India's Booming Warehousing and Logistics Sector Drives Real Estate Growth

India's Booming Warehousing and Logistics Sector Drives Real Estate Growth

The warehousing and logistics sector in India is experiencing unprecedented growth, significantly impacting the real estate landscape. This surge is prompting real estate developers to construct expansive warehouses for leasing and develop capacities in fleet management to ensure last-mile connectivity.

The rise of e-commerce and the increasing demand for quick deliveries have underscored the importance of a robust warehousing and logistics network. As a result, real estate builders are focusing on developing large-scale warehousing facilities and enhancing fleet management services to meet the demands of last-mile delivery.

A recent report by ANAROCK, a properties consultancy and brokerage firm, highlights that despite a decrease in foreign investor activity compared to previous levels, the average deal size increased by 23% year-on-year (YoY). The aggregate value of private equity (PE) deals in Indian real estate rose in Q1 FY25, primarily driven by a significant investment in the warehousing assets of Reliance Retail.

Similarly, Colliers India reported a significant increase in investments in the industrial and warehousing segment. The second quarter of 2024 saw $2.5 billion in inflows—the highest in any quarter since 2021—with the industrial and warehousing segment accounting for 61% of total investments at $1.5 billion, driven by large deals in the sector.

Elara Securities' report on India-Logistics underscores the sector's growing network and importance. Government data shows a 15% YoY rise in eWay Bill generation during April-May, indicating a shift from unorganized to organized trade. Elara predicts that logistics firms like VRL Logistics and Delhivery are likely to report an average revenue growth of 11%, while Mahindra Logistics is expected to see a 19% YoY revenue increase, driven by growth in 3PL and Last Mile Delivery (LMD) segments.

ICRA forecasts a 13-14% YoY growth in industrial and warehouse logistics park (IWLP) supply in FY2025 across the eight primary markets, reaching approximately 424 million square feet. Absorption is expected to increase to 47 million square feet in FY2025 from 37 million square feet in FY2024, supported by strong consumption-led demand.

The vacancy rate in these markets stood at 10% in FY2024 and is expected to remain similar in FY2025. The sector's growth is fueled by its infrastructure status, e-commerce expansion, increasing consumption market needs, and the government's focus on making India a manufacturing hub.

Tushar Bharambe, Assistant Vice President and Sector Head – Corporate Ratings, ICRA, noted that the Grade A warehouse stock in the eight primary markets has grown at a healthy CAGR of 21% to 183 million square feet in FY2024 and is estimated to increase by 19-20% YoY in FY2025. The share of Grade A stock in the total warehousing supply is expected to expand to 51% by March 2025 from 49% in the previous fiscal.

The sector continues to see strong demand from third-party logistics (3PL) and manufacturing sectors, which accounted for 65% of the total leased area in ICRA’s sample set as of March 2024, while e-commerce accounted for 15%.

Developers are expanding beyond the eight primary cities, with plans to build more industrial parks and warehouses in regions like UP, Haryana, Rajasthan, and Punjab. Niranjan Hiranandani revealed that his group, in a joint venture with Blackrock, has committed ₹1,800-₹2,000 crore and plans to invest another ₹400-500 crore shortly. The group is also evaluating in-city warehouses or dark stores to meet the growing demand for last-mile delivery.

However, the rising demand has also led to increased land prices, posing a challenge for players. According to ICRA, favorable growth prospects are driving a steep increase in land prices, making land cost a critical factor in the profitability of warehousing projects. Tier-II and Tier-III cities are emerging as more cost-effective destinations for new Grade A warehousing developments due to the high land prices in Tier-I cities.

Shobhit Agarwal, MD & CEO, of ANAROCK Capital, noted that the top private equity deal in Q1 FY25 was a $1.5 billion investment in Reliance Retail's warehousing assets by ADIA and KKR, accounting for 71% of the total PE deals. The industrial and logistics segment continues to attract investors due to strong growth prospects supported by robust consumption and manufacturing-led growth expectations.

Ketan Kulkarni, Chief Growth Officer, Allcargo Group, emphasized the government's focus on transforming the logistics industry through infrastructure and technology-led reforms, positioning the industry for the next phase of growth.

As India continues to enhance its logistics infrastructure, the warehousing and logistics sector is poised for sustained growth, driving significant developments in the real estate market.

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