$3.8 bn funding needed to meet India's 223 mn sq ft warehousing demand in next 3 Years: Report

´India will need to create an adequate supply to meet an absorption of approximately 223 mn sq ft of Grade A warehousing demand over the next 3 years, finds the CREDAI-ANAROCK report titled 'India Warehousing - A Sunrise Sector'. The report was released at NATCON 2022 held in Abu Dhabi from 11-13th November, 2022.

The report further mentions that an equity investment of around $3.8 bn will be required to support this scale of development.

Shobhit Agarwal, MD & CEO of 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 a 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."

Some of the key warehousing PE investment deals and JV Platforms have been listed below:

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, the 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.

The top ten leasing micro-markets and the area they represent include Chakan (22%), Sriperumbudur (18%), Bhiwandi (16%), Luhari (9%), around Bilaspur Chowk(8%), Nelamangala (8%), Medchal (7%), Dankuni (5%), FarukhNagar (4%), Panvel/Taloja (3%) respectively.

Harsh Vardhan Patodia, President - CREDAI & CMD - Unimark Group, said, "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's lowest at INR 20/sq.ft. Of the 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 functions to 3PL players.

Warehousing Outlook
Among some of the important insights shared when it comes to warehousing in India, the report has cited these points,

• Investors - both foreign and domestic can expect an entry yield of 9-10%
• Going forward, many international developer funds are expected to enter the Indian warehousing space.
• So far, the warehousing development were led by funds while the next round of funding will be led by JV platform deals
• A warehouse sector-specific REIT (Real estate Investment Trusts) and InVIT (Infrastructure Investment Trusts) are expected to be announced in 2024
• Large scope for air cargo, cold-chain structures, and in-city, multi-level structure warehouse development
• ESG is slated to become an integral factor as ESG standards-compliant projects see easier planning process, tenant retention, and investor trust.