Warehouse leasing activity rose to a record 51.3 million square feet in FY23 led by third-party logistics (3PL) players and the manufacturing sector, even as demand from e-commerce companies declined, according to a report by Knight Frank India.

The ‘Make in India’ initiative and the Production Linked Incentive schemes have boosted manufacturing in the country leading to more demand for storage. The move by global corporations to set up manufacturing hubs in India in a bid to decentralise manufacturing from China has also boosted demand for warehouses. For instance, Apple makes 7 per cent of its iPhones in India compared to 1 per cent just two years back.

The demand was led by cities such as Bengaluru, Kolkata, and Mumbai. From FY17 to FY23, warehouse absorption has risen 24 per cent annually, the data showed.

Sector wise

3PL sector was the highest occupiers of warehouses with a 39 per cent market share, most of the occupancy being in Mumbai and the National Capital Region.

The share of the manufacturing sector also grew to 30 per cent in FY23 from 23 per cent in FY21. An estimated 13 per cent of the volume transacted during FY23 was for industrial use involving some form of manufacturing activity from sectors like automobile, FMCG and FMCD.

Among the top eight markets in India - Pune, Chennai and Ahmedabad are cities with a significant industrial base. The market for industrial-use properties is expected to gain traction gradually as the government’s focus on increasing India’s manufacturing heft starts to pay dividends, the report said.

The e-commerce sector that drove demand during the pandemic years saw a decline in volumes in FY23, and this was due to excess capacity build-up during 2020 and 2021 when demand for online purchases soared. The report said that the decline in absorption from the sector was temporary since once the inventory was exhausted, demand would again pick up.

With mobility normalcy restored post-pandemic, consumer demand has rebounded in the hard format stores, and this had a direct bearing on the warehousing space take-up of the retail sector, the report said.

The share of retail sector in warehouse leasing spiked to 13 per cent in FY23 from 4 per cent in FY21 as retailers had to quickly add warehousing capacities to cater to the swift rise in demand.

Higher occupancies has also led to a small but significant spike in rents in the range of 3-8 per cent. The highest growth in rents was seen in Bengaluru followed by the NCR.