Gross absorption in industrial and warehousing facilities up 7% YoY; Supply moderates

·       Delhi-NCR leads demand with 28% share in H1 2022

·       Third-party logistics players account for 55% of the absorption in H1 2022

·       Large deals account for 75% of leasing in H1 2022

India, July 18, 2022 – Activity in Grade A industrial and warehousing facilities continues to be resilient, with gross absorption during H1 2022 in the top 5 cities at 10.8 million sq feet, a 7% increase YoY. Delhi-NCR accounted for the highest activity at 28% share, followed by Pune with 24% share in demand. However, on the supply side, vacancy declined by 24% YoY to 11.8 million sq feet in H1 2022. Developers postponed fresh supply in light of high input costs and are completing projects after seeking pre-commitments from occupiers.

About 55% of the gross absorption was led by third-party logistics players, followed by the Engineering and Automobile sectors with a share of 12% each.

Trends in Grade A Gross absorption

City	H1 2022 (mn sq ft)	H1 2021 (mn sq ft)	% chg
Bengaluru	1.4	2.0	-29%
Chennai	1.7	2.0	-16%
Delhi NCR	3.0	3.0	0%
Mumbai	2.1	0.7	199%
Pune	2.6	2.4	7%
TOTAL	10.8	10.1	7%

Source: Colliers

Trends in Grade A Supply

City	H1 2022 (mn sq ft)	H1 2021 (mn sq ft)	% chg
Bengaluru	1.2	0.7	73%
Chennai	2.2	2.0	11%
Delhi NCR	5.1	9.5	-47%
Mumbai	1.8	2.3	-21%
Pune	1.5	1.1	42%
TOTAL	11.8	15.6	-24%

Source: Colliers

“The first half of this year has seen several large deals with average deal size up 27% YoY. Grade A supply in preferred micro markets across key markets in India continues to remain muted owing to construction slowdown on account of raise in construction costs. This has led to short-term rent increases. Third-Party Logistics players continue to dominate demand in the first half of this year and the trend is expected to continue in the next few quarters as well. We are also witnessing more Tier II city enquiries as key players are strengthening their last-mile delivery supply chain to be proximate to customers,” said Shyam Arumugam, Managing Director, Industrial and Logistics Services, Colliers India.

Supply declines as developers await pre-commitments

Overall, grade A supply declined 24% YoY across the top five cities to about 11.8 million sq feet in the first half of 2022. Despite low supply and steady leasing, vacancy level rose during the quarter. Grade A vacancy levels rose to 11.1% at the end of Q2 2022, from 9.8% in Q1 2022. This was largely led by strong leasing activity in Delhi-NCR, Chennai, and Pune. The rise in vacancy was led by Delhi-NCR wherein vacancy levels saw an increase during the quarter.

However, Delhi-NCR dominated leasing activity in the first half of 2022 with a share of 28%. This demand was led by large deals that accounted for about 77% of the total leasing. Deals by third-party logistics players led most of the activity through large deals. Majority of the activity was in the Tauru Road location. Pune accounted for 24% of the leasing in H1 2022. Automobile sector continued to lead the demand with a notable share of 40% in total leasing of the city, followed by Third-party logistics sector at 27% share.

Large deals account for 75% of the leasing

Deals above 100,000 sq feet accounted for 75% of the total leasing. This was led by larger deals by third-party logistics players and fast-moving consumer goods (FMCG) companies.

“Occupiers, especially third-party logistics players and e-commerce players are increasingly taking up larger integrated warehousing space. On the supply side, we may see some limitations over the next few quarters as developers face supply chain constraints and rising input cost materials,” says Vimal Nadar, Senior Director, and Head of Research Colliers India.