H1 2024 Records Increase in Real Estate Absorption, Driven by Mumbai and Pune
The first half of 2024 witnessed a notable increase in the absorption of commercial real estate, reaching a total of 16.6 million square feet. This figure represents an 8% growth compared to the same period the previous year. However, there was a 26% decrease when compared to the absorption in the second half of 2023.
Notably, the National Capital Region (NCR) experienced a substantial dip of 74% in absorption, contributing significantly to the reduction in overall figures. On the other hand, the cities of Mumbai and Pune together accounted for the majority, comprising 63% of the total absorption in H1 2024. Following closely were southern cities Bengaluru, Chennai, and Hyderabad, making up 29% of the absorption.
Mumbai, in particular, saw an increase in its share from 25% in H1 2023 to 41% in H1 2024. The surge in demand for grade-A warehouses in locations like Bhiwandi, Panvel, Uran, Taloja, and Ambernath contributed to this growth. In contrast, NCR witnessed a significant decline in its share, dropping from 31% to 6% during the same period.
Surge in Investments into Indian Warehousing Sector
The warehousing sector received investments worth USD 1.6 billion in H1 2024, representing 42% of the total institutional investments in the real estate sector. This surge in investments can be attributed to the expansion of major economies and an increasing participation of foreign investors in the Indian warehousing sector. Notably, the investments made in H1 2024 accounted for one-third of the total institutional investments received in the past four years. This signifies the growing interest and confidence in the sector.
Comparing H1 2024 to H1 2023, investments in the warehousing sector witnessed an impressive increase of 4.5 times. The availability of funds increased as the participation of foreign investors grew. The recent government announcements aimed at boosting infrastructure development are anticipated to reduce logistics costs from 8-9% to 5-6% of GDP. This reduction is predicted to spur further growth and activity in the warehousing sector.
Major Investments and Partnerships in the Warehousing Sector
One of the significant deals concluded during H1 2024 was the USD 1.5 billion investment in Reliance Retail Ventures’ warehousing assets by KKR and Abu Dhabi Investment Authority (ADIA). This deal comprised a whopping 96% of the total investments in the sector, reflecting the size and significance of the transaction.
Additionally, CapitaLand India Trust (CLINT) entered into a forward purchase agreement with Casa Grande Group to acquire three industrial facilities at OneHub Chennai. These properties provide a total net leasable area of 0.79 million square feet, with the deal valued at approximately USD 32.3 million. The acquisition will be executed in three phases, with Phase 1 due for completion by the first half of 2025.
The Goa Investment Promotion and Facilitation Board (Goa-IPB) signed a Memorandum of Understanding (MoU) with TVS Industrial and Logistical Parks (TVS ILP) for the development of a grade-A warehousing and logistics park in Verna Industrial Estate. This project expects an investment of USD 15.6 million.
Rentals and Market Trends in H1 2024
In H1 2024, the weighted average rentals for commercial real estate almost remained stable, declining marginally by 3% to INR 21.6 ($0.29) per square foot per month compared to the same period the previous year. However, individual cities displayed different rental trends.
Bengaluru witnessed the highest decline in rentals, with an 8% drop, while Hyderabad saw a decrease of 7% during the same period. Alternatively, Pune experienced the most significant rental increase, with growth of 30% to reach INR 27.1 ($0.36) per square foot per month. Chennai followed suit with a growth of 22% in rentals during H1 2024 compared to H1 2023.
In Summary, the first half of 2024 has seen a positive trajectory in the real estate sector, particularly in terms of absorption and investments in the warehousing segment. Mumbai and Pune emerged as the primary contributors to the total absorption, driven by the increasing demand for grade-A warehouses. Foreign investments and the recent government initiatives positioned the warehousing sector as a significant growth driver. As the rental market experienced various trends across different cities, Pune demonstrated the most substantial increase, further illustrating the buoyancy in the sector.
