Warehousing emerges as second-highest equity investment in Indian real estate: Knight Frank

The warehouse segment in India has outperformed residential, and retail segment to capture the second highest share of equity investment among real estate assets after commercial offices, reveals a report by Knight Frank.

As per the latest report, this strong growth in demand for warehouses and logistics sector across the nation is driving interest in these assets among institutional investors, including real estate funds, alternative investment funds (AIFs), sovereign wealth funds and pension funds.

The data reveals that Office real estate witnessed the highest equity investments of around $2.5 billion, followed by warehousing at $1.9 billion, residential with $654 million and retail at $303 million in 2022. In the first quarter of 2023, investments of $216 million have already been received in the warehousing sector, highest among all other sectors.

“The growth of the warehousing market can be attributed to the manufacturing sector, which serves as a central focus area for the government. Given India’s aspirations to become a prominent global manufacturing hub, the warehouse sector has gained immense importance as a vital component of the country’s business infrastructure,” said Shishir Baijal, CMD, Knight Frank India.

After the Pandemic, warehousing activity has been witnessing a spectacular growth. And, it is likely to maintain this performance going forward.

The US-based global investor, Blackstone Group, is betting big on warehousing and logistics development in India due to rising consumption due to demographics, e-commerce penetration and the government’s push for regulatory initiatives.

“India’s demographics and consumption pattern along with promising economic growth prospects certainly indicate a huge opportunity for logistics, warehousing, and industrial space. The government’s holistic approach to transform the logistics sector will ensure solid growth potential,” Asheesh Mohta, senior MD and head of real estate acquisitions in India for Blackstone, told ET.

Looking to expand its warehouse portfolio in the nation 2.5 times to 100 million sq ft from the current 40 million sq ft in the next 3-5 years, the group is already taking steps in the right direction.

In line with its vision, it has already formed a GreenBase Industrial & Logistics Park alliance with real estate major Hiranandani Group and jointly invested over Rs 3,000 crore in developing industrial and logistics parks in key cities in India.

Last year, the warehouse sector saw significant growth as private equity investment increased by 45% year-on-year. Additionally, average deal size saw a significant year-over-year increase of 128% to $272 million. Notably, most of these investments came from well-established markets such as the US, UAE and Singapore, Baijal pointed out.

The logistics and industrial segments investment also saw a strong growth over the past year due to strong demand for this asset class supported by increased automation and increased demand led by third-party logistics.

Also, catching the eyes of investors is the shorter turnaround time from land to construction of warehouses, which is estimated at 12-18 months compared to office and retail assets. In this sector, investors choose to create assets that eventually merit a REIT or secondary sale.

Up to 74% of investments in warehouses since 2011 were directed to greenfield projects or new development projects, the remaining 17% to finished assets. Only 9% of the inflow was used to purchase completed projects. Investments in this segment are expected to increase as global players look to tap into India’s expanding logistics market.

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