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PE funds inject $1.1 billion into logistics and warehousing in two years

July 2019
Photo: For representational purpose
 
  • Q1 2019 saw nearly US$ 200 million invested into logistics and warehousing in cities like Bengaluru, Chennai and Pune
  • Over US$ 1.1 billion invested in logistics and warehousing sectors from Q12017 – Q12019; zero investments in 2015 and 2016
  • Southern cities of Bengaluru, Chennai and Hyderabad see maximum inflows, followed by Mumbai and Pune
 
Private equity (PE) funds altogether pumped nearly US$ 9.7 billion into Indian real estate between Q1 2017 and Q1 2019 – but into more sectors than the 'usual suspects' of commercial and residential projects. Logistics and warehousing is a bright new spot on the Indian real estate heatmap.
 
Infrastructure status, the multi-modal logistics park policy and implementation of GST has caused private equity firms to take greater interest in logistics and warehousing sector. Private equity funds altogether pumped in excess of US$ 1.1 billion in logistics and warehousing sectors between Q1 2017 to Q1 2019 as against zero investments during 2015 and 2016 combined.
 
Interestingly, the Southern cities of Bengaluru, Chennai and Hyderabad saw maximum interest by investors, followed by Mumbai and Pune. The logistics sector had a massive jump-start in the first quarter of 2019 when private equity players pumped in nearly US$ 200 million into cities like Bengaluru, Chennai and Pune.
 
There is an immense opportunity, backed by the growing demand from e-commerce businesses in the last two years, and the logistics and warehousing sector is consequently upgrading to higher levels of organisation. This shift is visible in various small Grade B and C warehouses converting into large Grade-A warehouses equipped with modern facilities – a transformation which has attracted PE entities from US, Canada and Singapore to pump in funds into the sector.
 
  • Private equity players have pumped over US$ 1.1 billion in the warehousing and logistics sector in the last two years
  • The otherwise usual favourite of PE funds – residential real estate – saw equal inflows of US$ 1.1 billion during the same period
  • Commercial real estate saw nearly US$ 5.7 billion of PE funding in this two-year period.
 
Interest by PE players in logistics and warehousing is currently driven by favourable government policies, strong economic fundamentals and growth in organised retail and e-commerce. The rapid ramping up of e-commerce activity has caused a corresponding rise in demand logistics and warehousing, in both Tier I and II markets. Increasing use of technology will further boost this sector in India as it has globally.
 
In fact, technology is the fulcrum that will leverage the Indian logistics growth story in the coming years. However, as of today, India is still underleveraged due to the fragmented logistics market. Efforts are on to adopt digital technologies, but only a large-scale digital intervention can unlock this sector's full potential.
 
All industry stakeholders, from infrastructure and logistics service providers to e-commerce companies and technology firms, must collaborate to transform the logistics sector that supports e-commerce.
 
Major deals
 
Among the major deals, IndoSpace – India’s leading developer of industrial real estate and warehousing facilities – saw maximum inflow in 2017 to the tune of US$ 500 million from Canada-based CPPIB for projects across cities like Bengaluru, Chennai, Pune, Mumbai and Delhi. This clearly reflects the increasing confidence of private equity investors within the segment.
 
Top deals in 2018
 
  • Warburg Pincus invested nearly US$ 180 million in Embassy Group for a project in Bengaluru.
  • Proprium Capital Partners invested nearly US$ 100 million into Musaddilal Projects in Hyderabad.
 
Top deals in 2019
 
  • LOGOS India invested nearly US$ 100 million into Casagrand Distripark in Chennai.
  • Morgan Stanley Real Estate invested nearly US$ 50 million in KSH Infra in Pune.
  • Embassy Industrial Parks invested nearly US$ 50 million in DRA Projects in Bengaluru.
 
About the Author:
Shobhit Agarwal is Managing Director and CEO at Anarock Capital.