Warehousing companies torn between rising demand and flat rentals

Despite strong demand from e-commerce and 3PLs, rising land and construction costs are squeezing margins, pushing developers to seek private equity, Reits, and InvITs

Warehousing players are facing a double whammy with demand from e-commerce and third party logistics players outpacing supply yet rentals remaining flat and land and construction costs continue to climb, leading to pressure on margins. The result, warehousing companies are turning to external capital to maintain profitability and growth. Sector watchers say rentals would eventually have to rise but competition from unorganised players is preventing any sharp corrections.

 

Pan-India average warehousing rent stood at Rs 22 per square foot (psf) in H1 2025, up slightly from Rs 20 psf in H1 2022, according to Vestian. 

 

“There is no doubt that there is pressure on margins. Developers are now having to raise rents. Meanwhile, private equity investment rose 150 per cent in 2024 as institutional money looks for reliable returns. This shows that developers require outside funding to stay profitable despite rising costs,” said Anuj Kejriwal, chief executive officer (CEO) and managing director (MD), retail, warehousing & logistics at Anarock Group.

 

To access more stable capital pools, some developers are exploring Real Estate Investment Trusts (Reits), Infrastructure Investment Trusts (InvITs), or even stock exchange listings. So far, two warehousing InvITs — TVS Infrastructure Trust and NDR InvIT — have been listed on exchanges.

 

According to Knight Frank India, warehousing has consistently attracted long-term institutional capital, with over USD 10 billion invested since 2017.

 

In 2024, private equity investments in the industrial and warehousing segment rose and were almost three times the inflows in 2023. The segment attracted USD 2.5 billion in investments, accounting for 39 per cent of the total inflows in real estate, according to Colliers. Private equity investments in the segment stood at USD 50 million in H1 2025, according to Knight Frank India.

 

“Portfolio consolidation of grade A assets is underway, led by players with more patient capital. Many developers are also taking the Reit/InvIT route to maximise returns, while some are exploring direct listings on exchanges,” said Ram Walase, CEO, Transindia Real Estate.

 

India’s top eight markets leased 32.1 million square feet (msf) of warehousing space, up 42 per cent year-on-year, driven by the manufacturing sector. Pan-India stock exceeded 500 msf, with grade A assets constituting 75 per cent of new supply and vacancy hovering around 12.1 per cent, according to Knight Frank India.

 

Walase noted that demand surged post-pandemic, prompting developers to scale up rapidly. “However, the demand surge proved inconsistent and eventually moderated, leaving excess capacity in some regions. In certain markets, such as NCR, there has been a bit of oversupply. Margin pressures come into play here. The quick commerce boom added to this by intensifying competition further.”

 

Occupiers, meanwhile, have become cautious about rental outflows. Warehousing rents account for only 3–5 per cent of supply chain costs, and companies prioritise location efficiency over headline rent. “Developers know this, so they prefer keeping rents competitive to ensure high park occupancy and long-term stickiness,” Walase said.

 

Competition from grade B and C players offering cheaper spaces, enabled by looser compliance enforcement in many micro-markets, adds to the challenge.

 

“The market remains fragmented and dominated by unorganised players. Developers are scouting emerging micro-markets where land and capital costs are reasonable. Warehousing rentals, unlike some other asset classes, move fairly promptly to catch up with changes in input costs,” said Daljit Singh, marketing director at NDR InvIT Managers. Singh is expecting rental adjustments over the next couple of years to help balance the ecosystem.

 

Kejriwal pointed out that limited land availability in high-demand locations is prompting developers to build up instead of out. A Welspun One spokesperson added that developers are also diversifying into tier-II and tier-III cities, where land is more affordable.

 

Ramnath Subramaniam, joint managing director at TVS ILP, is expecting the recent rationalisation of GST rates and festive season-driven consumption to boost demand. “We are seeing rentals edge upward for strategically located assets that also provide value-added services such as solar panelling, sensor lighting, and more.”