Watership Down is a real place in Hampshire that just happens to sound as if there is some connection to water.
(image by Loganberry of Wikipedia; public domain)
It's not a fictitious name invented for the book; it's an area near where Richard Adams lived as a child:
The title refers to the rabbits' destination, Watership Down, a hill in the north of Hampshire, England, near the area where Adams grew up. The story began as tales that Richard Adams told his young daughters Juliet and Rosamond during long car journeys. As he explained in 2007, he "began telling the story of the rabbits ... improvised off the top of my head, as we were driving along." The daughters insisted he write it down—"they were very, very persistent". After some delay he began writing in the evenings and completed it 18 months later. The book is dedicated to the two girls.
As you suggest, Downland is a primarily English term for hills, derived from the Celtic. Therefore, the name does make quite a lot of sense - after all, rabbits do love hills!