India's warehousing sector has been rapidly transforming since CY2020, evolving from a fragmented and traditional industry into an organised segment central to the nation's economic growth. This shift is propelled by escalating demand for modern, large-scale warehouses, strengthened by significant private equity investments.
The surge in demand for Grade A warehousing spaces is primarily driven by the expansion of third-party logistics (3PL) providers, manufacturing sectors, and the burgeoning e-commerce industry, leading to historically low vacancy rates of about 8%.
Warehouse rentals are rising due to strong demand and limited supply, especially in key consumption-led micro-markets. Occupiers increasingly seek modern, built-to-suit, and well-connected Grade A facilities, often at a premium.
Infrastructure upgrades and low vacancy rates in strategic locations further push rentals upward. The average rental rate for INVITs is over Rs 50 per sq-ft per month. For non-INVIT stock, steady rental growth is expected, with average rates at ~Rs 28 per sq-ft per month for FY25(E) and further expected to increase to ~Rs 30 per sq-ft per month for FY26(P).
It highlights that CY23 witnessed a slowdown in PE investment in the sector due to global economic uncertainties and high interest rates, falling below $700 million. However, the investments rebounded over $1,800 million, marking a year-on-year growth of over 150% in CY24. The warehousing sector led with 45% of total investments, surpassing the office sector, which has been at the forefront since CY18, reflecting increased focus of PE players towards logistics infrastructure.
While, India’s warehousing sector continues to experience steady growth, driven by robust demand and supportive policy measures, yet the industry faces several structural headwinds that could impact its long-term potential like hurdles in land acquisition, regulatory fragmentation across states, and model-specific risks.
CareEdge Ratings believes that for India to fully harness the vast potential of its warehousing sector, it is essential to tackle these challenges. This requires streamlined regulatory frameworks, focused workforce training programs, and enhanced public-private collaboration.
The geography of warehousing in India is rapidly changing. While traditional centres like MMR, Delhi-NCR, and Pune continue to dominate, new location preferences are emerging in Tier 2 and Tier 3 cities:
- Bhiwandi & Chakan (Maharashtra): An age-old warehousing hub now modernising its facilities.
- Nagpur & Indore: Strategic central locations facilitating pan-India distribution.
- Lucknow & Jaipur: Rising due to infrastructure development and land affordability.
- Mannur & Mappedu (Tamil Nadu): Buoyed by major electronics and EV manufacturing investments, the state is seeing a surge in Grade A warehousing, particularly in Chennai and Hosur.
The shift is largely driven by improved road connectivity (Bharatmala project), the development of dedicated freight corridors, and a rapidly growing online consumer base in non-metro cities. Contributing factors include lower land costs, rising purchasing power, evolving consumer aspirations, and the need to be closer to emerging consumption hubs.
