In 2023, the Industrial and Logistics (I&L) sector is projected to reach 36 to 38 million square feet in the top eight Indian cities, reaching a five-year high absorption level. According to a new report by real estate consultancy CBRE, supply addition is also anticipated to perform well, driven by the completion of pent-up projects, and reach 35 to 37 million sq ft (msf) by year's end.

Chennai had the largest absorption in the July–September quarter, reaching 2.1 msf. Bangalore and Mumbai came in second and third, respectively, with 1.7 msf and 1.3 msf. These three cities accounted for almost 62% of the total leasing share, reveals the report titled India Market Monitor Q3 2023.

The eight cities included Mumbai, Chennai, Delhi-NCR, Bengaluru, Hyderabad, Kolkata, Pune and Ahmedabad.

In terms of the sector - third-party logistics (3PL) companies accounted for the lion's share—50% of all leasing activity. Engineering and manufacturing made up 13% of the group, and electrical and electronic companies 8%.

Going by regional trends, domestic firms led leasing operations with a 59% share, followed by corporations from the Europe, West Asia, and Africa region at 25%, and corporations from the Asia-Pacific region at 12%. Additionally, the I&L sector had a 92% year-on-year increase and a 12% quarter-on-quarter (QoQ) gain in warehouse completions during the quarter.

Between January and September, leasing in the I&L sector expanded by 13% year over year (YoY). Compared to 24.2 msf in 2022, the overall absorption across the top eight Indian cities was 27.3 msf. During the period, Delhi-NCR, Chennai, and Mumbai accounted for 56% of the leasing activity combined.

"The accelerated embrace of 'multipolar' supply chain strategies, complemented by the government's pro-investment initiatives, continues to propel the 3PL and E&M sectors, being at the forefront of I&L absorption," says Ram Chandnani, managing director, Advisory & Transactions Services, CBRE India.

"We also anticipate a surge of interest from FMCG, retail, and electronics & electrical sectors, driven by consumer demand," he adds.

In the first nine months of the year, 3PL players dominated leasing with a 45% market share, followed by E&M companies (15%), and auto and ancillary companies (7%).

Anshuman Magazine, chairman and chief executive officer (CEO) - India, South-East Asia, Middle East & Africa, CBRE attributes the sector’s growth potential to the active participation of larger developers backed by institutional funds, which contribute around 40% to the completed projects.

He adds, "In select micro-markets, the prospect of rising rents is bolstered by the premium commanded by new, investment-grade, technologically advanced, and strategically situated assets."

CBRE data also reveals that supply addition is also anticipated to exceed expectations, reaching 35–37 msf by December as a result of completed projects that were previously delayed. Supply addition was reported at 28 msf in the first nine months of 2023, representing a 57% YoY growth.

Follow us on Facebook, X, YouTube, Instagram and WhatsApp to never miss an update from Fortune India. To buy a copy, visit Amazon.