The sector continues to witness a sustained demand from third-party logistics (3PL) and manufacturing sectors
New Delhi: Industrial and warehouse logistics park (IWLP) supply is estimated to grow 13-14% year-on-year at around 424 million square feet this fiscal in the eight primary markets, driven by strong demand, an ICRA report said on Tuesday.
It said the absorbtion is likely to be 47 million square feet in FY25 as compared to 37 million square feet in the previous fiscal.
The sector continues to witness a sustained demand from third-party logistics (3PL) and manufacturing sectors, which together accounted for around 65% of the total leased area as of March 2024 while the share of e-commerce stood at 15%.
The growth projections are based on a sample set of ICRA’s rated-portfolio that includes 58 entities across 17 cities having total leasable area of around 34-million sq ft.
It also said that among the eight primary markets, around 42 of the warehousing stock as of March 2024 was contributed by Mumbai and Delhi-NCR while the overall occupancy remained healthy at around 90%.
The vacancy in the eight primary markets stood at 10% in FY24 and is likely to remain at a similar level in FY25, the report said.
Moreover, conferring the ‘infrastructure’ status to the logistics and warehousing sector, rapid expansion of new-age sectors like e-commerce and allied services, growing needs of the massive consumption market, and the government’s focus on making India a manufacturing hub have resulted in a steep uptick in warehousing demand.
“Over the last five years, the Grade A warehouse stock in the eight primary markets has grown at a CAGR of 21% to 183 million sq ft in FY24 and is estimated to increase further by 19-20% YoY in FY2025,” said Tushar Bharambe, Assistant Vice President and sector head for Corporate Ratings at ICRA.
According to him, for the incremental Grade A supply addition of 35 million sq ft in FY25, the absorption is likely to be around 29 million sq ft. Consequently, the share of Grade-A stock in the total warehousing supply is expected to expand to 51% as of March 2025 from 49% in the previous fiscal.
Over 50-55% of the current Grade A stock in India is backed by global operators /investors such as CPPIB, GLP, Blackstone, ESR, Allianz, GIC, and the CDC Group, among others.
The long-term growth prospects for Grade A warehouses are supported by the growing preference of the tenants for modern, efficient, and ESG-compliant warehouses, he said.
Noting that notwithstanding the favourable growth prospects, the steep increase in land prices poses a challenge for the players, the report said the rentals across the key markets remain competitive, a result of the presence of many domestic and global players and the emergence of new micro markets.
Thus, land cost remains a critical factor in deciding the profitability of a warehousing project.
With significant increase in land prices in tier-1 cities in recent years, tier-II and tier-III are emerging as more cost-effective destinations for new Grade A warehousing developments, according to the rating agency.
ICRA expects the credit profile of the operators to remain stable, driven by healthy occupancy levels, expected rental escalations leading to increased rental income, and comfortable leverage metrics, said Bharambe.
For ICRA’s sample set, the occupancy levels are estimated to remain high at 93-95% in FY24 while the rental income and net operating income (NOI) are expected to expand by 30-32% YoY each in FY25, supported by the commencement of rentals from newly added capacities and realisation of scheduled escalations for existing capacities.
