Tier-1 cities drive demand for industrial and warehousing space in Q1 2023, Delhi-NCR leads: Report

Sector-wise, third party logistics "accounted for 40 percent of the total absorption". (Representative image)

Tier-1 cities drove the demand for industrial and warehousing space in the first quarter or January-March period of 2023, as per a report released by real estate advisory firm Savills India on May 3.

"Industrial and warehousing space witnessed absorption of around 11 million square feet in Q1 2023, including 77 percent from tier I cities and 23 percent from tier II and III cities," the report stated.

During the quarterly period, the country witnessed a fresh supply of 12.4 million sq ft of industrial and warehousing space, of which 9.2 million sq ft, or 74 percent, was from tier I cities and 3.2 million sq ft, or 26 percent, was from tier II and III cities, it said.

Among the major cities, Delhi-NCR led the pack with the highest absorption at 19 percent, followed by Mumbai at 14 percent, Bengaluru 9 percent and Chennai 8 percent, Savills noted.

Also Read | Warehousing emerging as a big investment frontier on e-commerce boom, manufacturing hopes

Sector-wise, third-party logistics continued to drive warehousing demand, "accounting for 40 percent of the total absorption", followed by the manufacturing sector at 23 percent, retail sector at 11 percent and FMCG sector at 7 percent, the report pointed out.

According to Savills, the Indian market is witnessing new projects delivered with "improved specifications and high quality environmental, health and safety (EHS) standards". As a result, there has been a consistent increase in
the demand for grade-A spaces, which offer more synchronized and efficient warehousing facilities, it said.

"In Q1 2023, grade A space accounted for 52 percent each of total absorption and supply witnessed in the market, indicating significant demand for quality space," the report stated.

For the entire 2023, the industrial and logistics sector is likely to see absorption of over 40 million sq ft, Savills claimed. This demand for space could stem from "emerging tier II and III cities", growing demand for urban warehousing, a "major transformation in the Indian manufacturing sector backed by Performance Linked Incentives (PLIs)" and "efficient multi-modal connectivity plans" for local and global distribution, it noted.