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Industrial, warehouse logistics park space seen at 330 mn sq ft by 2023: Icra

The sector attracted investment of around  ₹26,500 crore between FY2017 and FY2022 from various global logistics operators and foreign investors, such as CPPIB, GLP, Blackstone, ESR, Allianz, GIC, and CDC Group. (Photograph by ABHIJIT BHATLEKAR/MINT)Premium
The sector attracted investment of around 26,500 crore between FY2017 and FY2022 from various global logistics operators and foreign investors, such as CPPIB, GLP, Blackstone, ESR, Allianz, GIC, and CDC Group. (Photograph by ABHIJIT BHATLEKAR/MINT)

Amid the pandemic-induced disruptions, the industrial and warehouse logistics park segment saw a healthy traction in demand from service sectors such as e-commerce and third-party logistics

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Industrial, warehouse logistics park space seen at 330 mn sq ft by 2023: Icra

Increasing formalization of the sector, preference for Grade A warehousing facilities and implementation of the Goods and Services Tax have accelerated the growth of industrial and warehouse logistics parks (IWLP), ratings agency Icra said on Tuesday.

The overall supply witnessed a CAGR of 17% during 2016-2021 to 258 mln sq ft with increase in Grade A supply mix from 30% in 2016 to 45% in 2021.

Amid the pandemic-induced disruptions, the industrial and warehouse logistics park segment saw a healthy traction in demand from service sectors such as e-commerce and third-party logistics (3PL). “Industrial and warehouse logistics park supply estimated at 330 million square feet (mn sq ft) by 2023 with Grade A accounting for 48%; occupancies to remain healthy in the range of 85-90% supported by robust demand from e-commerce and 3PL."

The sector attracted investment of around 26,500 crore between FY2017 and FY2022 from various global logistics operators and foreign investors, such as CPPIB, GLP, Blackstone, ESR, Allianz, GIC, and CDC Group, the report added.

“E-commerce and 3PL sectors have been the key demand drivers over the last two years, as these segments witnessed growth even during the Covid period. For the eight primary markets, the Grade A warehouse supply is likely to grow at a CAGR of 15% to 159 million sq. ft. by Dec-2023 from 116 million sq. ft. as of Jun-2021 led by the e-commerce and 3PL sectors," said Mathew Kurian, vice president, Icra.

Investments under the PLI scheme in the focus sectors, such as, electronics, automotive and pharmaceuticals will also support the demand for industrial segment. As a result, the occupancies for the IWLP are expected to remain healthy in the range of 85-90%, the report said.

Over 75% of Grade A supply in India is backed by these global operators / investors. Long-term growth prospects for the sector are supported by demand for Grade A space and significant interest from global operators and institutional investors, the agency said.

Top five markets for the industrial and warehouse logistics park segment, namely, Mumbai, NCR, Pune, Chennai, and Kolkata, account for nearly two-third of the Grade A capacity in India.

Notwithstanding the favourable growth prospects, the industry faces near term challenges due to the input cost pressures and high competition resulting from presence of many domestic and global players in the sector.

“ICRA notes that, given the sharp increase in steel prices over the past year, the developers have gone slow on awarding fresh construction contracts and focused on leasing the available area. This is expected to reduce the vacancy by end of CY2022," Kurian added.

"In case of a sustained increase in input prices by more than 15% from current levels, ICRA estimates that the warehouse developers to increase the rental rate by Rs.1-2 per sq ft per month, to neutralise the impact of the input cost pressure on their equity IRR. Nonetheless, the price-sensitive occupiers such as the 3PL are expected to wait for the correction in costs before leasing at higher rate or alternately consider shifting to cheaper micro-markets. The steep increase in land prices also poses a challenge for the players as commensurate increase in rental rates would be constrained by the highly competitive nature of the industry."

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