Industrial and warehouse logistics park supply is estimated at 330 mn sq ft by 2023

Industrial and warehouse logistics park supply is estimated at 330 mn sq ft by 2023 with Grade A accounting for 48%, led by the implementation of the Goods and Services Tax accelerated and the growth of the industrial and warehouse logistics parks (IWLP). mentioned rating and valuation agency ICRA.

The overall supply witnessed a CAGR of 17% during 2016-2021 to 258 mn sq ft with an increase in Grade A supply mix from 30% in 2016 to 45% in 2021.

“E-commerce and 3PL sectors have been the key demand drivers over the last two years, as these segments witnessed growth even during the Covid period. For the eight primary markets, the Grade A warehouse supply is likely to grow at a CAGR of 15% to 159 million sq. ft. by Dec-2023 from 116 million sq. ft. as of Jun-2021 led by the e-commerce and 3PL sectors," said Mathew Kurian, Vice President, ICRA.

The sector attracted investment of around Rs. 26,500 crore between FY2017 and FY2022 from various global logistics operators and foreign investors, such as CPPIB, GLP, Blackstone, ESR, Allianz, GIC, and CDC Group.

Amid the pandemic-induced disruptions, the industrial and warehouse logistics park segment saw healthy traction in demand from service sectors such as e-commerce and third-party logistics (3PL). The occupancy is expected to remain healthy in the range of 85-90% supported by robust demand from e-commerce and 3PL across top markets like Mumbai, NCR, Pune, Chennai, and Kolkata, accounting for nearly two-thirds of the Grade A capacity in India, mentioned ICRA.

However, the industry faces near-term challenges due to the input cost pressures and high competition resulting from the presence of many domestic and global players in the sector. “ICRA notes that, given the sharp increase in steel prices over the past year, the developers have gone slow on awarding fresh construction contracts and focused on leasing the available area. This is expected to reduce the vacancy by the end of CY2022. In case of a sustained increase in input prices by more than 15% from current levels, ICRA estimates that the warehouse developers will increase the rental rate by Rs.1-2 per sq ft per month, to neutralise the impact of the input cost pressure on their equity IRR. Nonetheless, the price-sensitive occupiers such as the 3PL are expected to wait for the correction in costs before leasing at a higher rate or alternately consider shifting to cheaper micro-markets. The steep increase in land prices also poses a challenge for the players as a commensurate increase in rental rates would be constrained by the highly competitive nature of the industry," said Kurian.