The industrial and warehouse logistics park (IWLP) supply in the top eight primary markets in India is estimated to grow 13-15 percent annually in FY24 to 435 million square feet (msf), according to rating agency ICRA.
The supply with comprise about 52 percent of Grade A capacity while the incremental absorption is estimated to remain at FY23 levels of around 39 msf, the report added.
The report found that the warehousing sector continues to witness a sustained demand from the third-party logistics (3PL) and automobile sectors, which together accounted for about 53 percent of the total leased warehousing area in ICRA’s sample as on March 2023.
Steady outlook
"ICRA expects the Grade A warehouse stock for the eight primary markets to grow at 17 percent year on year (YoY) to 195 msf by March 2024 from 167 msf as of March 2023. For incremental Grade A supply addition of 28 msf in FY2024, the absorption is estimated to be around 24 msf," Tushar Bharambe, Assistant Vice-President and Sector Head, ICRA said.
The 3PL and the automobile sectors, which accounted for around half of the occupied warehousing area as on March 2023, are estimated to grow at 8-9 percent and 6-9 percent, respectively in FY24, Bharambe said.
For ICRA’s sample set, the occupancy levels are estimated to remain high at 95 percent in FY24 while the rentals are expected to increase by 5 percent in line with the contractual escalation in lease agreements, he said.
Key markets
The top five markets, Mumbai, NCR, Pune, Chennai and Kolkata, accounted for 75-78 percent of total IWLP stock in India as on March 2023 while the overall occupancy remained healthy at around 90 percent.
As on March 2024, Mumbai and NCR are expected to account for nearly 50 percent of the total stock.
ICRA further estimates that the equity internal rate of return (IRR) expectations of a minimum of 15 percent can be met at rentals of Rs 22 per sq ft per month and above when the land cost ranges between Rs 1 crore to 1.5 crore/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 percent. 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 report said.
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