We all love to shop online, consider e-commerce to deliver our daily needs in 15 minutes or even less, and want our cars to be dispatched from the plant to the dealership in no time and much more. But have you ever wondered what makes this possible? It’s the growing network of warehousing and logistics.
The growth is significant enough to prompt real estate builders to develop huge warehouses for leasing, build capacities in managing fleet services to ensure the last-mile connection and much more.
Property consultancy and brokerage firm, ANAROCK, in its latest Capital’s FLUX report for Q1FY25 finds that even as foreign investor activity was lower than previously recorded levels despite a spike in deal value, the average deal size increased by 23% YoY.
The aggregate value of PE deals in Indian real estate rose in Q1 FY25, primarily driven by a single large investment in the warehousing assets of Reliance Retail.
Not just ANAROCK, another report by the real estate research and brokerage firm Colliers India stated that after a steady start in the first quarter of 2024, the second quarter saw accelerated momentum, “registering $2.5 billion of inflows—the highest in any quarter since 2021. The industrial & warehousing segment accounted for the highest share of 61% of total investments, at $1.5 billion, led by select large deals in the segment.”
According to a report by Elara Securities on India-Logistics, the performance of major companies in this space underscores the sector’s growing network and importance.
Another growth indicator is the number of eWay bills being generated. Recent government data shows eWay Bill generation rising 15% YoY during April–May, indicating a shift from unorganised to organised trade.
Elara predicts that logistics firms like VRL Logistics and Delhivery are likely to report an average revenue growth of 11%. Similarly, Mahindra Logistics’ revenues are expected to grow by 19% YoY, driven by 3PL (up 7% YoY) and Last Mile Delhivery (LMD) segments on Wizzard consolidation. But, when it comes to developers, the supply to meet the growing demand in this space is swelling.
According to ICRA, the industrial and warehouse logistics park (IWLP), supply will likely grow by 13–14% YoY in FY2025 across the eight primary markets, reaching around 424 million sq. ft.
ICRA estimates that absorption will increase to 47 million sq. ft. in FY2025 (90% of the incremental supply addition) from 37 million sq. ft. in FY2024, supported by strong consumption-led demand.
ICRA’s detailed study highlighted that the vacancy rate in the eight primary markets stood at 10% in FY2024 and is likely to remain similar in FY2025. The logistics and warehousing sector’s growth is aided by its infrastructure status, the expansion of e-commerce and allied services, the increasing needs of the consumption market, and the government’s focus on making India a manufacturing hub.
Tushar Bharambe, Assistant Vice President and Sector Head – Corporate Ratings, ICRA, said: “Over the last five years, the Grade A warehouse stock in the eight primary markets has grown at a healthy CAGR of 21% to 183 million sq. ft. in FY2024 and is estimated to increase further by 19–20% YoY in FY2025. For the incremental Grade A supply addition of 35 million sq. ft. in FY2025, the absorption is likely to be around 29 million sq ft. Consequently, the share of grade-A stock in the total warehousing supply is expected to expand to 51% as of March 2025 from 49% as of the previous fiscal. The long-term growth prospects for the Grade A warehouses are supported by the growing preference of the tenants for modern, efficient, and ESG-compliant warehouses.”
The sector continues to witness a sustained demand from the third-party logistics (3PL) and manufacturing sectors, which together accounted for 65% of the total leased area in ICRA’s sample set as of March 2024, while the share of e-commerce stood at 15%.
The eight primary markets that ICRA has considered are Mumbai, NCR, Pune, Chennai, Bengaluru, Kolkata, Hyderabad, and Ahmedabad.
Among these, Mumbai and Delhi-NCR contributed around 42% of the warehousing stock as of March 2024, with overall occupancy remaining healthy at around 90%.
Developers are not just confined to these eight leading cities alone for creating capacities.
Niranjan Hiranandani says, “The group is looking at building more industrial parks and warehouses in UP, Haryana, Rajasthan, Punjab. Hiranandani is in JV with Blackrock and has already committed ₹1,800—₹2,000 crore. In the immediate future, the group is looking at investing another ₹400–500 crore. We also see growth from city-based warehouses as people are looking at 15-minute delivery. The group is evaluating in-city warehouses or dark stores due to increased demand of last-mile delivery and quick grocery and e-commerce services in Northern, Western and southern regions.”
The sudden rise in demand has fuelled the price rise. According to ICRA, favourable growth prospects are leading to a steep increase in land prices, which poses a challenge for the players. The rentals across the key markets remain competitive, a result of the presence of many domestic and global players and the emergence of new micromarkets, and thus, land cost remains a critical factor in deciding the profitability of a warehousing project. With significant increases 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.
Talking about the outlook for FY2025, Bharambe added: “ICRA expects the credit profile of the operators to remain stable, driven by healthy occupancy levels, expected rental escalations leading to increased rental income, and comfortable leverage metrics. For ICRA’s sample set, the occupancy levels are estimated to remain high at 93-95% in FY2024 . The rental income and net operating income (NOI) are expected to expand by 30–32% YoY each in FY2025, supported by the commencement of rentals from newly added capacities and realisation of scheduled escalations for existing capacities.”
The investment in this segment is all set to grow. Shobhit Agarwal, MD & CEO, ANAROCK Capital, says, “The top private equity deal—for approx. $1.5 billion between Reliance-ADIA-KKR—accounted for a whopping 71% of the total PE deals in Q1 FY25. In Q1 FY24, the top PE deal by Brookfield India RE Trust and GIC was approx. $1.4 billion and accounted for a marginally higher 74% share of the total PE deals.”
“Pure debt and pure equity transactions took a backseat during the quarter in light of the Reliance—ADIA—KKR transaction in the deal table,” says Aashiesh Agarwaal, SVP—Research & Investment, ANAROCK Capital. “According to available data, this transaction is a combination of senior debt, quasi-equity or subordinate debt, and equity infusion.”
While transactions in Q1FY24 witnessed a marked skew towards offices owing to the GIC-Brookfield deal, Q1FY25 was significantly aligned towards logistics on account of the $1.5 billion investment in warehousing assets of Reliance Retail by ADIA and KKR. The Industrial & Logistics segment continues to hold promise for investors given strong growth prospects on the back of robust consumption and expectations of manufacturing-led growth.
However, experts say that the growth can continue only if the sector gets a desired push via healthy government policies and timely interventions
Ketan Kulkarni, Chief Growth Officer, Allcargo Group says, “The policymakers have shown a continued focus on transforming the logistics industry through infrastructure and technology led reforms. The rollout of the PM Gati Shakti National Master Plan, National Logistics Policy, and Unified Logistics Interface Platform are significant policy moves by the central government. As a result, India has climbed from the 44th to the 38th position out of 139 nations in 2023. The industry is now poised for the next phase of growth.”
