Increased Demand Fuels Industrial and Logistics Real Estate Growth
Driven by rising demand from various sectors, the industrial and logistics real estate segment saw a significant boost in the third quarter of the year. The trend is expected to continue with more Grade A assets being preferred by occupiers.
Industrial Real EstateLogisticsReal Estate AbsorptionWarehousingPrivate EquityReal Estate NewsOct 23, 2024
The industrial and logistics real estate sector has witnessed a remarkable surge in demand, thanks to the continued growth across multiple industries. A recent study by Savills India, a leading property advisory firm, revealed that the absorption of industrial and logistics assets increased by over 50% in the third quarter of the year, rising to 17.5 million square feet in the July-September period, compared to 11.4 million square feet in the same period last year.
The highest demand for industrial and logistics real estate has been observed in tier I cities. These urban centers are experiencing rapid growth in quick commerce, alongside the already established e-commerce operations. According to the report, tier I cities accounted for 14.0 million square feet (80%) of the total absorption, while tier II and III cities contributed 3.5 million square feet (20%).
Sectorally, the demand has been led by third-party logistics (3PL) and manufacturing sectors, followed closely by fast-moving consumer goods (FMCG) and fast-moving consumer durables (FMCD), which together contributed about 17% to the overall demand. The study also noted a growing preference for better quality warehousing assets, with about 54% of the net absorption during the period involving Grade A assets.
The quarter also saw a significant increase in the fresh supply of industrial and warehousing assets, with about 19.3 million square feet of new assets added. This represents a 9% year-on-year growth. Tier I cities accounted for the majority of this supply, with 16.4 million square feet (85%), while tier II and III cities contributed 2.9 million square feet (15%).
The growth in absorption and supply is closely aligned with the rise in private equity (PE) capital flows into the real estate segment during the first half of the fiscal year. According to a report by Anarock Capital, a leading property consulting firm, the share of PE flows into industrial and logistics assets increased to 67% in the April-September period, up from 16% in the same period last year.
Shobhit Agarwal, the head of Anarock Capital, noted, 'This trend is being driven by a shift from Grade B properties to Grade A options due to a growing emphasis on quality, large formats, and ESG considerations. The interest in warehouses remains high, with a steady supply of investment-grade properties and healthy demand from institutional and HNI investors.'
Among the largest warehousing deals announced this year, global PE giant KKR & Co. and Abu Dhabi sovereign wealth fund Abu Dhabi Investment Authority (ADIA) infused a cumulative $1.5 billion into Reliance Retail Ventures Ltd’s warehousing assets. This hybrid transaction comprised 55% senior debt, 41% subordinated quasi-equity, and the remainder in equity infusion.
However, overall PE capital inflow into India's real estate sector declined marginally in the six-month period, mainly due to a slowdown in office segment investments by foreign investors. The Anarock report attributed this to global factors such as geopolitical tensions and elevated interest rates. Despite the decline, the aggregate numbers and the dominance of foreign investors in Indian real estate remained largely stable, thanks to the ADIA/KKR investment in Reliance Retail’s warehousing assets.
Frequently Asked Questions
What is the current trend in industrial and logistics real estate absorption?
The absorption of industrial and logistics real estate has increased by over 50% in the third quarter of the year, rising to 17.5 million square feet compared to 11.4 million square feet in the same period last year.
Which cities are leading in the absorption of industrial and logistics assets?
Tier I cities are leading the charge, accounting for 14.0 million square feet (80%) of the total absorption, while Tier II and III cities contributed 3.5 million square feet (20%).
Which sectors are driving the demand for industrial and logistics real estate?
The demand is primarily driven by third-party logistics (3PL) and manufacturing sectors, followed by fast-moving consumer goods (FMCG) and fast-moving consumer durables (FMCD).
What is the trend in the quality of warehousing assets being absorbed?
There is a growing preference for better quality warehousing assets, with about 54% of the net absorption during the period involving Grade A assets.
How has private equity investment in the sector changed in the first half of the fiscal year?
The share of private equity (PE) flows into industrial and logistics assets increased to 67% in the April-September period, up from 16% in the same period last year.
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