13-14% Growth in Warehouse Logistics Park Supply for FY25: ICRA

ICRA estimates that the industrial and warehouse logistics park (IWLP) supply in the eight primary markets will grow by 13-14% year-on-year (YoY) in FY2025, reaching around 424 million sq. ft. Absorption is expected to rise to 47 million sq. ft. in FY2025, up from 37 million sq. ft. in FY2024, driven by strong consumption-led demand. The vacancy rate, which stood at 10% in FY2024, is likely to remain similar in FY2025.

Tushar Bharambe, Assistant Vice President and Sector Head – Corporate Ratings at ICRA, highlighted the growth of Grade A warehouse stock, which has increased at a healthy compound annual growth rate (CAGR) of 21% to 183 million sq. ft. in FY2024. This is expected to grow by another 19-20% YoY in FY2025, with an estimated absorption of around 29 million sq. ft. out of the 35 million sq. ft. of incremental supply. The share of Grade A stock in total warehousing supply is projected to rise to 51% by March 2025 from 49% the previous year.

Global operators and investors such as CPPIB, GLP, Blackstone, ESR, Allianz, GIC, and CDC Group back over 50-55% of the current Grade A stock in India. The demand is primarily driven by the third-party logistics (3PL) and manufacturing sectors, which together accounted for approximately 65% of the total leased area as of March 2024. The e-commerce sector contributed 15%.

Mumbai and Delhi-NCR, the two largest cities, contributed around 42% of the warehousing stock as of March 2024, with an overall occupancy rate of about 90%. Despite positive growth prospects, the steep increase in land prices poses a challenge. Rentals remain competitive due to the presence of numerous domestic and global players and the emergence of new micro markets. Consequently, Tier-II and Tier-III cities are becoming more cost-effective destinations for new Grade A warehousing developments.

Commenting on the outlook for FY2025, Bharambe added, “ICRA expects the credit profile of the operators to remain stable, driven by healthy occupancy levels, expected rental escalations leading to increased rental income, and comfortable leverage metrics. For ICRA’s sample set, the occupancy levels are estimated to remain high at 93-95% in FY2024. The rental income and net operating income (NOI) are expected 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 the gross debt to increase by 11-13% in FY2025 due to debt availed for the under-construction capacities. However, the leverage measured by Debt/NOI is likely to be comfortable in the range of 5.3-5.5x as of March 2025, improving from 6.3x as of March 2024 on the back of healthy growth in NOI. The coverage indicators measured by DSCR for ICRA’s sample is forecast to remain at 1.5-1.6 times in FY2025, increasing from 1.4 times in FY2024.”