Mumbai Metropolitan Region

Despite being the most expensive property market in the country, Mumbai Metropolitan Region continues to be the prime market for attracting investor interest. Structured equity or debt was the preferred route of investment as the city received the major portion of private equity investments in the past year.

Out of the total Rs 19,500 crore, Mumbai received more than 1/3^rd or 34 % investments in the sector in 2015, showed a JLL India study. The city was followed by Delhi-NCR, Chennai, Bengaluru and Pune receiving 29%, 14%, 11% and 5% respectively. Talking about this trend, Shobhit Agarwal, managing director-capital markets, at JLL India said, “The preference for these cities reflects learning from past experience. While investors remain cautious about which cities to invest in, what is interesting to observe is that the ratio of structured equity and debt was more than half of the total investments received.”

Rubi Arya, Executive Vice-Chairman, Milestone Capital Advisors anticipates equity deals to gain a foothold over the next two three years because of an expected increase in commercial  real estate funding due to instruments like real estate investment trusts. Arya said, “We have seen proven returns from such structures and will continue introducing products in this space for some more time. But from a safety viewpoint, structured debt will remain preferred route for investors.”

Core commercial assets are being preferred over asset classes such as residential, hospitality and retail for plain equity investments. The preference indicates how investors are circumspect despite being optimistic about major potential gains in real estate. Also, important has been the preference amongst investors to invest in projects of developers with a good track record and credibility.

While residential and office projects continue to be the focus for PE investors, entity-level investments and platform-level deals come into the limelight, indicating increase in investor confidence. The JLL report said that a total of Rs 6,048 crore worth of entity-level equity yes deals were witnessed. Deals such as Goldman Sachs and Warburg Pincus investing in Piramal Realty and Blackstone buying Alpha G:Corp aggregating to around Rs 4,000 crore were amongst the 10 entity-level investments witnessed in the year 2015.

In terms of asset focus, despite receiving a reasonable share of funding, residential projects have not received much from equity investment. At the same time, a significant sum of equity investments has been towards income-yielding office projects. Although residential and office will attract a majority of investments, retail is expected to soon gain a foothold in the market.

Image Credits : DNA

Now the overseas firms such as; APG, a Dutch Pension Fund Manager and Warburg Pincus, a US Buyout Group are looking for an opportunity to invest in the Indian warehouses with a hope to cash the demand for efficient and modern storage space as in past few years Indian has recorded great book in online shopping.

Godowns vs Warehouses:

In present the country’s logistics and warehousing sector is stretched to $ 110 billion as more and more Indians are coming online for shopping and other activities. Existing spaces, which was famous with a name “Godowns”, a low rise sheds with poor infrastructure and ventilation to ward off heat and dust are too old and out of dated for the retail giant such as; Amazon.com and its core rival Flipkart or Snapdeal. According to experts retailers never prefer to use these Godowns because on these places goods frequently get spoil or soiled. Apart from that now e-tailers are looking for the way to move their goods swiftly with minimal damage and due to that they demands for climate control, levelled loading bays, fire sprinkler systems and paved roads to warehouses. If you have existing warehouse, so after adding these facilities you can lift the rents by up to 20 percent, as per the statement of the JLL, a real estate firm.

Growth in e-commerce sector:

According to Ben Salmon, Head of Singapore-Based Assetz Property Group, “We have got many people around us who have bags of money, but not that much assets”. The more he added that Assetz Property Group has raised $ 50 million from Asian investors with an aim to buy warehouses on Indian soil. Meanwhile, e-commerce sector in India is booming and it is expected that by the end of 2025 the market will grow in terms of value of goods sold will be about by $ 220 billion and it is expected that for this years the value of goods sold will be $ 11 billion, as per the reports of Bank of America Merrill Lynch. Demand of these kinds of warehouses is good news for property developers in India as most of the real estate developers are doing business with high debt and struggling with sluggish residential sales. For the duration of 2009 to 2011, the office leasing was slower.

As per the estimates of JLL India, to satisfy the above requirements, the supply of modern warehouses in India can be get double by 2020 with 200 million square feet space, which will be fuelled by online retailers as they have already taken up 20 percent of the space in the first half of 2015. The more demand will push the rents which are about 156 rupees ($2.34) a square foot a year in some city outskirts, but this rent can go up by the 20 percent, as per analysts. Whereas; in present, the average annual returns In UK for industrial assets are expected to be 10 percent by next five years, as per the reports of Colliers International, a real estate firm.

Needed facilities in warehouses:

In New Delhi, there are many steel-framed, large and modern warehouses, which have ventilation as well as 24 hour security, but retailers and logistics firms are line up to serve the country’s capital. Amazon is one among other retailers, who want to own large, modern, white and red warehouse as Godowns are increasing their size from family garage to a basketball court. It is noted that Amazon India has leased more than 20 fulfillment warehouse centers where company is used to store goods and packs the orders from many different landlords. However; still company is looking for bigger, modern spaces with the average size of 200,000 square feet.

The e-commerce has attracted more than $ 1.5 billion through private equity funds since year 2011, as per the data of Venture Intelligence. Whereas; Embassy Group and Warburg are jointly planning to invest $ 250 million to lease, operate and build a portfolio of up to 20 million square feet of warehouses in next 5 to 7 years, as per the statement of Anshul Singhal, CEO of Joint Venture and Embassy Industrial Parks.

According to Sachin Doshi, Head of its private real estate investments in Asia Pacific, “APG is also looking for a local partner who can invest in the build logistics parks in India”. No doubt there are some basic challenges for investors who want to acquire land as ownership cannot be disputed. Major real estate developers like; Assetz is betting on buying larger existing warehouses in the market rather than building warehouses from the scratch. After previous investments, now Assetz is planning to raise $ 100 million to buy 10 million square feet of warehouses space.