Mumbai's Industrial and Warehouse Logistics Park (IWLP) supply is estimated to grow 13-14 per cent year-on-year to around 424 million sq ft this fiscal across eight major markets, driven by strong demand , according to an ICRA report on Tuesday. .
It said absorption is likely to be 47 million sq ft in FY25, compared to 37 million sq ft in the previous fiscal.
The sector continues to witness sustained demand from the third-party logistics (3PL) and manufacturing sectors, which together accounted for around 65 percent of the total leased area in March 2024, while the e-commerce share stood at 15 percent.
The growth projections are based on a sample set of ICRA's rated portfolio comprising 58 entities across 17 cities with a 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 overall occupancy remained healthy at around 90 per cent.
Vacancy in the eight primary markets was 10 per cent in FY24 and is likely to remain at a similar level in FY25, the report said.
Furthermore, the granting of "infrastructure" status to the logistics and warehousing sector, the rapid expansion of new-age sectors such as e-commerce and allied services, the growing needs of the mass consumer market and the government's focus on making of India a manufacturing hub have resulted in a strong rebound in storage demand.
"Over the past five years, Grade A warehouse stock in the top eight markets has grown at a CAGR of 21 percent to 183 million sq ft in FY24 and is estimated to rise further between a 19 and 20 percent year-on-year in fiscal year 2025." said Tushar Bharambe, Deputy Vice President and Head of Corporate Ratings Sector at ICRA.
According to him, for incremental Grade A supply addition of 35 million sq ft in FY25, absorption is likely to be around 29 million sq ft. Consequently, the share of Grade A stock in total storage supply is expected to expand to 51 percent as of March 2025 from 49 percent in the previous fiscal year.
More than 50-55 per cent of the current Grade A stocks in India are backed by global traders/investors like CPPIB, GLP, Blackstone, ESR, Allianz, GIC and CDC Group, among others.
Long-term growth prospects for Grade A warehouses are supported by growing tenant preference for modern, efficient and ESG-compliant warehouses, he said.
Noting that despite favorable growth prospects, the sharp rise in land prices poses a challenge to players, the report states that rents in key markets remain competitive, as a result of the presence of many national and global actors and the emergence of new microenterprises. markets.
Therefore, the cost of land remains a critical factor when deciding the profitability of a storage project.
With a significant rise in land prices in Tier 1 cities in recent years, Tier II and III cities are emerging as more profitable destinations for new Grade A warehousing developments, according to the rating agency.
ICRA expects the credit profile of operators to remain stable, driven by healthy occupancy levels, expected rental increases leading to higher rental income and comfortable leverage metrics, Bharambe said.
For ICRA's sample set, occupancy levels are estimated to remain high at 93-95 percent in FY24, while rental income and net operating income (NOI) are expected to expand between 30 and 32 percent YoY each in FY25, supported by commencement of leases of newly added capacities and completion of scheduled escalations for existing capacities.
It said absorption is likely to be 47 million sq ft in FY25, compared to 37 million sq ft in the previous fiscal.
The sector continues to witness sustained demand from the third-party logistics (3PL) and manufacturing sectors, which together accounted for around 65 percent of the total leased area in March 2024, while the e-commerce share stood at 15 percent.
The growth projections are based on a sample set of ICRA's rated portfolio comprising 58 entities across 17 cities with a 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 overall occupancy remained healthy at around 90 per cent.
Vacancy in the eight primary markets was 10 per cent in FY24 and is likely to remain at a similar level in FY25, the report said.
Furthermore, the granting of "infrastructure" status to the logistics and warehousing sector, the rapid expansion of new-age sectors such as e-commerce and allied services, the growing needs of the mass consumer market and the government's focus on making of India a manufacturing hub have resulted in a strong rebound in storage demand.
"Over the past five years, Grade A warehouse stock in the top eight markets has grown at a CAGR of 21 percent to 183 million sq ft in FY24 and is estimated to rise further between a 19 and 20 percent year-on-year in fiscal year 2025." said Tushar Bharambe, Deputy Vice President and Head of Corporate Ratings Sector at ICRA.
According to him, for incremental Grade A supply addition of 35 million sq ft in FY25, absorption is likely to be around 29 million sq ft. Consequently, the share of Grade A stock in total storage supply is expected to expand to 51 percent as of March 2025 from 49 percent in the previous fiscal year.
More than 50-55 per cent of the current Grade A stocks in India are backed by global traders/investors like CPPIB, GLP, Blackstone, ESR, Allianz, GIC and CDC Group, among others.
Long-term growth prospects for Grade A warehouses are supported by growing tenant preference for modern, efficient and ESG-compliant warehouses, he said.
Noting that despite favorable growth prospects, the sharp rise in land prices poses a challenge to players, the report states that rents in key markets remain competitive, as a result of the presence of many national and global actors and the emergence of new microenterprises. markets.
Therefore, the cost of land remains a critical factor when deciding the profitability of a storage project.
With a significant rise in land prices in Tier 1 cities in recent years, Tier II and III cities are emerging as more profitable destinations for new Grade A warehousing developments, according to the rating agency.
ICRA expects the credit profile of operators to remain stable, driven by healthy occupancy levels, expected rental increases leading to higher rental income and comfortable leverage metrics, Bharambe said.
For ICRA's sample set, occupancy levels are estimated to remain high at 93-95 percent in FY24, while rental income and net operating income (NOI) are expected to expand between 30 and 32 percent YoY each in FY25, supported by commencement of leases of newly added capacities and completion of scheduled escalations for existing capacities.
