ESR, which has $22 billion of assets under management across the Asia Pacific, is expanding its India operation with the acquisition of an industrial site in Chennai, one of the fastest-growing technology hubs in the country.
The Hong Kong-based logistics developer said Thursday it has agreed to buy a 39-acre (157,827 square metre) site in Chennai’s Oragadam industrial belt where it plans to build an industrial park to tap into the growing demand for warehouses and logistics facilities. According to sources familiar with the undertaking, ESR expects to invest around $43 million on the project, including the cost of the site and its eventual development.
This latest acquisition adds to the $511 million in Indian assets which ESR had under management as of 31 December 2019, as the Warburg Pincus-backed developer and fund manager aims to feed growing demand from e-commerce platforms for distribution facilities while benefiting from a growing trend for multinational companies to diversify their supply chains amid the widening trade tensions between the US and China.
In India, ESR had 1.45 million square metres of projects at the end of 2019, including both finished facilities and pipeline assets. The company added a new plot in northern India’s Haryana state in January of this year.
New Sites in North and South
In that acquisition in the first month of 2020, ESR acquired a site in the Gurgaon town of Sohna from local player Mayar Group, with plans to develop a 300,000 square metre logistics park on the site, which will rank among the largest in northern India.
Having acquired a pair of India sites this year, ESR plans to further add to its landbank in the country, Abhijit Malkani, country head of ESR India, told the Economic Times. Malkani said the company is in talks to acquire another 60 acres of land in Chennai and 40 acres in Lucknow, the capital of the northern Indian state of Uttar Pradesh.
“Rising consumerism and the emergence of e-commerce has created a need for faster deliveries even in markets beyond India’s top eight cities,” Knight Frank said in its recently released report on India Warehousing 2020.
Leasing of warehouse and logistics facilities across India grew threefold over the three three years through mid-2019, totalling 46 million square feet (4.27 million square metres) for the 12 months ending 31 June 2019, according to Knight Frank. While the economic fallout from the pandemic limited new leases of warehouse space to just 41 million square feet from July 2019 through 30 June of this year, the London-based real estate broker said the outlook remains positive, bolstered by the ongoing e-commerce boom.
In a trend fed by companies seeking to reduce reliance on any single market, global manufacturers are also increasingly spreading their sourcing activity beyond China after the Covid-19 pandemic wreaked havoc on production and shipping in the region.
Within Asia Pacific, investors have $20 billion of capital ready to be deployed in logistics properties this year, according to estimates by JLL. A chunk of that dry powder could be invested in emerging markets, Stuart Ross, head of industrial properties in Southeast Asia at JLL, said last month during Mingtiandi’s MTD TV online video series on Asia Pacific logistics opportunities. India along with Vietnam and Indonesia were considered by Mingtiandi viewers among the top three emerging market investment destinations.
Growing APAC Presence
With the coronavirus having sidelined deals in other segments of the real estate industry, ESR has been among the most active investors in industrial properties across Asia Pacific this year, stitching up at least five transactions in the past three months.
Late last week, ESR and partner AXA Investment Managers – Real Assets announced the completion of the acquisition of the ESR Kuki Distribution Centre in Tokyo by a joint venture between the companies for JPY 39 billion ($368 million).
During the first four months of this year the warehouse developer and fund manager raised some $2 billion as the COVID-19 pandemic highlighted the shift toward e-commerce even as the global economy tilted into recession.
In July, the company moved to consolidate its presence in Southeast Asia’s highest value market by merging a pair of Singapore industrial real estate investment trusts it manages in a deal valued at S$397 million ($290 million).
In June, ESR acquired three logistics properties in eastern China’s Jiangsu province, got Singapore’s sovereign wealth fund GIC to co-invest in logistics properties in Australia and also partnered with Canada Pension Plan Investment Board and Dutch pension manager APG Asset Management to build develop new projects in South Korea.
Across the APAC region, ESR currently owns and manages some 17 million metres of logistics space including properties in Australia, China, India, Japan and Singapore and South Korea.
Note: this story updates an earlier version to state the estimated cost of the project at $43 million. An earlier version had cited local news reports in India which had placed the price of the site acquisition at around $44 million.