India will need to create adequate supply to meet an absorption of approx. 223 mn sq ft of Grade A warehousing demand over the next 3 years, finds the CREDAI-ANAROCK report. Shobhit Agarwal, MD & CEO - ANAROCK Capital, says "Based on the data, the sector currently has 'dry powder' funding of $900 mn from existing commitments. This signifies a latent investment opportunity of further $2.8 bn in the warehousing sector in the near future. Much of this funding will need to target Grade A warehousing facilities, which is witnessing increasing demand due to its direct and indirect beneficial impacts on overall operational efficiencies."
The absorption of Grade A warehousing increased from 34 Mn sq. ft in 2018 to 48.5 Mn sq. ft in 2021 at a CAGR of 12.6%, states the report. Meanwhile, supply in this category rose from 37.8 Mn sq. ft to 51 Mn sq. ft in the same period at a CAGR of 10.6%.
The top 7 Indian cities witnessed approx. 160+ Mn sq. ft of Grade A warehouse leasing and was highest in the Western markets of MMR and Pune, followed by the primary Southern markets of Bangalore, Chennai and Hyderabad, which together saw 32% of the overall leasing volumes.
Harsh Vardhan Patodia, President - CREDAI, says, "Warehousing has emerged as one of the most preferred asset classes for investors and developers to balance their real estate portfolios. The warehousing segment is range bound and a high revenue generator. While the IRR is higher, the risk is lower, and production is faster. Moreover, this sector is consumption-led, unlike other sectors which a primarily developer-led."
Warehousing Rentals
Among the top 7 cities, MMR has the highest average rent at INR 27/sq. ft., and Hyderabad lowest at INR 20/sq.ft. Of top 10 micro markets, the Western markets of Bhiwandi, Chakan and Panvel/Taloja) dominate Grade A warehousing space leasing share with 41%.
Sectors Driving Warehousing Demand
The top 3 sectors - 3PL, E-commerce, and Manufacturing and Automotive account for a 78% share of warehouse leasing space across 7 cities. 3PL has the highest leasing space share at 42%, given the upsurge in companies deploying their supply chain and logistics function to 3PL players.
Warehousing Outlook
Investors - both foreign and domestic - can expect an entry yield of 9-10%. Going forward, many international developer funds are expected to enter Indian Warehousing space.
So far, the warehousing development were led by funds - the next round of funding will be led by JV platform deals. A warehouse sector-specific REIT/ InVIT expected to be announced in 2024.Large scope for air cargo, cold-chain structures and in-city multi-level structure warehouse development. ESG to become an integral factor as ESG standards-compliant projects see easier planning process, tenant retention and investor trust
