13-14% Increase Likely In Industrial And Warehouse Logistics Park Supply In FY25: Report

ICRA also noted that Mumbai and Delhi-NCR contributed about 42 per cent of the warehousing stock in the eight primary markets as of March 2024, with overall occupancy standing at around 90 per cent

The supply of Industrial and Warehouse Logistics Parks (IWLP) in the eight primary markets is expected to increase by 13-14 per cent year-on-year, reaching approximately 424 million square feet this fiscal year, according to an ICRA report released on Tuesday. The report forecasts absorption to reach 47 million square feet in FY25, up from 37 million square feet in the previous fiscal year.

The sector continues to experience robust demand from third-party logistics (3PL) and manufacturing sectors, which collectively accounted for about 65 per cent of the total leased area as of March 2024. Meanwhile, the e-commerce sector held a 15 per cent share of the leased area.

ICRA also noted that Mumbai and Delhi-NCR contributed about 42 per cent of the warehousing stock in the eight primary markets as of March 2024, with overall occupancy remaining robust at around 90 per cent.

According to the report, vacancy rates in these primary markets were 10 per cent in FY24 and are expected to remain stable in FY25. Furthermore, the report highlighted factors contributing to the increased demand for warehousing, such as granting 'infrastructure' status to the logistics and warehousing sector, rapid growth in new-age sectors like e-commerce, expanding services, rising demands from a large consumer market, and governmental initiatives aimed at establishing India as a manufacturing hub.

"Over the last five years, the Grade A warehouse stock in the eight primary markets has grown at a CAGR of 21 per cent to 183 million sq ft in FY24 and is estimated to increase further by 19-20 per cent YoY in FY2025," said Tushar Bharambe, Assistant Vice President and sector head for Corporate Ratings at ICRA.

He mentioned that with an anticipated incremental Grade A supply addition of 35 million square feet in FY25, absorption is projected to reach approximately 29 million square feet. This increase is expected to raise the proportion of Grade-A stock within the total warehousing supply to 51 per cent by March 2025, up from 49 per cent in the previous fiscal year.

According to him, the anticipated addition of 35 million square feet of Grade A supply in FY25 is expected to see an absorption of around 29 million square feet. Consequently, the share of Grade-A stock in the total warehousing supply is forecasted to increase to 51 per cent by March 2025, up from 49 per cent in the previous fiscal year.

Currently, over 50-55 per cent of the existing Grade A stock in India is backed by global operators and 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 bolstered by tenants' growing preference for modern, efficient, and ESG-compliant facilities, he added.

Despite favourable growth prospects, the report highlighted challenges posed by steep increases in land prices. Rental rates in key markets remain competitive due to the presence of numerous domestic and global players, as well as the emergence of new micro markets. Consequently, land costs remain a crucial determinant of warehousing project profitability.

With land prices escalating significantly in tier-1 cities in recent years, tier-II and tier-III towns are becoming increasingly attractive for new Grade A warehousing developments, according to the rating agency.

ICRA expects operators' credit profiles to remain stable, supported by high occupancy levels estimated at 93-95 per cent for its sample set in FY24. Rental and net operating income (NOI) are projected to grow by 30-32 per cent YoY in FY25, driven by newly added capacities and scheduled escalations for existing capacities.