The incremental absorption is estimated to remain at around 39 million sq ft, the level witnessed in 2022-23. Nearly 52% of the expected supply addition across these primary markets including Mumbai, National Capital Region, Pune, Chennai, Bengaluru, Kolkata, Hyderabad, and Ahmedabad will be in grade A category.
The supply of industrial and warehouse logistics parks is expected to grow by 13-15% on-year in the current financial year 2023-24 across the eight primary markets to around 435 million sq ft, said ratings agency ICRA.
The incremental absorption is estimated to remain at around 39 million sq ft, the level witnessed in 2022-23. Nearly 52% of the expected supply addition across these primary markets including Mumbai, National Capital Region, Pune, Chennai, Bengaluru, Kolkata, Hyderabad, and Ahmedabad will be in grade A category.
The warehousing sector continues to witness a sustained demand from the third-party logistics (3PL) and automobile sectors, which together accounted for nearly 53% of the total leased warehousing area in the rating agency’s sample of as on March 2023.
ICRA rated-portfolio Includes 112 warehouses and industrial parks across 16 cities and regions with total leasable area of around 34 million sq ft.
Additionally, the 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 Make-in-India and the PLI schemes promoting manufacturing have further bolstered warehousing demand. The credit profile of warehousing operators is expected to remain stable.
“Over 30% of the current Grade A stock in India is backed by the global operators /investors such as CPPIB, GLP, Blackstone, ESR, Allianz, GIC, and CDC Group etc. The long-term growth prospects for the Grade-A warehouses are supported by the increasing focus of the end-user industries on improving operational efficiencies,” said Tushar Bharambe, Assistant Vice President and Sector Head, ICRA.
According to him, the 3PL and the automobile sectors, which accounted for around half of the occupied warehousing area as of March 2023, are estimated to grow at 8-9% and 6-9% respectively in 2023-24. Warehousing demand is further expected to be supported by the rapidly expanding e-commerce sector with an estimated growth rate of 30% in 2023-24.
The top five markets namely, Mumbai, NCR, Pune, Chennai, and Kolkata, accounted for 75-78% of total warehousing stock in India as on March 2023, while the overall occupancy remained healthy at around 90%.
As of March 2024, Mumbai and NCR are expected to account for nearly 50% of the total stock. Notwithstanding the favourable growth prospects, the steep increase in land prices poses a challenge for the players as commensurate increase in rental rates would be constrained by the highly competitive nature of the industry, resulting from the presence of many domestic and global players in the sector and emergence of new micro markets. As per ICRA estimates, the equity IRR expectation of a minimum 15% can be met at rentals of Rs 22 per sq ft per month and above, when the land cost ranges between Rs 1 to 1.5 crore per acre.
An increase in land cost beyond Rs 2.5 crore per acre, would require rentals upwards of Rs 26 per sq ft per month to achieve the equity IRR of 15%. The current average rentals for ICRA’s sample set stand at Rs 24 per sq ft per month, which makes aggressive land acquisitions unviable, the ratings agency said.
“The credit profile of warehousing operators is expected to remain stable, driven by healthy occupancy levels, expected rental escalations resulting in increased rental income and comfortable leverage metrics. For ICRA’s sample set, the occupancy levels are estimated to remain high at 95% in FY2024, while the rentals are expected to increase by 5% in line with the contractual escalation in lease agreements,” Bharambe added.
