Private equity-backed warehousing companies on a leasing spree

India saw leasing transactions to the tune of 35 million sqft in FY22

Private equity-backed warehousing companies captured a substantial part of the overall growth in the warehousing sector during the pandemic, with the likes of ESR, Blackstone’s warehousing ventures, IndoSpace, amongst others, pulling off major leasing transactions at this time.

FY 2020-21 witnessed warehousing leasing transactions to the tune of 32 million square feet, which further increased to about 35 million sq. ft in FY22. The next two years are expected to witness even better absorption, with the total leasing projected to be upwards of 80 million sq. ft across Grade A and Grade B asset classes, according to Avendus Capital, a financial services firm.

“PE-backed warehousing platforms are expected to do better than pure-play, promoter-led platforms due to the network effect across multiple geographies and assets, better compliance with international requirements, access to cheaper sources of debt, enabling them to offer lower rentals,” said Prateek Jhawar, executive director and head-infrastructure, real assets, investment banking, at Avendus Capital.

Leading the pack is ESR, promoted by PE major Warburg Pincus, which leased about 5 million sq. ft of warehousing space to various clients in the last two years. 

“Even before the pandemic, we expanded our GFA (gross floor area) quite aggressively. During the pandemic, e-commerce drove exponential demand in the market, and we were able to service them because we had our sites rea­dy. We helped leading e-commerce companies scale their operations across the country. In the past one year, we have seen a surge in industrial dem­and, mainly in Pune, Chennai and Mumbai, and this is driving our next phase of growth,” said Prakrut Mehta, director, leasing, at ESR.

ESR developed about 7 million sq. ft in the last two years. Buoyed by the demand, it plans to make an investment of $400 million to develop another 10 million sq. ft in the next three years. ESR has a GFA of 19 million sq. ft.

The entities owned by Blackstone have leased about 4 million sqft of warehousing space, a spokesperson for the US-based fund manager said. 

Its industrial parks portfolio, under the Horizon Indust­rial Parks and GreenBase, a joint venture (JV) with the Hiranandani Group, has a development potential of over 35 million sq. ft, and a comple­ted portfolio of 8 million sqft. 

Blackstone and its JVs aim to double the completed portfolio over the next 12–18 months, the spokesperson said.

Welspun One Logistics Parks, a fund and developer of warehousing properties, also did big leasing deals and leased out 400,000 sq. ft and 900,000 sq. ft respectively to logistics solutions providers Ecom Express and FM Logistics. 

 Jhawar of Avendus Capital said that Covid-19 has been a booster shot for the warehousing space on account of a major shift from physical shopping to e-commerce. “All the major firms, including Blackstone, IndoSpace, ESR, amongst others, have hugely benefited from this. Another trend that was witnessed during the last two years, was an increased focus on warehousing assets in Tier-I and Tier-II cities,” he said.  

Jhawar expects an annual addition of about 40 million sq. ft of Grade A and Grade B asset classes for the next five years. “The current vacancy levels across the industry are in single digits, and most of the larger developers are able to pre-lease their assets, which suggests that there is no dearth in demand,” he said.

Industrial real estate developer IndoSpace, a JV between PE firm Everstone, US-based Realterm Group, and logistics service provider GLP, has developed about 5 million sqft of warehousing space and aims to develop over 20 million sqft in the next three years with an investment of $500 million-$700 million. 

Devi Shankar, president—industrial logistics and data centres, at Anarock Capital, said India’s e-commerce demand is expected to grow from $46 billion in 2020 to $111 billion in 2025. “The growing demand needs a supporting supply chain infrastructure. Warehousing will be a critical infrastructure support to this growing industry. In addition, we are also seeing a growth in in-city warehousing, boosted by the pivot to a quick commerce business model,” Shankar said.

The total warehousing stock in India at the end of FY21 stood at 329 million sq. ft, with Mumbai and NCR accounting for over 50 per cent of it. However, since they are traditional warehousing markets, they hold the majority of Grade B warehousing (approximately 70 per cent).