Leasing in industrial and logistics sector increased by 8%

07 Feb 2023 CW Team

According to a report by the real estate consulting company CBRE, leasing in the industrial and logistics (I&L) sector increased by 8% year over year to 31.6 million square feet in 2022, despite global headwinds, a slowdown in e-commerce demand, and the disappearance of the need to hold extra inventory during the pandemic.

After the 32 million square foot peak in 2019, this is the second-highest leasing activity ever observed in the I&L space. With 7.3 million square feet, Delhi-NCR took the lead in absorption in 2022, followed by Mumbai and Bengaluru with 6.1 million and 5.2 million square feet, respectively. During the year, almost 60% of the leasing activity was concentrated in these three cities. The need to strengthen distribution capabilities from interconnected stakeholders across the supply chain (wholesalers, retailers, and e-commerce players) drove about half of the annual space take-up by 3PL players. According to the report, the 3PL players have collectively leased more than 60 million square feet across India over the past five years.

It claimed that domestic occupiers occupied the majority of this space. Engineering and manufacturing companies increased their share of total leasing from 10% in 2021 to approximately 16% in 2022. Government policy enablers like the Production Linked Incentive (PLI) programme served as a growth stimulant for regional engineering and industrial players. The quoted rental values increased on an annual basis in the majority of micro-markets across cities in 2022, driven by an improvement in leasing sentiment, sustained demand for investment grade assets, and an increase in input costs.

The only cities with stable rents during the year were Chennai and Ahmedabad. Pimpri-Chinchwad and Chakan-Talegaon both experienced 20-30% Y-o-Y growth, while Hyderabad's Northern Corridor saw 23-25% Y-o-Y growth. In Bangalore, the Western Corridor saw rental growth of 18–20% YoY.

“The intent to strengthen supply chain among global and domestic companies drove the leasing activity in 2022. Further, the leasing activity in 2023 is expected to remain range-bound, driven by sustained demand from 3PL, engineering and manufacturing and retail firms. On the supply front, we foresee project completions to exceed the 2022 levels and be in line with space take-up during 2023,” said Anshuman Magazine, Chairman and CEO for India, South-East Asia, Middle East and Africa at CBRE.

“We anticipate 3PL firms to drive leasing activity as companies look to shore up their distribution capabilities. Moreover, rental growth is likely to continue in micro-markets driven by high-quality project completions and the supply-demand imbalance,” Ram Chandnani, Managing Director, Advisory and Transactions Services at CBRE India, said.

On a half-yearly basis, the I&L sector saw a 46 percent increase in absorption, reaching 18.8 million square feet in the July-December 2022 period, up from 12.9 million square feet in the January-June 2022 period.

This was driven by long-term leasing by 3PLs (51%), engineering and manufacturing firms (16%), and retailers (14%). (8 percent). Delhi-NCR, Mumbai, and Bengaluru led space absorption from July to December 2022, accounting for approximately 61 percent of total absorption.

During the half-year period July-December 2022, supply addition increased by 11% to around 11 million square feet. These development completions were led by Delhi-NCR, Chennai, Bengaluru, and Mumbai, which accounted for roughly 73% of total supply.