absorbed during the same period in 2023. This surge is primarily driven by the Third-Party Logistics (3PL) sector, the manufacturing sector, and the fast-moving consumer goods (FMCG) and fast-moving consumer durables (FMCD) sectors.

Sector-Wise Demand Distribution

The 3PL sector continues to be the leading driver of demand, holding a 33% share of total absorption. However, this represents a decrease from the 44% share it held in 2023, largely due to a reduction in outsourcing by FMCG/FMCD companies. Despite this, the manufacturing sector has significantly increased its share, contributing 22% of the total absorption, up from 16% in 2022. This growth is supported by government initiatives such as the Production Linked Incentive (PLI) scheme, which encourages domestic manufacturing.

The FMCG/FMCD sector also saw its share rise to 17%, a notable increase from just 6% in 2023. This sector's demand for warehousing space is growing not only in Tier I cities but also in Tier II and III cities, as well as rural markets. This trend is indicative of the expanding reach and distribution capabilities of these companies.

Geographic Distribution of Absorption

Tier I cities dominated the absorption landscape, accounting for 78% of the total space absorbed. The remaining 22% was distributed across Tier II and III cities. Among the major cities, Delhi NCR led with a 20% share of the total absorption, followed by Pune with 12% and Bangalore with 11%.

In terms of supply additions, a total of 28.2 million square feet was added in the first half of 2024. Of this, 77% was in Tier I cities, while 23% was in Tier II and III cities. Delhi NCR contributed 17% to the new supply, followed by Chennai with 13%, Bangalore with 12%, and both Pune and Mumbai with 11% each.

Focus on ESG Standards and Grade-A Space

Despite a temporary dip in the availability of Grade-A space, there is a growing focus on Environmental, Social, and Governance (ESG) standards within the industrial and warehousing sector. This shift is expected to drive demand further, with projections indicating that Grade-A space will contribute over 60% to both supply and absorption by the end of 2024.

Sector-Specific Insights

The retail sector accounted for 7% of the total absorption in the first half of 2024. Meanwhile, cold storage, chemical storage, Free Trade Warehousing Zones (FTWZs), Inland Container Depots (ICDs), and urban warehousing together contributed 15% to the total absorption.

The e-commerce sector is also experiencing robust growth, particularly in urban distribution and extending its reach into Tier II and III cities. Notable growth has been observed in cities such as Patna, Ranchi, and Lucknow, where e-commerce companies are increasingly establishing their presence.

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Implications for the Future

The increase in absorption and supply in the industrial and warehousing sector indicates a positive outlook for the remainder of 2024. The focus on ESG standards and the rising demand for Grade-A space are likely to shape the future dynamics of the market. Companies are expected to continue expanding their warehousing capacities to meet the growing demand, particularly in emerging markets and rural areas.

Overall, the industrial and warehousing sector in India is poised for sustained growth, driven by a combination of strong sector-specific demand, government incentives, and an increasing emphasis on sustainable and high-quality infrastructure. This growth trajectory highlights the sector's critical role in supporting India's economic development and enhancing its logistics and supply chain capabilities.

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