The agency expects the grade A warehouse stock across the top eight primary markets to grow by 17% to 195 million sq ft by March 2024 from 167 million sq ft in March 2023
Mumbai, NFAPost: The industrial and warehouse logistics park supply is likely to grow 13-15% in this fiscal in the eight primary markets to around 435 million square feet, with nearly 52% to come up in grade A capacity, according to a report.
However, the incremental absorption is likely to remain flat at the FY23 levels of around 39 million sq ft, Icra Ratings said in the report.
The warehousing sector continues to witness a sustained demand from the third-party logistics (3PL) and automobile sectors, which together accounted for 53% of the total leased warehousing area as of March 2023.
Additionally, the rapid expansion of new sectors like e-commerce and allied services, the growing needs of the consumption market and the government’s focus on manufacturing will boost demand.
The agency expects the grade A warehouse stock across the top eight primary markets to grow by 17 per cent to 195 million sq ft by March 2024 from 167 million sq ft in March 2023.
For the incremental grade A supply addition of 28 million sq ft in FY24, the absorption is estimated to be around 24 million sq ft.
Over 30 per cent of the current grade A stock is backed by global operators and investors, such as CPPIB, GLP, Blackstone, ESR, Allianz, GIC, CDC Group etc.
Long-term growth prospects for grade-A warehouses are supported by the increasing focus of the end-user industries, improving their operational efficiencies.
The 3PL and the automobile sectors, which account for around half of the warehousing occupancy are estimated to grow at 8-9 per cent and 6-9%, respectively in FY24. The rapidly expanding e-commerce sector is also likely to boost demand with an estimated 30 per cent growth.
The top five warehousing markets are Mumbai, Delh-NCR, Pune, Chennai and Kolkata, accounting for 75-78 per cent of the total stock as of March 2023, with an overall occupancy of around 90 per cent. And Mumbai and Delho-NCR are expected to account for nearly 50 per cent of the total stock.
However, the steeply rising land prices pose a challenge for the industry as commensurate increases in rentals will be constrained by high competition.
The agency has estimated a minimum 15 per cent rise in internal rate of return that can be met at a monthly rental of Rs 22 per sq ft, provided the land cost comes in the Rs 1-1.5 crore per acre.
An increase in land cost beyond Rs 2.5 crore per acre, will require rentals going upwards of Rs 26 per sqft to achieve 15% IRR. The current average rental is around Rs 24 per sq ft per month, which makes aggressive land acquisitions unviable.
Meanwhile, going forward, the occupancy levels are likely to move up to 95 per cent in FY24, while the rentals are expected to increase by 5%.
