Strong private equity interest in warehousing asset continues despite compressed yields

N Shridhar, CEO of Greenbase-Industrial and Logistics Park (a Niranjan Hiranandani Group and Blackstone JV) said, “Yields continue to be low. The geopolitical concerns, volatile commodity prices, rise in construction costs, and other factors continue to impact the yields.”

Many of the PE Funds are factoring all these concerns that are likely to impact growth in rentals. He added this is despite warehousing being low-hanging fruit. Shridhar added most PE expect the warehousing activity to grow for the next three-five years as demand and supply had taken a hit due to COVID.

According to a report by Colliers India, in 2021, industrial and logistics assets emerged as the top choice for foreign institutional investors–garnering almost a third of foreign investments (USD 1.1 billion).

Over the past few years, the overall demand for warehousing and industrial space has grown. “The overall demand has grown from an annual demand of 16 million–40 million sq ft over the past four-five years. This demand is spread across the top eight cities of India–NCR, Mumbai, Bengaluru, Pune, Chennai, Kolkata, Hyderabad & Ahmedabad,” added Chandranath Dey.

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Meanwhile, over 70 percent of the modern warehousing capacity in India has concentrated in these top eight cities, as per Anarock study.

N Shridhar stated that there has been a rise in the warehousing capacity in the outskirts of the city and smaller cities due to costlier in-city warehousing options and also rising demand in their areas. According to JLL India’s 2021 report, tier II and III cities gaining strength in warehousing is eminent — from the changing pattern of typical warehouse sizes with some large transaction sizes of 0.3-0.4 million sq. ft

Thanks to the Zomatos, Zeptos, BigBaskets, Olas and their likes, in-city warehousing will be revitalised. JLL estimates the demand for dark stores to be 7 million sq ft in the next two-three years. Demand is spread across B2C (Sort Centres, Dark Stores) and B2C (Micro-fulfilment Centre & Hybrid Retail Stores).

Dey stated, “COVID-19 has catalysed the e-commerce market, compressing delivery timelines to as low as 30 minutes, ensuring zero compromises in product quality. However, to meet this increasing e-commerce logistics in cities, there is an increased demand for dark stores and micro-fulfilment centres and the need to reduce high last-mile transportation costs.”

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For these dark stores to become a success, data and algorithms will be critical, stressed N Shridhar. He was of the opinion that automation across (new or existing) warehouses, in order to meet the customised needs of the customers will be key. He explained these digitised warehouses will enable a smooth collection of data which will be important for the success of these dark stores (as these stores will have limited SKUs and SKUs will be stored based on demand in the region).

According to JLL India, e-commerce demand in 2021 was around 10 million sq ft in the top eight cities in India. Meanwhile, India witnessed 18 million sq ft-built leasing in the last two years for manufacturing in the top eight cities, stated Dey.

He added, “Manufacturing is finding sweet spots in a leased building with slight modifications to the warehouse specification. Dey stated that investment has been chasing sectors like EV & Renewables, Electronics, Auto. Since the pandemic, MoUs worth USD 17 billion in FDI and USD 60 billion for domestic investment, have given a boost to the manufacturing sector.

“Investments are driven in 13+ value-added sectors driven by Production Linked Incentives (PLI) and Design Linked Incentives (DLI),” stated Dey.

Recently, Greenbase Industrial & Logistics Park announced a lease deal of 2 lakh sq. ft of industrial space for Jost India, a global manufacturer of components for commercial vehicles and agricultural equipment.

Commenting on the manufacturing sector, N Shridhar said, “All the schemes introduced by the government have given a boost to the manufacturing sector which has given an impetus to leasing activity in this sector.”

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