The e-commerce sector’s demand for warehousing and logistics declined by 71% to 3.4 million sq ft in FY23.
E-commerce companies had picked 11.6 million sq ft warehousing space in FY22 to deal with a surge in demand during the covid pandemic.
Property consultancy Knight Frank India said in its India Warehousing Report 2023 that this decline in demand from e-commerce was more than made by third-party logistics (3PL) companies, manufacturing and retail.
The demand from 3PL companies rose by 34% in FY23 to 20.2 million sq ft and accounted for an all-time share of 39% of the warehousing and logistics space. The bulk of the space taken up in Mumbai followed by NCR, a Knight Frank report said. The consultancy said the e-commerce companies would take another nine to 15 months to utilize the excess capacity.
The demand from 3PL companies indicated an increasing focus on outsourcing logistics to warehousing operators as the industry was looking for flexibility and scalability with options of scaling up or downsising as per market demand, said Shishir Baijal, chairman and managing director of Knight Frank India.
Growth was not limited to the top eight markets but has extended to secondary markets, supported by enhanced infrastructure and expansion of e-commerce and driven by the hub and spoke logistics model, Baijal said.
This is just the tip of the iceberg as the growth of the warehousing industry had just started and there was potential for warehousing space REIT in the country, Baijal said. He forecasted a robust demand in FY24 with strong demand momentum continuing.
The overall warehousing demand surpassed the previous peak in FY23 to reach 51.3 million sq ft, which was a 0.1% year-on-year increase. The demand for warehousing and logistics has grown beyond the top eight cities (Mumbai, NCR, Bengaluru, Pune, Hyderabad, Chennai, Ahmedabad and Kolkata).
In keeping with these trends, Knight Frank had expanded coverage to 13 secondary markets, which accounted for around 13.75 million sq ft of warehousing transactions and grew by 15% year-on-year.
Lucknow, Guwahati, Coimbatore, Vishakhapatnam, Indore, Jaipur, Vadodara, Surat, Vapi, Patna, Ludhiana, Ambala-Rajapura and Bhubaneshwar were emerging as significant warehousing markets with demand for warehousing and logistics space being driven by 3PL, manufacturing and retail.
The share of secondary markets in the total transactions recorded in the country has grown from just 11% in FY19 to 21% in FY 2023.
According to Knight Frank’s research warehousing rents across seven of the eight primary markets grew in the range of 3-8% y-o-y in FY23. An estimated 13% of the volume transacted during FY 2023 was for industrial use and was expected to gain further traction this year.
Supply of space remained subdued due to inflationary trends in steel and cement. Strong transaction volumes combined with comparatively lower supply in FY23 had brought down the vacancy level to 12.2% during the year. Vacancy levels in the major markets of Mumbai, NCR, Bengaluru and Pune have dropped significantly compared with the previous year.
The eight primary markets of India held an estimated 412 million sq ft of warehousing stock at the end of FY23.