Tier-II, III cities rising stars of India's industrial & logistics sector: CBRE

Chandigarh, Jaipur, Vadodara, Nashik, Lucknow, Indore, Hosur, and Coimbatore are the rising stars of the industrial and logistics (I&L) markets of the country, according to the latest report by CBRE India.

Improved connectivity and infrastructure, coupled with the surging e-commerce boom, have made these cities "increasingly attractive" for industrial and logistics activities, the report titled ‘Beyond Metros: Tier-II Cities Fuelling India’s I&L Boom” says.

“India’s tier-II cities are rapidly becoming prime locations for the growth of the industrial and logistics (I&L) sector. Improved connectivity and infrastructure, coupled with the surging e-commerce boom, strong consumption appetite, and the need to establish efficient local distribution networks to enable same-day deliveries, have made these cities increasingly attractive for occupiers."

Developers are also making strategic investments in land banks near prominent upcoming infrastructure projects in tier-II cities, ensuring they are poised to capitalise on this growth trajectory, it adds.

CBRE projects positive outlook for this year as well. The overall appetite for "quality warehousing space" is expected to remain strong in 2024. In line with this, India's tier-11 cities are now seeing frenzied activity in the form of "world-class integrated logistics parks" backed by institutional funds, new industrial parks backed by states and leasing of contiguous space investment-grade facilities by multi-national companies, says the report.

Driven by a growing consumer base and untapped business opportunities, the attractiveness of non-metro cities I&L landscape seems to have come from their huge potential for market expansion.

"The introduction of GST has simplified inter-state trade, removing tax obstacles and promoting the seamless movement of goods across regions."

Also, government incentives, specifically targeting the improvement of transportation networks, have enabled smoother logistics operations in these smaller cities. State-level policies for the I&L sector are also driving economic growth, says the report, adding that these states have developed a comprehensive range of targetted incentives and regulatory frameworks, including land-related incentives, capital subsidies, stamp duty exemptions, and tax benefits, among others.

India's logistics sector alone was valued at $250 billion in 2021. The market is predicted to grow to $380 billion by 2025, at 10%-12% YoY growth rate.

The central government, through the National Industrial Corridor Development Corporation (NICDC), has also approved the development of 11 industrial corridors supposed by high-speed dedicated freight corridors. Under the Sagarmala programme, the government is eyeing to promote port-led industrial development in the country. "14 coastal economic zones (CEZs) have been identified for development, alongside plans to leverage investments worth $23 billion in over 415 projects across the country."

The report says these cities could be the next frontier of growth for the I&L sector. "The entry of several global industries, improved connectivity or infrastructure and increasing disposable income of consumers will likely spur additional I&L space requirements in tier-II cities in the upcoming quarters and years."