India factory leasing rises as manufacturers favour Grade-A space

Manufacturers are shifting towards leased facilities as higher specifications, land constraints and faster expansion requirements reshape industrial property demand.

Indian manufacturers are increasingly turning to Grade-A industrial facilities as companies prioritise operational efficiency, supply chain connectivity and faster expansion over owning factories.

Vijay Ganesh, Managing Director for Industrial & Logistics Services at Colliers India, said modern facilities provide larger floor plates, higher clear heights, and wider column spacing, allowing manufacturers to improve inventory management, automate operations, and move machinery and goods more efficiently.

Grade-A facilities are also typically located along industrial corridors with access to highways, ports, rail networks and consumption centres. They can offer expansion options, customised specifications, and features supporting environmental and regulatory requirements.

“Grade-A facilities also offer scalability and future growth,” Ganesh said. “They provide expansion options for companies that want to secure space for future expansion.”

Meanwhile, rising rents and land constraints are changing how manufacturers finance new facilities. Rather than purchasing land and constructing factories themselves, companies are increasingly adopting long-term leasing and built-to-suit models.

Ganesh said the shift from capital expenditure to operating expenditure can accelerate market entry by reducing the time associated with land acquisition and project approvals. Built-to-suit developments can also provide manufacturers with facilities designed around specific operational requirements.

Demand is expected to continue rising. Ganesh said Grade-A industrial absorption increased from around 28 million sq ft in 2021 to approximately 36 million sq ft last year.

Leasing reached 22 million sq ft in the first half of this year, with another 18 million to 20 million sq ft expected during the second half.

“There’s a high possibility that we would surpass this number in 2030,” Ganesh said, referring to the 46-million-sq-ft demand projection.

The figures suggest annual leasing could approach 40 million sq ft this year, supporting Ganesh’s view that demand could exceed the 2030 projection without necessarily relying on longer-term growth alone.