13-14% rise in warehousing space in India’s major cities in FY2025: Report

 This growth is driven by robust consumption-led demand, which is expected to boost absorption rates to 47 million square feet in FY2025, up from 37 million square feet in FY2024. Vacancy rates in these key markets stood at 10% in FY2024 and are anticipated to remain stable in the upcoming fiscal year. The sector’s expansion is attributed to the government’s recognition of logistics and warehousing as critical infrastructure, the rapid growth of e-commerce and allied services, and efforts to position India as a global manufacturing hub.

Tushar Bharambe, Assistant Vice President and Sector Head of Corporate Ratings at ICRA, highlighted the impressive growth of Grade A warehouse stock, which has expanded at a compound annual growth rate (CAGR) of 21% over the past five years to reach 183 million square feet in FY2024. This trend is set to continue, with an estimated 19-20% YoY increase in FY2025. Of the 35 million square feet of new Grade A supply anticipated for FY2025, around 29 million square feet are expected to be absorbed. This would increase the share of Grade A stock in the total warehousing supply from 49% at the end of the last fiscal year to 51% by March 2025.

International players such as CPPIB, GLP, Blackstone, ESR, Allianz, GIC, and the CDC Group account for over 50-55% of India’s Grade A warehouse stock, driven by the growing preference for modern, efficient, and ESG-compliant facilities.

The third-party logistics (3PL) and manufacturing sectors continue to dominate demand, together representing approximately 65% of the total leased area as of March 2024, while the e-commerce sector accounts for 15%.

Among the eight primary markets, Mumbai and Delhi-NCR stand out, contributing around 42% of the warehousing stock as of March 2024, with overall occupancy levels remaining healthy at around 90%. Despite these favorable conditions, the sector faces challenges, notably the steep rise in land prices. This issue is prompting a shift towards Tier-II and Tier-III cities, which offer more cost-effective solutions for new Grade A warehousing developments.

Looking ahead to FY2025, Bharambe noted that the credit profiles of operators are expected to remain stable, underpinned by high occupancy levels and anticipated rental escalations, which will drive rental income and net operating income (NOI) growth by 30-32% YoY. Although gross debt is projected to increase by 11-13% to fund under-construction capacities, leverage ratios are expected to improve. Debt to NOI is forecasted to be in the range of 5.3-5.5x by March 2025, down from 6.3x in March 2024, supported by healthy NOI growth.

Coverage indicators, measured by the Debt Service Coverage Ratio (DSCR), are expected to improve to 1.5-1.6 times in FY2025 from 1.4 times in FY2024.