According to Knight Frank’s Asia-Pacific Logistics Highlight H1 2024, the Asia-Pacific (APAC) logistics market recorded a rental growth of 2.4% compared to the same period last year, a significant slowdown from the 6.2% increase in H1 2023. However, the study noted that Delhi – NCR (3.0%) recorded above-regional average rental growth, while Mumbai (2.3%) and Bengaluru (2.3%) were marginally below the regional growth rate. Moreover, all three Indian markets recorded a stable rental outlook for the next six months due to continued demand for warehouse and logistics space across the country.

Although 13 of 17 cities monitored saw rent increases in the first half of 2024, overall rental growth slowed due to challenging conditions in mainland China, particularly in Beijing and Shanghai. The decline in business activity led to a 13.5% decline in rents and vacancy rates of over 20%, prompting landlords to cut rents and offer shorter leases. In contrast, logistics rents in Singapore rose 6.7% in six months and 10.8% year-on-year, driven by strong manufacturing and 10 consecutive months of PMI growth. Forecasts for 2024 call for prime logistics rents to increase further by 3-5%.

Since the pandemic, rents in the Indian warehouse market have increased significantly, driven by a surge in tenant demand that reached record highs by FY2023. Although tenant activity has slowed since then, rental growth in Bengaluru, Mumbai and NCR continued in H1 2024 and remained at the levels seen at the end of H1 2023. However, increased vacancy rates in NCR and Bengaluru due to speculative developments could potentially dampen rental growth in these areas. Nevertheless, the combination of high development costs and strong demand from the manufacturing and 3PL sectors is expected to sustain rental levels for the remainder of 2024.

Delhi-NCR ranks 8th in the Asia Pacific logistics market in terms of year-on-year rental growth. At INR 20.80/sq ft/month, rents in the city grew by 3.0% YoY. The vacancy rate in the market currently stands at 15.7%.

Mumbai ranks 11th in the logistics market in the Asia Pacific region in terms of annual rental growth. With a year-on-year growth of 2.3%, rents in the city are now at INR 23.60/sq ft/month. The vacancy rate has also dropped from 10.3% last year to 9.4% in H1 2024.

Bengaluru drops six places to rank 12th in the Asia Pacific logistics market based on annual rental growth in H1 2024. Rents in the city increased 2.3% year-on-year to INR 22.00/sq ft/month. The vacancy rate was 21.1% in H1 2024.

Warehouse transactions in eight major markets in India reached 23 million sq ft in H1 2024 (January – June 2024), with 55% of these transactions taking place in prime space during the period. Transaction activity was well spread across markets. Mumbai, the leading market in India, accounted for 20% of the total warehouse volumes, mainly attributable to the 3PL sector. NCR was the second most productive market, representing 17% of the total warehouse space traded in the top eight cities in India during the period, with the 3PL and manufacturing sectors driving the volumes. In H1 2024, transaction volumes by companies in the manufacturing sector have surpassed those of the 3PL sector. This is notable as the 3PL sector has historically been the mainstay of the Indian warehouse market. Companies in the manufacturing sector, including automotive, energy and chemicals, accounted for a remarkable 36% of total transaction volume during this period.

Shishir Baijal, Chairman and Managing Director, Knight Frank India, said, “The government’s focus on the manufacturing sector is proving successful and is resulting in healthy demand from the sector. This, coupled with the traditional anchor role of 3PL players, has bolstered the overall market volumes. Strong private equity inflows into the warehousing market are expected to continue to benefit the logistics environment by ensuring availability of quality facilities and adoption of the latest processes in the Indian warehousing landscape. The robust business environment, diversified warehousing demand and growing institutional interest are likely to help the market regain its momentum in the short to medium term.”

Christine Li, head of Asia Pacific research at Knight Frank, said: “While conditions in Beijing and Shanghai are very different to the rest of the region, it remains clear that overall logistics tenant markets are moving from a landlord-friendly state to a more neutral one. However, despite slowing demand, the long-term fundamentals underpinning the region’s logistics space market remain intact. As supply chains shift, manufacturing is emerging as a key sector driving logistics development, alongside e-commerce and 3PL providers. While there will be ample flight to quality opportunities in Beijing and Shanghai, these markets will remain under pressure until absorption capacity picks up.”