Demand for warehouses in India reached record high in 2022-23: Report

All sectors saw a rise in warehouse demand but the e-commerce sector saw a decline in demand in FY23, primarily due to early capacity building


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BS Web Team New Delhi

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The demand for warehouses in the top eight cities in India reached a record high of 51.3 million square feet (MSF) in 2022-23 (FY23), a report released on Tuesday showed. The demand reached an all-time high in Mumbai, Bengaluru, and Kolkata. In India, the demand rose 24 per cent as compared to FY22.

According to India Warehousing Market Report – 2023 released by property consultancy Knight Frank, the demand was primarily driven by a surge in activities from the third-party logistics (3PL), manufacturing, and retail sectors. Compared to the previous year, the 3PL sector saw the highest rise in demand at 34 per cent.

The manufacturing sector also experienced a significant rise in demand, with a 23 per cent year-on-year (YoY) growth.

However, the e-commerce sector recorded a decline in demand in FY23, primarily due to early capacity building in recent years and a gradual shift towards flexibility.

"The volume transacted by the e-commerce sector experienced a 71 per cent YoY decline in FY23 due to the excess capacity built during the pandemic to meet the surge in consumption. This decline in demand is expected to be temporary, as the secondary activity is likely to revive once the excess capacities are exhausted in the upcoming year," the report said.

It added that India has benefitted from the sustained move of companies towards the decentralisation of manufacturing capacity from China. The most recent move has been made by Apple, which now makes seven per cent of its iPhones in India compared to a much low one per cent in 2021.

"Also, the government's focus on 'Make in India' and the production-linked incentive (PLI) scheme have started paying dividends and continue to boost the prospects of manufacturing industries in the country," the report said.

While Mumbai and the national capital region (NCR) led the market in terms of overall transaction volumes during FY23, Bengaluru and Kolkata witnessed the highest growth in annual transacted volumes at 25 per cent and 18 per cent YoY respectively.

"This growth is not limited to the top eight markets but has also extended to secondary markets, supported by enhanced infrastructure such as highway networks, rail systems, and air transportation. Indeed, there has been a noticeable shift in the occupier groups within the warehousing market. 3PL providers and manufacturing companies have emerged as the primary players, indicating their increasing importance in the industry," said Shishir Baijal, chairman and managing director at Knight Frank India.

The report, however, said that inflation in the cement and steel sector has pushed the rents upwards and in FY23, they continued the upward trajectory. In FY23, the top eight cities in India saw a three to eight per cent rise in warehouse rent, the highest being in Bengaluru (eight per cent).

It was followed by seven per cent in NCR and five per cent in Ahmedabad.

First Published: Jun 13 2023 | 5:19 PM IST

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