Bengaluru records highest warehousing transactions; secondary markets emerging

Bengaluru recorded the highest year-on-year (YoY) growth in warehousing transactions across the top eight cities at 25 percent at 7.4 million square feet (msf) in the financial year 2022-23 (FY23), according to a report by Knight Frank. The India Warehousing Market Report – 2023 noted that the transaction volumes in secondary markets have more than doubled to 13.7 msf compared to pre-pandemic levels.

The annual transaction volume in the primary market has grown from 46.4 msf in FY19 to 51.3 in FY23. However, it recorded a slight change of 0.1 percent between the last two years, the report showed.

"While primary markets have maintained their demand volumes, the secondary market has increased its share further despite e-commerce slowing down. However, the scale and investor interests continue to be in the primary market," Vivek Rathi, Director of Research at Knight Frank, told Moneycontrol.

Secondary markets include Tier II and Tier II cities such as Lucknow, Bhubaneshwar, Indore, and Patna, among others.

The compound annual growth rate (CAGR) over the years FY17 to FY23 was 24 percent. Mumbai, Bengaluru, and Kolkata witnessed record-high volume of transactions in FY23, the report added.

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Bengaluru demand remains robust

The Third-Party Logistics (3PL) sector accounted for 45 percent share of the warehousing transactions, followed by manufacturing at 26 percent and fast-moving consumer durables (FMCD) with a 14-percent share in FY23.
However, the e-commerce sector witnessed a significant decrease in the share of transaction volumes at 4 percent in FY23, down sharply from 17 percent in FY22.

However, a similar trend was noticed across the primary cities, where the share of the e-commerce industry dropped by 71 percent to 3.4 msf in FY23 from 11.6 msf in the previous year due to the excess capacity built during the pandemic period to meet the surge in consumption. However, 3PL demand remained robust, up by 34 percent in FY23.

Macro outlook

Gulam Zia, Senior Executive Director of Advisory and Valuation, Knight Frank, said that while absorption remained unchanged, the new supply of warehousing shrank across the country.

The manufacturing sector also experienced a significant rise in demand, with 23 percent YoY growth.

Riding on increased consumer demand in the post-pandemic era, the retail sector’s share spiked to 11 percent in FY22 from 4 percent in FY21. This increase in demand has sustained in FY23 with retail sector occupiers taking up 13 percent of the total space transacted. Another 13 percent of the volume transacted came from end-use involving some form of manufacturing activity in sectors like automobile, FMCG, and FMCD.

Secondary markets on the rise

Lucknow led in terms of annual transacted volumes at almost 2 msf and Visakhapatnam experienced the highest growth at 265 percent in FY23.

"The fact that transaction volumes in these secondary markets have grown robustly while the eight primary markets saw demand remain stable in YoY terms underscores the increasing traction in these emerging warehousing markets," the report concluded.