Consolidation will gain ground in the 350-million-sq-ft warehousing segment in the country like the way it happened in office and residential properties, said some of the biggest global investors in such assets.
While the likes of Blackstone, Canadian funds CPPIB and Ivanhoe Cambridge (real estate arm of Canadian fund CDPQ) have been investors in Indian warehousing space for the last several years, developers such as US-based Prologis and Lodha entered the space in the recent years.
“Smaller logistics players will be motivated to move out of the market due to increased competition as the market evolves,” said Chanakya Chakravarti, head of Indirect Strategies-Asia Pacific at Ivanhoé Cambridge.
Ivanhoe is developing close to 11 million sq ft under a JV with Logos in the country. With Lodha, it plans to develop a scaled portfolio of 15-20 million sq ft in a mix of big box distribution centres and last-mile facilities in key consumption centres.
Chakravarti said the consolidation will lead to formalisation of the sector with institutional warehousing developers such as ESR/Logos, Horizon, Indospace, First Space, and recent entrants like Lodha Digital Infra and Prologis, among others, leading the market expansion. They will see increased participation from leading domestic diversified industrial conglomerates as well as domestic and foreign institutional investors.
He said these groups and investors have an ability to work the assets over a longer lifecycle much like in other hard asset infrastructure investments.
Aneesh Mohta, senior managing director at Blackstone, agrees with Chakravarti. “Consolidation is given in warehousing. Tenants also like institutional investors. As more and more Grade A assets are being built, bigger investors will come in,” Mohta said on the sidelines of an event organised by Naredco, a body of real estate developers late last week.
Blackstone set up a joint venture with the Hiranandani group for warehousing properties in 2019 and bought Embassy Industrial Parks from Warburg Pincus and the Embassy group in 2021. It also set up its own company Horizon Industrial Parks, which is developing over 5 million sq ft of properties in the country.
Blackstone plans to take its warehousing portfolio from 40 million sq ft to 100 million sq ft in next five years, reports said in June.
The overall industrial and warehousing space stock in tier I cities stood at 300 million sq ft at the end of 2022 and is expected to reach 342 million sq ft in 2023.
Abhijit Malkani, CEO, ESR India, said the the consolidation is a natural response to the unique dynamics of India’s industrial/warehousing real estate sector. “It’s a sector characterised by relatively low-to-mid margins but is driven by volume. To make this business viable, companies need significant scale and presence across various cities and states,” Malkani said.
Malkani said challenges such as intense competition, product differentiation, capital constraints for some developers, tenant preferences for pan-India developers have driven the consolidation.
“We can anticipate a scenario where only a select 4-5 larger pan-India players will be dominant. There will always be room for smaller, city-specific or precinct-specific developers who cater to unique local demands,” he said.
From a tenant’s perspective, consolidation enables greater investment in advanced technologies like automation, IoT and data analytics, enhancing the efficiency and competitiveness of warehousing operations, he said.
ESR India, a warehousing and industrial property developer is part of the ESR Group and has assets under management (AUM) of about $1.6 billion and 2.4 million sq metres of GFA (gross floor area) as of June 2023.
Shobhit Agarwal, managing director & CEO of Anarock Capital, said that given the fact that the entry barriers for operators and investors are still extremely low in Indian markets, he thinks there will remain ample opportunities for all big and mid-size players.
“PE funds and mid-size local operators continue to gain traction and drive demand in key micro markets. Infact the scarcity of ready inventories in key markets is still a challenge,” Agarwal said, adding that growing demand and quick absorption in most micro markets like Delhi, Chennai, Bengaluru and Pune will continue to attract players in big and mid-size Grade A space.
However, he said there aren’t many players exiting high-demand markets. “They will continue to thrive as long as the demand is high. There have been some PE funds that have taken the exit route. However, these are strategic exits from operating assets and the capital will return to the market to make larger and more diverse investments in the logistics and warehousing space,” he said.
“Even a small, non-institutional player is hesitating to exit in key markets. With a great tenant mix and y-o-y increase in the rental yields upwards of 7%, these players have no reason to exit,” he said.