Manufacturing, 3PL & E-commerce to Drive Warehousing in 2021

The 3PL and e-commerce sectors continued to drive warehousing demand accounting 60 % of the total absorption in 2020, followed by manufacturing sector at 24%.  The growing number of firms in these sectors and the huge Indian consumption market have whipped up the investment prospects of the India’s warehouse sector.  In 2020, the industrial and warehousing market witnessed investments in excess of 1 billion USD. 

Among the major cities in India, NCR led with the highest absorption in 2020 at 25% followed by Pune at 15%. Mumbai and Chennai saw absorption at 13% each while Kolkata stood at 12.0%.  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 in 2021 with e-commerce and 3PL firm capitalizing on consumption-driven growth in such places, pushing the demand for warehousing space.

On the supply side, Savills India expects a 113% increase in supply to 47.9 mn sq. ft. in 2021. Despite construction activities getting affected due to the lockdown, the top-8 cities of India witnessed a fresh supply of 22.5 million sq. ft. last year.  NCR accounted for 22% of the total supply witnessed in 2020 followed by Chennai (20%), and Bangalore (12%).  The overall industrial and warehousing space stock is expected to increase by 21% at 278 million sq. ft.in 2021 as compared to 230 million sq. ft. last year.

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

Industrial and Logistics – Changing Market Dynamics

*In addition, 3mn sft absorption in Tier 2&3 cities and with pre-committed space in excess of 10 Mn sft (SMEV)

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 and implementation will continue to fuel growth for the entire sub asset class of logistics.

India is emerging as an alternate manufacturing investment destination. Foreign manufacturing companies are planning to shift their manufacturing base to India. This would lead to an increased demand for both ready high spec fitted out and custom-built industrial spaces across UP, Punjab, Gujrat, Andhra Pradesh, West Bengal, Madhya Pradesh, particularly from growing sectors such as FMCG, energy, Automobile, electronics, pharmaceutical, medical devices, among others.

Moving ahead, improved specifications and strong compliance will set pace and lead to growth of the industrial and allied sectors. Diverse investment opportunities and growing interest in developing infrastructure around highways, ports, inland waterways, Inland Container Depots (ICD’S), and Free Trade & Warehousing Zones (FTWZs) will boost the sector. Automation and manpower will steer disruptions in the years ahead.