India's Warehousing and Logistics Boom Fuels Real Estate Growth
The growth of India's warehousing and logistics sector is driving real estate growth, with developers building huge warehouses for leasing and fleet services to ensure last-mile connection
Real EstateWarehousingLogisticsIndiaE CommerceInfrastructureManufacturingReal EstateJul 10, 2024
The performance of major companies in this space underscores the sector's growing network and importance. Elara Securities predicts that logistics firms like VRL Logistics and Delhively are likely to report an average revenue growth of 11%. Similarly, Mahindra Logistics' revenues are expected to grow by 19% YoY, driven by 3PL and Last Mile Delhivery segments.
The supply to meet the growing demand in this space is swelling. According to ICRA, the industrial and warehouse logistics park supply will likely grow by 13-14% YoY in FY2025 across the eight primary markets, reaching around 424 million sq. ft. ICRA estimates that absorption will increase to 47 million sq. ft. in FY2025 from 37 million sq. ft. in FY2024, supported by strong consumption-led demand.
The logistics and warehousing sector's growth is aided by its infrastructure status, the expansion of e-commerce and allied services, the increasing needs of the consumption market, and the government's focus on making India a manufacturing hub. Developers are not just confined to the eight leading cities alone for creating capacities. Niranjan Hiranandani says that the group is looking at building more industrial parks and warehouses in UP, Haryana, Rajasthan, Punjab.
The sudden rise in demand has fueled the price rise. According to ICRA, favorable growth prospects are leading to a steep increase in land prices, which poses a challenge for the players. The rentals across the key markets remain competitive, a result of the presence of many domestic and global players and the emergence of new micromarkets, and thus, land cost remains a critical factor in deciding the profitability of a warehousing project.
The investment in this segment is all set to grow. Shobhit Agarwal, MD & CEO, ANAROCK Capital, says that the top private equity deal - for approx. $1.5 billion between Reliance-ADIA-KKR - accounted for a whopping 71% of the total PE deals in Q1 FY25.
The sector continues to witness a sustained demand from the third-party logistics and manufacturing sectors, which together accounted for 65% of the total leased area in ICRA's sample set as of March 2024, while the share of e-commerce stood at 15%. 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.
Experts say that the growth can continue only if the sector gets a desired push via healthy government policies and timely interventions. Ketan Kulkarni, Chief Growth Officer, Allcargo Group says that the policymakers have shown a continued focus on transforming the logistics industry through infrastructure and technology-led reforms.
Frequently Asked Questions
What is driving the growth of India's warehousing and logistics sector?
The growth of India's warehousing and logistics sector is driven by the increasing demand for e-commerce and allied services, the expansion of e-commerce and allied services, the increasing needs of the consumption market, and the government's focus on making India a manufacturing hub.
How is the supply of warehousing and logistics parks expected to grow in FY2025?
The supply of warehousing and logistics parks is expected to grow by 13-14% YoY in FY2025 across the eight primary markets, reaching around 424 million sq. ft.
What is the share of Grade A warehouses in the total warehousing supply?
The share of Grade A warehouses in the total warehousing supply is expected to expand to 51% as of March 2025 from 49% as of the previous fiscal.
What is the biggest challenge facing the warehousing and logistics sector?
The biggest challenge facing the warehousing and logistics sector is the steep increase in land prices, which poses a challenge for the players.
What is the outlook for FY2025 for the warehousing and logistics sector?
The outlook for FY2025 for the warehousing and logistics sector is positive, with ICRA expecting 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.
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