APPD Market Report Article
DelhiFebruary 28, 2023
Chandranath Dey, Head - Operations, Business Development, Industrial Consulting & Integrated Logistics - Logistics & Industrial, India
Increasing demand with gross absorption of 8.8 million sq ft
- In 2022, net absorption was recorded at 6.8 million sq ft while gross absorption was recorded at 8.8 million sq ft, with churnings and vacation of space. Although absorption has remained low in Q4, the first three quarters of the year 2022 did witness positive occupier sentiment.
- Delhi – NH8 accounted for 54% of the yearly net absorption, followed by Sonipat – Hassangarh and Ghaziabad – Noida, which accounted for 24% and 18%, respectively. Demand was majorly driven by the 3PL/logistics sector, which contributed 60% of the demand, followed by Retail and Auto & Ancillaries with 15% and 7%, respectively.
Rising speculative supply driven by institutional investors
- The city witnessed a supply of 9.31 million sq ft in 2022, with the city’s total stock reaching 80.65 million sq ft. The supply was observed in both existing as well as new projects. Delhi – NH8 contributed 64% of this new supply, followed by Sonipat – Hassangarh (19%) and Ghaziabad – Noida (14%).
- Vacancy has marginally increased by 40 bps q-o-q to reach 17.6% due to an increase in speculative supply compared to demand. In 2023, 5.68 million sq ft of Grade A new supply is expected to be added in the city.
High rental appreciation with growing demand for quality spaces
- Rents have witnessed y-o-y appreciation of 10% on the back of low vacancy, limited supply of Grade A space as well as increasing construction and labour costs.
- Rents are expected to increase in the upcoming years on the back of increasing investments from institutional investors and developers. Moreover, increasing demand from sectors such as 3PL, FMCG, retail, and electronics which require specialised facilities with higher operational efficiency, has pushed the demand for build-to-suit (BTS) Grade A spaces. This should drive up rents in the region.
Outlook: Grade A stock to increase at 15% CAGR from 2023 to 2026
- Demand is expected to increase with net demand crossing 11 million sq ft in 2023, especially for engineering, automotive and electronics sectors, due to the established manufacturing ecosystem. FMCG and retail sectors note emerging demand, with a growing consumption base in Delhi and the North India catchment area. These sectors are offshoring to 3PL companies, driving demand from the 3PL sector.
- New supply of 48.8 million sq ft is lined up until 2026, of which about 50% is expected to be Grade A. This in turn is expected to grow at 15% CAGR, faster than total stock growth. Many institutional developers and investors are either investing or expanding their portfolios. Vacancy is expected to hover below 15% with the increase in demand for good quality warehousing and manufacturing spaces.