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Warehousing supply set to grow 13-14 pc amid sustained demand from third-party logistics, manufacturing

The absorption of warehousing space is likely to climb to 47 million sq ft in 2024-25

Representative Image | Reuters

Over the last few years, a growth in manufacturing, logistics and e-commerce has led to rising demand for warehousing space and ICRA expects the strong growth to continue this year. The credit ratings agency projects industrial and warehouse logistics park (IWLP) supply to expand 13-14 per cent year-on-year in eight primary markets, reaching around 424 million square feet in the current financial year ending March 2025.

The absorption of warehousing space is expected to climb to 47 million square feet in 2024-25, up from 37 million square feet in 2023-24. The vacancy level in these markets is just around 10 per cent, reflecting the strong demand for quality warehousing space.

"Over the last five years, the Grade A warehouse stock in the eight primary markets has grown at a healthy CAGR (compounded annual growth) of 21 per cent to 183 million square feet in FY 2024 and is estimated to increase further by 19-20 per cent in FY 2025. The long-term growth prospects for the Grade A warehouses are supported by the growing preference of the tenants for modern, efficient and ESG-compliant warehouses" noted Tushar Bharambe, assistant vice-president and sector head - corporate ratings at ICRA.

Over half of the current Grade A stock is backed by global investors such as CPPIB (Canada Pension Plan Investment Board), GLP, Blackstone, ESR, Allianz, GIC, and CDC Group, underscoring the sector's attractiveness to international players.

Among India’s eight primary markets, Mumbai and Delhi-NCR remain the largest contributors to the warehousing stock, accounting for 42 per cent as of March 2024, according to ICRA. 

"The sector continues to witness a sustained demand from the third-party logistics (3PL) and manufacturing sectors, which together accounted for 65 per cent of the total leased area in ICRA's sample set as of March 2024, while the share of e-commerce stood at 15 per cent," it said.

Despite the favourable growth prospects, the sector faces challenges from rising land prices, particularly in tier-1 cities, ICRA pointed out. Consequently, tier-II and tier-III cities are emerging as cost-effective alternatives for new Grade A developments, it added.