ICRA, a leading credit rating agency, has projected a significant increase in industrial and warehouse logistics park (IWLP) supply, anticipating a 13-14% year-on-year (YoY) growth in FY2025 across the eight primary markets in India.
This surge will bring the total warehousing space to approximately 424 million square feet. Additionally, absorption rates are expected to rise to 47 million square feet in FY2025, up from 37 million square feet in FY2024, supported by robust consumption-led demand. Vacancy rates in these markets are predicted to remain stable at around 10%, mirroring the levels seen in FY2024. The conferment of ‘infrastructure’ status to the logistics and warehousing sector, along with rapid expansion in e-commerce, growing consumption needs, and the government’s push to make India a manufacturing hub, are key drivers behind the heightened demand for warehousing.
An ICRA official highlighted, “Over the last five years, Grade A warehouse stock in the primary markets has grown at a healthy CAGR of 21%, reaching 183 million square feet in FY2024. This is projected to increase by 19-20% YoY in FY2025. With an incremental supply addition of 35 million square feet of Grade A warehousing expected in FY2025, absorption rates are likely to be around 29 million square feet. Consequently, the share of Grade A stock in total warehousing supply is expected to expand to 51% by March 2025 from 49% at the end of the previous fiscal year.” Global operators and investors such as CPPIB, GLP, Blackstone, ESR, Allianz, GIC, and CDC Group currently back over 50-55% of India’s Grade A warehousing stock. Long-term growth prospects for these high-grade warehouses are supported by the increasing preference of tenants for modern, efficient, and ESG-compliant facilities.
The sector continues to witness sustained demand from third-party logistics (3PL) and manufacturing sectors, which together accounted for approximately 65% of the total leased area in ICRA’s sample set as of March 2024. The e-commerce sector contributed 15% of the leased area. Among the eight primary markets, Mumbai and Delhi-NCR together accounted for around 42% of the warehousing stock as of March 2024, with overall occupancy levels remaining healthy at around 90%. Despite the favourable growth prospects, the sector faces challenges from steep increases in land prices. Competitive rentals across key markets, influenced by both domestic and global players and the emergence of new micro-markets, make land cost a critical factor in determining the profitability of warehousing projects. As land prices in Tier-1 cities have surged in recent years, Tier-II and Tier-III cities are emerging as more cost-effective destinations for new Grade A warehousing developments.
Commenting on the outlook for FY2025, the ICRA official added, “ICRA expects the credit profile of operators to remain stable, driven by healthy occupancy levels, anticipated rental escalations leading to increased rental income, and comfortable leverage metrics. For ICRA’s sample set, occupancy levels are estimated to remain high at 93-95% in FY2024. Rental income and net operating income (NOI) are projected to expand by 30-32% YoY each in FY2025, supported by the commencement of rentals from newly added capacities and realisation of scheduled escalations for existing capacities. ICRA projects gross debt to increase by 11-13% in FY2025 due to debt availed for under-construction capacities. However, leverage measured by Debt/NOI is likely to remain comfortable in the range of 5.3-5.5x by March 2025, improving from 6.3x in March 2024 due to healthy growth in NOI. Coverage indicators, measured by DSCR for ICRA’s sample, are forecasted to remain at 1.5-1.6 times in FY2025, up from 1.4 times in FY2024.
