Growing Manufacturing Sector to Drive Warehousing Demand in Chennai

The establishment of Tamil Nadu Industrial Corporation Ltd (TIDCO) and State Industries Promotion Corporation of Tamil Nadu (SIPCOT) by the state government has been responsible for the growing industrial clusters, one of the key ingredients for attracting domestic and foreign investment. 

Considered one of the best infrastructures in India, the economic development in the capital city of Chennai has been closely tied to its seaport and transport infrastructure. 

The economy of the city has a broad industrial base spanning across automobile, computer, technology, hardware manufacturing, financial services and healthcare industries. The city is the hub of global auto production with major vehicle producers like Ford, Hyundai, BMW, Nissan and Renault, and home-grown firms like Ashok Leyland and Enfield Motors rolling out their products. 

In addition, Chennai is home to many electronic and wind energy companies like Foxconn, Flextronics, Pegatron, Vestas, etc.   The city provides able infrastructure for these companies to integrate well with their suppliers, vendors, and customers.

Driven by the robust growth seen in the manufacturing and e-commerce sectors, industrial and warehousing space absorption in Chennai is expected to grow by 66% to 5.8 million sq. ft in 2021 from 3.5 million sq. ft in 2020. 

The e-commerce sectors accounted for 63.8% of the total absorption in 2020, followed by manufacturing sector at 32% and 3PL sector at 4.2%.  On the supply side, Savills India expects around 4.0 million sq. ft of supply in 2021. Despite construction activities getting affected due to the lockdown, Chennai witnessed a fresh supply of 4.5 million sq. ft in 2020. 

The overall vacancy levels marginally increased from 9.1% in 2019 to 11.6% in 2020 and the rental values remained stable in 2020 across the major micro-markets of the city.

Chennai-Sriperumbudur- Sunguvarchatram - Singadivakkam - Vallam corridor, Chennai-Mamallapuram corridor, and Chennai-Gummidipoondi corridor are developing as major industrial development corridors around Chennai. These are home for many clusters of industries that are fundamental drivers of Tamil Nadu’s manufacturing growth.

In NH-16 and North-Chennai, the e-commerce segment is driving the demand with locations such as Madhavaram- Redhills belt till Periyapalam, Orakkaducluster witnessing high absorption rate. The Periyapalayam road and Redhills area are emerging as the preferred corridor for Grade A developments with presence of large warehouse facilities.

As per World Bank’s Ease of Doing Business, Tamil Nadu improved its ranking to 14th position in 2019 from 15th in the previous year. Besides the ongoing support from the state government in providing adequate infrastructure, favorable industrial policy, incentive, and subsidy schemes will continue to attract manufacturing companies into Tamil Nadu.

Going forward, investment activity in manufacturing sector and high yielding assets likely to see an uptick. Due to limited supply in the pipeline and increased demand for manufacturing and warehousing spaces in the market, the vacancy level is likely to drop to 3.5% in 2021 from 11.6% seen in the previous year. The rental and land values are expected to remain stable in 2021.  And we expect that manufacturing, e-commerce and 3PL sectors will continue to drive warehousing demand in Chennai in 2021.