India’s logistics real estate growth is surging, driven by rising demand and improved absorption rates across the country. Recent data highlights a significant jump in absorption, with a 50% rise in the third quarter alone. Tier I cities, leading this growth, account for nearly 80% of the activity, thanks to the rapid expansion of e-commerce and other sectors like manufacturing.
Rising Absorption Rates
In the third quarter of the year, absorption rates surged over 50%, reaching 17.5 million square feet compared to 11.4 million square feet during the same period last year. This remarkable growth highlights the increasing demand across various sectors, especially in Tier I cities.
Tier I Cities Lead the Charge
The majority of absorption, approximately 80%, occurred in Tier I cities, driven largely by the rapid expansion of e-commerce and quick commerce. Meanwhile, Tier II and III cities contributed about 20%, indicating a broadening of demand.
Sector Contributions
Key sectors such as third-party logistics (3PL) and manufacturing played a crucial role in this growth. Fast-moving consumer goods (FMCG) and fast-moving consumer durables (FMCD) sectors contributed around 17% to the overall demand, showcasing the diverse drivers behind this market shift.
Preference for Quality Assets
Interestingly, the trend indicates a preference for higher-quality warehousing. About 54% of net absorption in this period involved Grade A assets. This shift is primarily due to occupiers’ growing emphasis on quality and sustainability, along with the desire for larger, more efficient spaces.
Fresh Supply of Warehousing Assets
The quarter also witnessed a robust supply of new industrial and warehousing assets, totaling 19.3 million square feet. This increase represents a 9% year-on-year growth. Tier I cities dominated this new supply, accounting for 85% of the total, which reflects ongoing investment in infrastructure.
Private Equity Investment Surge
The surge in demand and supply is complemented by an uptick in private equity capital inflows. The first half of the fiscal year saw the share of private equity flows into industrial and logistics assets skyrocket to 67%, up from 16% the previous year. This trend is driven by investors’ preferences for high-quality, investment-grade properties.
Conclusion
In conclusion, improved demand is driving transformative growth in the industrial and logistics real estate sectors in India. As the market continues to evolve, a focus on quality and sustainability will likely shape the future of warehousing and logistics, making it a key area for investors and businesses alike.
