Other BriefingsRise of Tier 2 and Tier 3 Cities in India’s Logistics and Warehousing Expansion
India’s logistics and warehousing sector continues to expand in 2025, driven by infrastructure advancements, government-led initiatives, and the rapid growth of e-commerce. While major metropolitan areas have historically dominated the industry, tier 2 and tier 3 cities in the country are emerging as crucial logistics hubs, reshaping India’s supply chain landscape.
India’s logistics and warehousing sector is expected to play a vital role in India’s economic development in the coming years. On March 2, 2025, the Union Minister of Consumer Affairs, Food, and Public Distribution, Pralhad Joshi, highlighted that the domestic warehousing market is projected to grow at a compound annual growth rate (CAGR) of 15 percent, reaching an estimated US$35 billion by 2027.
This growth trajectory is fueled by increasing demand for warehousing facilities across the country, improved infrastructure, and strategic promotion in the tier 2 and tier 3 cities.
Decentralization and strengthening regional supply chains
Several industry leaders and media reports suggest the emergence of tier 2 and tier 3 cities as the country’s preferred logistics hubs, thereby reducing dependence on India’s major metropolitan centers, enhancing supply chain resilience, and lowering transportation expenses. Strengthening regional supply chains is also fostering job creation and industrial development in smaller urban areas.
A key driver of this shift is the expanding online consumer base in non-metropolitan cities. With rising digital adoption and improved last-mile connectivity, there is a growing need for efficient logistics and warehousing facilities in these regions. Additionally, central government policies such as the Urban Infrastructure Development Fund (UIDF), which allocates INR 100 billion (US$1.14 billion) annually for infrastructure enhancement in tier 2 and tier 3 cities, are playing a crucial role in supporting this transformation.
Technological advancements influencing India’s warehouse preference
Beyond infrastructure development, technological innovations are advancing the country’s logistics sector. Industry experts believe that adoption of automation and artificial intelligence (AI) in supply chain management has improved efficiency and reduced operational costs. AI-driven analytics are optimizing inventory management, while automated sorting and packaging systems are streamlining warehouse processes.
India’s goals towards sustainability are also steering sectoral growth, with the industry increasingly integrating green warehousing practices. Industry is adopting energy-efficient storage solutions, the use of renewable energy sources, and eco-friendly packaging materials to minimize the environmental impact of logistics operations.
India’s total warehouse space is projected to reach approximately 1.2 billion square feet by 2027, encompassing Grade A, B, and C warehouses. A report by JLL, published on October 16, 2024, namely Future of logistics: warehousing market – India, highlights a notable shift towards high-quality infrastructure, with Grade A warehousing stock expected to increase from 290 million square feet in 2023 to 400 million square feet by 2027.
A key factor in this growth is the domestic logistic sector’s increasing preference for Grade A warehousing facilities. Grade A warehouse facilities are constructed using high-quality materials, incorporate advanced automation, and are strategically located to optimize transportation and distribution.
In contrast, Class B and C warehouses require substantial upgrades to align with contemporary logistics standards. Class B warehouses may require modifications such as the installation of high-capacity freight elevators and enhanced shelving systems to improve operational efficiency. Meanwhile, Class C warehouses, which have fewer dock-type gates, pose challenges for large-scale logistics operations and are less effective in meeting the demands of high-speed supply chains.
The report further states that India is poised to become one of the top six users of warehouse automation systems globally by 2026, with the market value expected to reach US$2 billion annually.
India’s quick-commerce industry boosts warehouse demand
Rapid expansion of the quick-commerce sector in the country is a major contributor to the increasing demand for warehousing space. Domestic companies, such as Zepto and Blinkit, are aggressively expanding their regional warehousing networks to assist with faster delivery services.
It is worth noting that a surge in warehousing demand continues to be dominated by India’s top eight cities: Mumbai, Pune, the National Capital Region (NCR), Bengaluru, Hyderabad, Chennai, Kolkata, and Ahmedabad. An industry observation made by Knight Frank India, a global property consultancy, notes approximately 37.5 million square feet of warehousing space was leased between January and September 2024, marking a 4 percent year-on-year increase. In the third quarter of FY2024-25, lease transactions reached 14.6 million square feet, reflecting a 20 percent rise compared to the earlier period.
Future outlook
As the demand for warehousing space continues to grow, investments in logistics parks are also increasing in the country. Both public and private sector stakeholders are recognizing the potential of India’s logistics sector, leading to establishments of advanced storage facilities, improved transportation infrastructure, and wider digital integration.
With ongoing modernization efforts, India’s tier 2 and tier 3 cities are evolving from emerging markets into critical components of the country’s next phase of economic growth.
(US$1 = INR 87.37)
About Us
India Briefing is one of five regional publications under the Asia Briefing brand. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Delhi, Mumbai, and Bengaluru in India. Readers may write to india@dezshira.com for support on doing business in India. For a complimentary subscription to India Briefing’s content products, please click here.
Dezan Shira & Associates also maintains offices or has alliance partners assisting foreign investors in China, Hong Kong SAR, Dubai (UAE), Indonesia, Singapore, Vietnam, Philippines, Malaysia, Thailand, Bangladesh, Italy, Germany, the United States, and Australia.
- Previous Article India’s Growing Power Sector in 2025: Investor Outlook
- Next Article
