Warehousing rentals in India face slow growth despite rising land prices

Phoenix Mills, having abandoned its warehousing plans in Haryana, cites a meager 6-7% increase over the past two years, this is despite land prices shooting up 50% in most of the cities in the same period.

As per a reports, tenants are not willing to pay rent in proportion to the increase in land prices. It is not a good business proposition for the developers.

Interestingly, rents have not moved much despite an increase in absorption. Last year, absorption stood at 37.8 million sq ft, 21% higher, compared to the year-ago period. Despite dried-up investments in 2023, absorption surpassed the pre-pandemic level of 2019 by 15%, global consultancy firm Vestian said.

Chandranath Dey, Head of Operations and Business Development for Logistics & Industrial at JLL India, emphasizes the sluggish movement of warehousing rents in the country, with a 5-year CAGR of 3.5% for Grade A properties and 3% for Grade B properties. India’s warehousing rentals remain among the lowest in Asia and Southeast Asia.

Investments in warehousing saw a decline in 2023, totaling $646 million, constituting 15% of total institutional investments in real estate. However, this marked a 65% decrease from the previous year, attributed to investor caution amid global macroeconomic uncertainty.

Shrinivas Rao, CEO of Vestian, notes that the slowdown in rental growth over the past 1-2 years may deter investor interest, citing global macroeconomic uncertainty and geopolitical tensions as potential factors.

Experts suggest that occupiers resist rental increases to control costs, considering warehousing as a cost center. Shobhit Agarwal, MD of Anarock Capital, highlights the tenant-driven nature of the market, where large occupiers aim to minimize rentals, especially in built-to-suit warehousing scenarios.

Despite expectations of rental improvement in the next 12-18 months, driven by a surge in demand for quality supply, Mehul Shah, CEO of LOGOS India, emphasizes that warehousing rents will not rise as sharply as residential or commercial rents.

The outlook for the next 2-4 years remains positive as firms upgrade their warehousing standards.

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