India's industrial and warehouse logistics park (IWLP) supply across its eight primary markets is set to grow by 13-14% year-on-year (YoY) in 2024-25, reaching approximately 424 million square feet, according to a report by the rating agency ICRA. This growth is primarily driven by robust consumption-led demand and the rapid expansion of sectors such as e-commerce and manufacturing.

Rising Absorption and Stable Vacancy Rates

The report forecasts that absorption of logistics space will rise to 47 million sq. ft during the financial year 2024-25, up from 37 million sq. ft in the previous year. This increase is attributed to the burgeoning demand for warehouse space to support consumption and the growing logistics needs of various sectors. Despite the significant supply growth, the vacancy rate, which stood at 10% in 2023-24, is anticipated to remain stable in the upcoming year.

Infrastructure Status and Market Dynamics

The logistics and warehousing sector in India has recently gained 'infrastructure' status, which has further fueled increased demand. This status has spurred investments and interest in the sector, particularly from the rapid expansion of e-commerce, government initiatives to bolster manufacturing, and the burgeoning consumption market. The infrastructure status not only improves financing options but also enhances the sector's attractiveness for domestic and international investors.

Grade A Warehouse Growth

Grade A warehouse stock in the eight primary markets grew at a healthy compound annual growth rate (CAGR) of 21% over the past five years, reaching 183 million sq. ft in FY24. This trend is expected to continue with a projected growth rate of 19-20% YoY in FY25. The share of Grade A stock in the total warehousing supply is anticipated to increase from 49% at the end of the previous fiscal year to 51% by March 2025. This shift towards higher-quality warehousing reflects the market's evolving demands for more sophisticated and efficient storage solutions.

Factors Driving Demand

Several factors are driving the demand for industrial and warehouse logistics parks in India:

E-commerce Expansion: The rapid growth of the e-commerce sector requires extensive and efficient logistics networks to manage inventory, fulfill orders, and ensure timely delivery. This sector alone has significantly boosted the demand for advanced warehousing solutions.

Government Initiatives: Policies aimed at boosting manufacturing, such as the Make in India initiative, have led to increased production and, consequently, greater demand for logistics and warehousing facilities.

Consumption Market: The growing middle class and increasing consumer spending are driving demand for goods, which in turn necessitates efficient logistics and warehousing solutions to manage the supply chain effectively.

Market Projections and Investment Opportunities

The projected growth in IWLP supply and absorption indicates a robust market outlook, with ample opportunities for investors and developers. The stable vacancy rates despite increasing supply suggest a healthy balance between supply and demand, ensuring sustainable growth in the sector.

Grade A Warehousing

The emphasis on Grade A warehousing highlights the market's preference for high-quality, modern facilities that offer advanced features such as automation, enhanced security, and better infrastructure. These facilities are crucial for meeting the sophisticated needs of sectors like e-commerce, pharmaceuticals, and high-value goods storage.

Regional Growth

The growth in IWLP supply is not limited to metropolitan areas but is also expanding to tier-2 and tier-3 cities, driven by regional demand and improving infrastructure. This expansion ensures broader market coverage and accessibility, catering to diverse logistics needs across the country.

Conclusion

The projected 13-14% YoY growth in IWLP supply across India's eight primary markets for 2024-25 reflects a robust and dynamic logistics and warehousing sector. Driven by strong domestic demand, e-commerce expansion, and government initiatives, the sector is poised for significant growth. The increasing share of Grade A warehouse stock underscores the market's evolution towards more sophisticated and efficient logistics solutions.

As India continues to develop its infrastructure and enhance its manufacturing capabilities, the logistics and warehousing sector will play a critical role in supporting economic growth and meeting the demands of a rapidly expanding market. The positive outlook from ICRA suggests that investors and stakeholders can expect continued opportunities and returns in this vital sector.