A recent series of mega deals in India’s industrial and logistics space has attracted global investor interest and signals good news for development in the sector.
Asia Pacific-focused logistics developer e-Shang Redwood (ESR) last month announced its strategic partnership with global asset manager Allianz Real Estate to invest around US$1 billion in the country’s logistics and industrial property market. While, earlier in the year, Hindustan Infralog Private Limited (HIPL), a joint venture floated by Dubai-owned port operator DP World and the National Investment and Infrastructure Fund (NIIF) committed US$3 billion in ports, logistics and related sectors.
The Indian Government in 2015 had set up India’s first sovereign fund, NIIF to manage the capital flow from domestic and international investors. NIIF in May 2017 signed an agreement with DP World to form HIPL.
The announcements suggest that the country’s logistics and warehousing segment is at an inflection point, and “there is still room for expansion and growth,” says N Srinivas, Managing Director, Industrial Services at JLL India.
The deals will set in motion the development of large-scale, technologically advanced warehousing/logistics space in urban and semi-urban areas across the country.
Rising levels of disposable income across India, coupled with increasing pressure from e-commerce have made it necessary for warehousing companies to increase the storage space across the country. E-commerce is expected to double its share to 10 to 12 percent of total retail sales in the same period, according to a recent report Consumer Leads by industry body, FICCI.
There is already a high demand for industrial/warehousing space across the country. Space absorption grew from 10.3 million square feet in 2015 to more than 19 million square feet in 2017. It reached more than 17.5 million square feet in the first three quarters of 2018.
“Liquidity infusion by global investors as well as changing occupier demand for better quality space from E-commerce, 3PL, Retail and Engineering sectors has also prompted the market to develop more Grade A warehousing space,” Srinivas adds.
The investable stock (or Grade A and Grade B) of warehousing has grown from a mere 106 million square feet in 2015 to 143 million square feet in 2017. And it is expected to reach 286 million square foot by 2021 according to JLL estimates.
In the medium term, however, the country’s inadequate road network may prove a barrier to growth in the sector with companies incurring losses of goods during transportation as a result of poor road conditions.
In the longer run, increased capital will ensure that more quality space is being built to fulfil the demand for warehouses near emerging urban areas across the country.
“If the infrastructure challenges can be addressed, India’s logistics and warehousing sector will see significant growth, and foreign capital will remain an integral part of this,” says Srinivas.