Warehouse leasing stays robust as third-party logistics players lead demand

Activity in Grade A industrial and warehousing facilities continues to be robust during the first quarter of 2022, with gross absorption in the top 5 cities at 6.2 million square feet (mn sq ft), an 11 % increase from a year ago.

Increased leasing in Delhi-NCR and Mumbai drove demand. Vacancy in Grade A projects fell during the quarter as well, showing robust demand. According to the India Industrial and Warehousing Market Snapshot, robust warehousing by third-party logistics firms drove overall demand.

Growing concerns about rising construction costs have spiked rents quoted for upcoming developments across markets. Developers are now looking to cater to build-to-suit demand as opposed to speculative supply addition.

As per the report published in The Economic Times, gross absorption of Grade A commercial spaces in Delhi-NCR stood at 1.7 mn sq ft in the first quarter of 2022; Pune at 1.6 mn sq ft; and Mumbai at 1.3 mn sq ft.

Third-party logistics companies accounted for around 50% of gross absorption, with the engineering and car industries accounting for 17% and 12 %, respectively.

The trend may continue in the coming quarters as logistics and e-commerce companies expand into larger spaces in major cities while scaling operations in Tier-I cities.

Overall, grade A supply declined 16% year on year across the top 5 cities to about 6.4 million sq feet. Lower supply and robust leasing during the quarter led to a drop in vacancy. Grade A vacancy levels declined to 9.8% from 11.8% in the 4th quarter of 2021 led largely by strong leasing in Delhi-NCR, Mumbai, and Pune.?

With a 28% market share, Delhi-NCR dominated leasing. Large agreements drove demand, accounting for 91% of leasing. The majority of the activity in Luhari was driven by third-party logistics players. Pune accounted for 26% of all leases. The car industry continued to dominate demand in the city, accounting for 43 % of demand, followed by engineering at 20%. (according to moneycontrol)

Third-party logistics players and e-commerce companies account for 80% of the leasing

Deals above 100,000 sq ft accounted for 80 percent of the total leasing. This was led by larger deals from third-party logistics players and e-commerce companies.

We are witnessing larger warehousing deals which have pushed up the average deal size by 30% to about 1.1 lakh sq ft. This shows that occupiers and third-party logistics players are taking up larger integrated warehousing spaces led by higher demand and shorter delivery timelines.