The supply of Industrial and Warehousing Logistics Parks (IWLP) in eight primary markets is likely to grow by 13 to 14 per cent year-on-year (YoY) in the current financial year, according to a report by Icra. The supply is expected to reach approximately 424 million square feet in FY25. Due to strong consumer-led demand, the report also estimates the absorption to increase from 37 million square feet in FY24 to 47 million square feet in FY25.
However, the vacancy in eight primary markets is likely to remain at a 10 per cent level in FY25, the same as the previous fiscal year. Third-party logistics and manufacturing sectors accounted for 65 per cent of the total leased area as of March 2024, while the contribution from e-commerce stood at 15 per cent.
Mumbai and Delhi-NCR emerged as the two largest cities by contributing about 42 per cent of the warehousing stock in eight primary markets as of March 2024 with an overall occupancy at 90 per cent.
Icra, in its report, highlights the factors contributing to growth in warehousing, such as conferring the ‘infrastructure’ status to the logistics and warehousing sector, the rapid expansion of ecommerce and allied services, the growing needs of the massive consumption market, and the Government’s focus on making India a manufacturing hub.
Tushar Bharambe, Assistant Vice President and sector head for Corporate Ratings at Icra stated,, “Over the last five years, the Grade A warehouse stock in the eight primary markets has grown at a healthy CAGR of 21 per cent to 183 million sq. ft. in FY2024 and is estimated to increase further by 19 to 20 per cent YoY in FY2025.”
Icra also highlights the key challenges for the players engaged in this segment. ‘The steep increase in land prices poses a challenge for the players. The rentals across the key markets remain competitive due to the presence of many domestic and global players and the emergence of new micro markets, and thus, land cost remains a critical factor in deciding the profitability of a warehousing project,’ as per Icra.
“The occupancy levels are estimated to remain high at 93 to 95 per cent. The rental income and net operating income (NOI) are expected to expand by 30 to 32 per cent YoY each in FY2025. Icra projects the gross debt to increase by 11 to 13 per cent in FY25 due to debt availed for the under-construction capacities. ICRA expects the credit profile of the operators to remain stable, driven by healthy occupancy levels,” Bharambe mentioned while sharing the outlook for FY25.
