Global investors are looking to build large portfolios in India’s warehousing and logistics sector on strong demand from e-commerce and third-party logistics firms, easing of regulations and scalability of the business.
The sector is becoming the next preferred rental class for investors, after commercial office and shopping malls, with more funds expected to enter the space this year.
Blackstone Group Lp, the largest owner of office space in the country, recently partnered a Hiranandani Group firm to invest ₹2,500 crore for industrial and warehousing assets, said a person familiar with the development.
Blackstone is also in talks with Allcargo Logistics for a venture to set up warehouses, Bloomberg first reported in September.
“Once the Allcargo deal is done, Blackstone will have a significant logistics portfolio and its warehousing vision is big for India,” the person said on condition of anonymity.
A Blackstone spokesperson didn’t respond to queries.
“Most investors have announced plans or are eyeing the warehousing sector as a long-term investment bet because of high demand, less risk and good leasing momentum,” said Chandranath Dey, senior vice president and head-industrial consulting at JLL India. “We expect more investors to enter the space in 2020 and developers, who have good land, to tie up with fund managers to build warehousing projects.”
Between January and October, around 24.1 million sq. ft of space was leased in warehousing, according to JLL India estimates. Overall absorption in 2019 is expected to have touched 35-36 million sq. ft.
Xander Group, which has a large office and shopping mall portfolio, is now sharpening its focus on warehousing and has set up a $250 million industrial real estate venture to buy assets in logistics and e-commerce sectors.
“Given the changes in policy, the increase in opportunities in this space and our success in investing through our funds, we believe this was the right time to adopt an evergreen platform approach enabling building an operating warehousing portfolio of scale without the limitations of fund life,” said Sid Yog, founder of Xander Group.
Similarly, Singapore’s Mapletree Investment Pte Ltd, in its second innings in India, is gearing up to invest in the logistics space, apart from core office assets, to create a long-term investment and development portfolio across key cities.
To be sure, the logistics opportunity is still in its early stages and investors are finding it tough to buy good quality, ready assets and are compelled to look at greenfield opportunities, which take longer to build.
Aloke Bhuniya, chief executive officer of Ascendas-Firstspace, a joint venture between Singapore’s Capitaland Group and Firstspace Realty, said irrespective of the slowdown in sectors such as auto and consumer goods, investors are taking a long-term view of the warehousing story as a yield play.
“As warehousing spaces get modernized, there is huge replacement demand to move from unorganized, poor facilities to modern spaces,” Bhuniya said. “E-commerce, modern retail and 3PL firms are also driving the demand.” The JV firm plans to add 2-3 new assets this year.
With many states now equipped with a logistics policy, the approval process has also become faster.
“GST as a tax regime has got streamlined and customers are clearer about their requirements,” said Anshul Singhal, managing director of Welspun One. “Larger warehouses are being built. Compared to 150,000 sq. ft earlier, now no one talks under 300,000-500,000 sq. ft. Developers and investors can gauge the scale and, like China, they know that it’s a scalable business in India too.”
Recently, the promoters of Welspun Group acquired a majority stake in One Industrial Spaces, an integrated real estate fund focused on the warehousing sector, for an undisclosed amount, marking the former’s entry into the industrial warehousing market. The new entity is called Welspun One Logistics Parks.
Abhijit Malkani, country head at ESR India, said 2020 is an important year for the firm, which plans to add 10-15 million sq. ft of space. Warburg Pincus-backed ESR partnered with GMR Hyderabad Aerotropolis Ltd in January to jointly develop a 66-acre logistics park in Hyderabad for ₹550 crore.
“So far, the focus has been on land acquisition and investments, but as big funds enter the market and competition grows, it is execution of these projects that will be critical,” said Malkani.