Investors, developers flock to India’s industrial real estate asset class

 Industrial real estate is fast emerging as the go-to asset class for investors and developers, as demand for special economic zones (SEZ) wanes and India’s consumption and e-commerce story gets a boost from the government’s Make in India initiative and the goods and services tax (GST).

In a bid to build industrial, logistics and warehousing parks, industrial clusters and townships, there is a rush to buy land across states, something that hasn’t happened since the SEZ frenzy more than a decade ago. The warehousing and logistics sector, which attracted investments of more than a billion dollars in 2017, is gearing up for the next round which is expected to witness higher interest in building businesses around steady rental income.

At the top of the list is Canada’s Brookfield Asset Management Inc., which has invested in residential and commercial office real estate and is now evaluating opportunities in the industrial space.

“Brookfield is looking to invest in logistics parks. It may invest in a company or buy the facility or park itself,” said a person familiar with the company’s plans, who did not wish to be named.

A Brookfield spokesperson declined to comment.

Scouting for land is on in western India, including Mumbai and Pune, as well as in the national capital region (NCR), Gujarat, Chennai and Bengaluru. Sydney’s LOGOS Group and Assetz Property Group from Singapore, which partnered in 2017 to invest $400 million to build logistics and industrial parks in India, is shopping for land.

Ben Salmon, co-founder and chief executive officer of Assetz Property Group, said they are planning to close at least three or four transactions in Maharashtra, Karnataka and Tamil Nadu.

“We have a customer-focused, long-term, annuity model approach where we will build logistics parks which get less rent but are focused on servicing companies, and may also do industrial parks for non-polluting, light manufacturing which attract higher rent and are more specialised,” Salmon said.

Niranjan Hiranandani-promoted Hiranandani Communities is planning to launch a 250-acre industrial park in Talegaon, Pune after it recently got approval for an integrated industrial area. The firm has another 300 acres near Chennai and 77 acres in Nashik.

“It’s a big opportunity for us and we are in it for the long run. India wasn’t ready for this even five years back but with the government’s push to promote manufacturing and GST this is the right time,” said Hiranandani.

Maharashtra’s industrial policy is in fact based on the premise of providing an exit route to developers stuck with SEZs owing to difficulties in land acquisition, changes in tax laws by the central government. Last week, in a major policy bailout for long-stuck Navi Mumbai Special Economic Zone Pvt. Ltd, the Maharashtra government allowed the promoters to convert the 1,842-hectare SEZ into an “integrated industrial township”.

“There was a lot of exuberance around SEZs but not many gained from them due to less demand, more supply leading to the inevitable fall. A lot many things are in order today, making industrial real estate more practical and doable,” said Sanjay Dutt, CEO, operations and private funds, Ascendas-Singbridge India.

Ascendas-Singbridge Group manages 30 million sq. ft of industrial space across Asia-Pacific, and plans to build 15-16 million sq. ft of warehousing and logistics space in India in the next five to six years with Firstspace Realty, jointly investing $600 million. Embassy Industrial Parks Pvt. Ltd, a collaboration between realty firm Embassy Group and an affiliate of Warburg Pincus, is looking to buy land in Mumbai, Bengaluru and Delhi, the sweet spot being 25-30 acres in each city. By March-April, it would have 10 million sq. ft of developable land.

“Buying land is not easy but we are building our business the way Embassy built its office park portfolio. It helps that we are allowed to draw long-term, cheaper debt after the logistics space was granted infrastructure status,” said Anshul Singhal, CEO, Embassy Industrial Parks.

Lodha Group is also planning to develop a 150-acre logistics and value-added industries park in the Mumbai Metropolitan Region (MMR), as part of its aim to have $1 billion of assets under management by 2021. The location is 45 minutes from Jawaharlal Nehru Port Trust (JNPT) and half an hour from the upcoming airport in Navi Mumbai.

“We are in the process of finalizing our business plan and partner and expect to start work on the site in the next few months,” said Abhishek Lodha, managing director, Lodha Group.

Mahindra Lifespace Developers Ltd will develop two industrial clusters – 264 acres in north Chennai (with Japanese conglomerate Sumitomo Corporation) and 268 acres near Ahmedabad, apart from earmarking 500 acres in Mahindra World City, Jaipur for industrial development and aggregating land outside Pune.

“The larger question is how will manufacturing demand play out in India?” said Anita Arjundas, managing director and CEO, Mahindra Lifespace Developers.

This article was first published on Livemint.com