Are investors ready for India’s logistics market?

Singapore’s GIC is one of the latest investors betting big on India’s logistics real estate and the country’s long-term potential. In December 2020, the investor entered into a $750 million joint venture with Hong Kong-headquartered logistics firm ESR.

Subject to regulatory approval, the $100 billion-plus sovereign wealth fund and the logistics specialist have agreed on an 80:20 strategic partnership to develop and acquire institutional-grade industrial and logistics facilities in India’s Tier 1 and Tier 2 cities. The vehicle will be seeded with a 2.2 million square foot build-to-core development project near Mumbai.

Kishore Gotety, GIC’s co-head of real estate in Asia-ex China, said in a release that the “continued e-commerce growth in India over the long term, reinforced by rising internet penetration, is expected to drive strong demand for industrial and logistics assets.” He believes that the joint venture will generate resilient returns by bringing “institutional-grade” assets into the market.

But not every investor is ready to go into the country’s logistics sector just yet, according to Jai Mirpuri, country head of ESR India. He believed more sophisticated investors with experience across different asset classes in India will have more interest in investing in the country’s logistics space directly than those groups that are newer to the market.

International logistics specialists have only set up their presence in the country in the past few years, according to Mirpuri. ESR itself made its India debut in 2017, while Sydney-headquartered LOGOS also established its first Indian venture in the same year. In 2018, logistics powerhouse GLP entered the country through a strategic joint venture with IndoSpace, India’s largest logistics owner and developer.

The warehousing and logistics sector in India has only become more institutionalized in recent years, Trent Iliffe, managing director and co-CEO at LOGOS, explained to PERE. The change is partly due to India’s introduction of a goods and services tax in 2017. The GST supported the warehousing business by creating a level playing field for organized players and equitable development across the country.

As of now, Iliffe pointed out that India in some ways is at a similar stage to where China was in the earlier years of their GST. In 1990s, the country also saw the growing need for larger regional distribution centers and more efficient supply chains. “In summary, India is approximately two years into the evolution of building its logistics infrastructure to cater to the needs of the market for today and into the future,” he said.

Although the logistics real estate market in India lags China in its stage of development, it is also far from being saturated, which means more opportunities will likely unfold in the next few years, according to Anshuman Magazine, CBRE’s divisional president for India, South-East Asia and MENAT.

Mirpuri explained: “Overtime, major institutional investors will have a certain level of allocation in India because it’s a large economy.”