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Warehousing yields decline as global players race to invest in assets

Investors prefer warehousing assets because they are more stable than office properties, which were affected by the pandemic, said bankers involved in warehousing deals

Yields in warehousing assets have fallen to 7.5 per cent from 8.5 per cent in the past two years as more global players race to invest in such assets in the middle of the pandemic.

“Yield” is the estimated return from an investment. It is calculated by dividing the annual rental income earned by a property by the price paid for the property.

Investors prefer warehousing assets because they are more stable than office properties, which were affected by the pandemic, said bankers involved in warehousing deals.

Last month, Singapore-listed Mapletree Logistics Trust bought two warehousing properties in Pune from a unit of Morgan Stanley Real Estate Investing (MSRI) and another entity at Rs 450 crore.

About 10 players including some global funds had bid for the property.

In another deal, US-based Blackstone bought the Embassy Industrial Parks for Rs 1,800 crore from Bangalore-based Embassy group and PE major Warburg Pincus.

Though Warburg-backed ESR and Indospace held talks with the promoters of the company, the deal did not go through over differences on valuation. Besides them, other investors also showed an interest in buying the business.

Blackstone in late 2019 had set up a warehousing venture with Hiranandani Group.

Recently CDC Group of the UK invested Rs 250 crore in TVS Logistics for a 35 per cent stake, valuing the company at around Rs 700 crore.

“Yields have fallen from 8.5 per cent to 7.5 per cent due to greater liquidity, low debt costs, and an increasing interest from buyers in warehousing assets,” said Prateek Jhawar, director and head, infrastructure and real assets investment banking, Avendus Capital.

Jhawar said investors were preferring warehousing assets due to good demand.

Shobhit Agarwal, managing director at Anarock Capital, said: “Too much money is chasing a few assets. The number of warehousing projects has gone up in the last couple of years but not many are available to trade,” Agarwal said.

Morgan Stanley Real Estate Investing, which stopped investing in real estate in the country, came back to the sector by putting in money in warehousing assets in 2019.

In 2019, it bought a majority stake in KSH Infra, a Pune-based warehousing and industrial logistics park developer. The same year, it bought a controlling stake in a warehousing project by Pragati Group in the National Capital Region (NCR) region.

The same year, it set up a platform with Bengaluru-based developer Puravankara Projects for industrial parks.

Singaporean fund GIC and logistics firm ESR also set up a $750-million joint venture for warehouses in the country.

According to global consulting firm Savills, industrial and warehousing space absorption is expected to grow by 83 per cent to 47.7 million square feet in 2021.

This has been driven by robust growth in e-commerce and manufacturing sectors as well as rising demand in tier-I and tier-II cities.

Third-party and e-commerce sectors continued to drive demand, accounting for 60 per cent of absorption in 2020, followed by manufacturing at 24 per cent.

In 2020, the industrial and warehousing market witnessed investment in excess of $1 billion.


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