Investors and developers flock to ‘Indian warehouse deals’

Warehousing and logistics emerged as the most preferred real-estate asset class for institutional investors, pipping the all-time favourite commercial office segment for the first time during April-June 2021. The segment attracted an all-time high of US$743 million (more than Rs 5,500 crore) in investments, accounting for more than half of the US$1.36 billion (over Rs 10,100 crore) attracted during the second quarter.

The flurry of investments in warehousing helped attract such a massive financial pouring to India’s commercial real-estate market during Q2 2021, making it the most active second quarter in the last five years. Of the total, warehousing accounted for 55%, followed by 20% in retail, 17% in office and 8% in residential, real-estate and investment management services firm JLL India said.

The consultancy attributed the rise in warehousing to the increasing shift towards online shopping from discretionary to essentials. “Major global funds have invested with warehousing developers and operators as scale and regional footprint are key differentiators in the sector,” it said.

Data suggests, between 2005–2016, warehousing and logistics attracted around US$100 million. There were a few other deals, which have not been reported publicly due to joint ventures or deals by investment platforms. However, after the introduction of the Goods and Service Tax (GST) in 2017, the segment grew exponentially. Between 2017 to H1 2021, it attracted a record US$2.14 billion, or roughly Rs 16,000 crore.

Investments in April-June 2021 are the highest received by the segment in any quarter of a calendar year since 2005, which is mainly attributable to the US$700 million Blackstone deal. In May, Blackstone announced acquisition of Embassy Industrial Parks, a JV of Warburg Pincus and Embassy that controls 22 million sq ft of Grade A warehousing in major industrial hubs including Bangalore and Delhi.

Besides, 2021 marked the rise of defensive sectors in real-estate like warehousing and logistics and data centres.

Property consultant Knight Frank said that annual warehousing deals for the top 8 Indian cities will log a compounded annual growth rate of 19% to 76.2 million sq ft by FY26.

As per projections, for the next five years, between FY22 and FY26, e-commerce segment was expected to take up significant space estimated to be 98 million sq ft approximately, registering an increase of 165% from the preceding period of FY 2017–2021 while third-party logistics and other sectors were expected to consume 56% and 43% more space respectively over the same period, underlined the latest India Warehousing Market Report 2021 by Knight Frank.

However, in FY 2021, the warehousing transactions in these cities (NCR, Mumbai, Bengaluru, Chennai, Kolkata, Ahmedabad, Pune and Hyderabad) registered a 23% year–on–year decline to 31.7 million sq ft on account of the pandemic-caused lockdowns, adverse impact on economic activities and occupier decisions.

The industry has been gaining steady traction for years, but the sector has emerged as the biggest beneficiary during recent COVID-19 pandemic. The supply chain is being redesigned to manage orders faster and for which the warehousing sector plays an important role.

At the moment, financial institutes are lining up investment for developers to set up warehouses.

  • For instance, World Bank Group member IFC has extended debt support of US$75 million to IndoSpace’s logistics fund to develop logistics and industrial parks with an objective to enhance warehousing and supply chain infrastructure in India. The development financial institution is extending the loan to IndoSpace Logistics Parks-III, a US$ 580 million vintage fund, and the first tranche of this amount has already been disbursed to IndoSpace. IFC’s investment is expected to help IndoSpace expand and lease warehouse spaces to e-commerce players and online retailers in the country to meet their growing demand for storage sheds. The first investment from this loan will help the company build a warehouse in Luhari-III, a site with connectivity to Gurugram (Haryana), Delhi, and other key areas in North India.
  • One of Asia’s largest diversified real-estate groups, CapitaLand launched ‘CapitaLand India Logistics Fund II’, its second logistics private fund of US$400 million (Rs 22.5 billion) to expand in India’s warehousing sector. CapitaLand India Logistics Fund II will invest in the development of logistics assets in key warehousing and manufacturing hubs in six major cities namely National Capital Region (NCR), Mumbai, Ahmedabad, Bangalore, Chennai, Pune as well as in emerging markets such as Coimbatore, Guwahati, Jaipur, Kolkata and Lucknow. The new fund follows the deployment of its first logistics fund, the US$400 million Ascendas India Logistics Programme, which was launched in 2018 to develop six projects in Bengaluru, Chennai, NCR and Pune. In total, CapitaLand targets to develop a logistics portfolio of 20 to 25 million sq ft of space in India by 2025. Ascendas-Firstspace manages the assets of Ascendas India Logistics Programme and CapitaLand India Logistics Fund II.
  • By consolidating the warehousing market, key developers like IndoSpace are venturing into prominent clusters with land acquisitions for Greenfield projects. Recently, IndoSpace launched a new industrial and logistics park in Narasapura, near Bengaluru, Karnataka, to cater to the warehousing requirements of companies across sectors, such as automotive, engineering, electric vehicles, e-commerce, and FMCG. Offering Grade A infrastructure, it is the only world-class warehousing and industrial facility of this scale in Bengaluru, spread over 64 acre. Moreover, the company has announced plans to add four million sq ft of warehousing space by the end of 2021.
  • APAC focussed industrial and logistics real-estate platform, ESR India will add 44 acre to its existing park in Oragadam in Chennai, Tamil Nadu by investing an additional Rs 260 crore for construction and development. This expansion will consolidate ESR Oragadam to become an 80 acre park. Additionally, ESR India has signed an agreement with the Tamil Nadu government to develop two industrial parks with an estimated investment of Rs 550 crore. ESR India will also invest about Rs 300 crore to develop an industrial and logistics park in Jalisana, an emerging industrial hub of North Gujarat as part of its expansion plan.
  • US private equity giant Warburg Pincus-backed Stellar Value Chain Solutions–a leading consumer supply chain services firm, has launched one million sq ft of warehousing facilities in Hosur, Tamil Nadu and Banur, Punjab. Each warehouse, spread over 500,000 sq ft, will offer fulfilment and distribution solutions to companies in sectors such as e-commerce, automotive and consumer durables. The company has identified 21 cities as core production and consumption centres.
  • Gurugram-based transportation and logistics specialist, Varuna Group is looking to set up 30 Grade A+ warehousing facilities across the country over the next five years. The company is looking at the hybrid model wherein both the developer and the company will invest. Varuna Group will invest around Rs 15 crore in each facility while the rest around Rs 35 crore per facility will come from the developers. As each facility is expected to come up at a cost of around Rs 50 crore, this will entail a total investment of around Rs 1,500 crore. In all, the company will invest around Rs 500 crore in setting up these 30 warehousing units.
  • Avigna Industrial & Logistics Park, part of Chennai-based Avigna Group plans to infuse around Rs 600 crore to set up a four million sq ft Grade A warehousing facility in the Hoskote Industrial Park near Bengaluru, Karnataka. The project is part of the company’s Rs 2,000 crore plan for creating 10 million sq ft warehouse space over the next three years. The developer recently leased out its first one million sq ft industrial warehouse at Hosur Park, in Tamil Nadu.
  • Embassy Industrial Parks, the entity acquired by the Blackstone Group, will develop one million sq ft warehousing space on a land parcel 60 km away from Delhi Airport. Blackstone Group has already entered into agreement to acquire land parcels spread over 36 acre for a total consideration of Rs 295 crore from developer TARC. The proposed development by Embassy Industrial Parks is expected to be completed over the next 18-24 months.
  • Global e-commerce giant, Amazon in India launched its largest fulfilment centre in the country, with a storage capacity of more than 2.4 million cu ft in Bengaluru, Karnataka. Following the festive season, this significant expansion in infrastructure will give over 42,000 sellers in Karnataka greater access to a larger customer base across the country.
  • Amazon India also announced expansion of its fulfilment network in Haryana with the launch of a new specialised fulfilment centre. With storage capacity of close to two million cu ft, the new fulfilment centre will house a wide selection of products. The move is a part of the company’s plans to expand its pan-India fulfilment network to provide a total storage capacity of 43 million cu ft across the country.
  • Asia Pacific’s leading logistics property group, LOGOS recently completed and delivered a purpose-built 1 million sq ft warehouse facility to Amazon at its Devanahalli Industrial and Logistics Park in Bengaluru. LOGOS has over 5 million sq ft of logistic assets operational and under construction space in the National Capital Region (NCR), Bengaluru and Chennai. Its development pipeline covers 12 million sq ft across NCR, Bangalore, Chennai, Pune, Kolkata and Mumbai.

Domestic e-commerce major Flipkart has added 66 new large-scale fulfillment and sortation centres across the country over the past four to five months and created 1.15 lakh additional seasonal jobs to strengthen its supply chain network following the onset of the festive season. The new large-scale fulfillment and sortation centres have been added in the states of Assam, Chhattisgarh, Gujarat, Haryana, Karnataka, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, and West Bengal, and the company now has more than 100 facilities across the country.

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