Uptick in International Investments in India’s Manufacturing and Warehousing Sector

The year 2021 had a good start from an investment perspective with a flurry of deals. These slowed down during the second wave of the pandemic, but gathered momentum again in the third quarter, owing to improved business sentiment and activities. The market is witnessing a trend from institutional investors to undertake warehousing developments by taking developmental risks to achieve higher returns. 

In fact, the industrial and logistics sector attracted investments worth over 1.5 billion USD in 2021, the highest after the commercial sector. The market witnessed more than 4,200 acres of manufacturing and warehousing land transactions across tier I, tier II and tier III cities, of which 51% was private land and 49% was government land.

Major Investments in Logistics – 2021

Source: Secondary Sources

In 2021, industrial and warehousing space absorption stood at 44 mn sq. ft. with a fresh supply of 45 mn sq. ft. tier II and tier III cities such as Rajpura, Lucknow, Coimbatore, Jaipur, Guwahati, Bhubaneswar, Nagpur, Kochi, Indore, Hosur and Patna contributed around 8.6 mn sq. ft. to the total absorption witnessed in 2021.

The uptick in investment cycle is backed by the e-commerce boom, increased number of 3PLs, improved infrastructure and freight corridors in addition to debt funding, equity investments in rent yielding assets and entry of new global and sovereign wealth funds. The market is likely to see absorption of over 40 mn sq. ft. (including tier I, II and III cities) in 2022. On the supply side, over 45 mn sq. ft. would be added during the same period. These cities are poised to gain further momentum in 2022 and 2023 with e-commerce and 3PL firms capitalising on consumption-driven growth and pushing the demand for warehousing space. 

Recent reforms announced by the government in tightening import regulations, subsidies in terms of Performance Linked Incentives (PLIs) to attract foreign capital, and companies mulling over the ‘China-Plus-one’ strategy triggered due to the COVID-19 outbreak have resulted in a major transformation in the Indian manufacturing sector.

Besides, strong macro-economic fundamentals, government initiatives favouring infrastructure development in transport, water, power, communications and support to growing sectors are likely to drive manufacturing and warehousing sectoral investments in India in 2022.