Tier II & III cities see 17.4% growth in industrial and warehousing absorption: Savills

• Tier II & tier III cities accounted for 22% of the industrial and warehousing land absorption across India in 2022.
  
• At 16%, Delhi-NCR led the pack with the highest industrial and warehouse land absorption in 2022.
  
• 3PL (third-party logistics) and e-commerce sectors, together, accounted for 52% of the total warehouse space absorption in 2022.

India witnessed industrial and warehouse absorption of 46 million sq. ft in 2022, of which 36 million sq. ft belonged to tier I cities. Close to 10 million sq. ft belonged to tier II and III cities, as per the latest data from international real estate advisory firm, Savills India.

Tier II and tier III cities collectively witnessed 17.4% YoY growth in industrial and warehousing absorption, driven by e-commerce, retail and 3PL (third-party logistics) firms, observed Savills India.

These tier II & III cities included Coimbatore, Guwahati, Indore, Nagpur, Lucknow, Jaipur, Rajpura, Bhubaneswar, Kochi/Ernakulam, Madurai, Varanasi, Hubli, Ludhiana, Patna and Hosur.

Among the major cities in India, Delhi-NCR led the pack with the highest industrial and warehouse land absorption in 2022 at 16% followed by Mumbai at 14%. Pune and Bengaluru saw absorptions at 13% and 12% respectively, while tier II and tier III cities accounted for 22%, Savills shared.

The sectors that drove the absorption in 2022 were 3PL and ecommerce (52%); followed by manufacturing (16%) and retail sectors (13%).

Increased demand in 2023

As per Savills, the industrial and warehousing market in India witnessed transactions of 3,800 plus acres of land across tier I, II and III cities in 2022, of which 64% was private land and 36% was government land.

The warehousing sector in India also raised private equity to the tune of $1.5 billion in 2022. The interest in the market is expected to grow further in the future.

“The market is likely to witness increased interest from investors in this asset class in 2023 owing to inherent domestic demand and expansion of distribution networks in tier II and tier III cities,” Savills said in a statement.

As per Savills, tier II and III cities are poised to gain further momentum in 2023 and 2024 with ecommerce, retail and 3PL firms capitalizing on consumption-driven growth and pushing up the demand for warehousing space.

As per the Unicommerce 2022 report, more than 6 out of 10 orders shipped in 2022 went to buyers in tier II cities, and orders from tier III cities have also surged 65% since 2020.

“The industrial and logistics sector is likely to see absorption of over 40 mn sq. ft in 2023. This demand for space could stem from emerging tier II and III cities, growing demand for urban warehousing and a major transformation in the Indian manufacturing sector backed by Performance Linked Incentives (PLIs) and efficient multi model connectivity plan for local and global distribution. We expect over 50 million sq. ft of new supply to be infused in the market during the same period,” said Srinivas N, managing director, Industrial and Logistics, Savills India.

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