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Credit rating agency ICRA in its latest report has said that Industrial and warehouse logistics park (IWLP) supply is estimated to grow 13-14 per cent year-on-year at around 424 million square feet this fiscal (FY25) in the eight primary markets, driven by strong demand. The vacancy in the eight primary markets stood at 10 per cent in FY24 and is likely to remain at a similar level in FY25. It also said the absorption is likely to be 47 million square feet in FY25 as compared to 37 million square feet in the previous fiscal. Moreover, it said conferring the 'infrastructure' status to the logistics and warehousing sector, rapid expansion of new-age sectors like e-commerce and allied services, growing needs of the massive consumption market, and the government's focus on making India a manufacturing hub have resulted in a steep uptick in warehousing demand.

According to the report, the sector continues to witness a sustained demand from third-party logistics (3PL) and manufacturing sectors, which together accounted for around 65 per cent of the total leased area as of March 2024 while the share of e-commerce stood at 15 per cent. It also said that among the eight primary markets, around 42 of the warehousing stock as of March 2024 was contributed by Mumbai and Delhi-NCR while the overall occupancy remained healthy at around 90 per cent.

Noting that notwithstanding the favourable growth prospects, the steep increase in land prices poses a challenge for the players, the report said the rentals across the key markets remain competitive, a result of the presence of many domestic and global players and the emergence of new micro markets.  Thus, land cost remains a critical factor in deciding the profitability of a warehousing project. With significant increase in land prices in tier-1 cities in recent years, tier-II and tier-III are emerging as more cost-effective destinations for new Grade A warehousing developments.