A recent report indicates that the supply of industrial and warehouse logistics parks (IWLP) is expected to grow by 13-14% year-on-year, reaching approximately 424 million square feet in the current fiscal year across eight major markets.The report forecasts absorption rates to reach 47 million square feet in FY25, up from 37 million square feet in the previous fiscal year. This growth is driven by 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, with e-commerce contributing 15%.
These projections are based on a sample set that includes 58 entities across 17 cities, with a total leasable area of about 34 million square feet. Among the eight primary markets, Mumbai and Delhi-NCR contributed around 42% of the warehousing stock as of March 2024, with overall occupancy remaining healthy at around 90%.The vacancy rate in these markets stood at 10% in FY24 and is expected to remain similar in FY25. The report highlights that the sector’s growth is further supported by factors such as the infrastructure status conferred to the logistics and warehousing sector, rapid expansion of e-commerce and allied services, increasing consumer market needs, and the government’s focus on making India a manufacturing hub.
Over the past five years, Grade A warehouse stock in the eight primary markets has grown at a CAGR of 21%, reaching 183 million square feet in FY24. This is estimated to increase by another 19-20% year-on-year in FY25. For the incremental Grade A supply addition of 35 million square feet in FY25, the absorption is likely to be around 29 million square feet. Consequently, the share of Grade A stock in the total warehousing supply is expected to expand to 51% by March 2025 from 49% in the previous fiscal year.
Currently, over 50-55% of Grade A stock in India is backed by global operators and investors. Long-term growth prospects for Grade A warehouses are supported by the growing preference for modern, efficient, and ESG-compliant warehouses. However, the report also highlights the challenge posed by rising land prices, which impact the profitability of warehousing projects. With significant land price increases in tier-1 cities, tier-2 and tier-3 cities are emerging as more cost-effective destinations for new Grade A warehousing developments.
The credit profile of operators is expected to remain stable, driven by healthy occupancy levels, anticipated rental escalations, and comfortable leverage metrics. For the sample set, occupancy levels are estimated to remain high at 93-95% in FY24, while rental income and net operating income (NOI) are expected to expand by 30-32% year-on-year in FY25, supported by the commencement of rentals from newly added capacities and scheduled escalations for existing capacities.
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