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Investing in Industrial Real Estate: Capitalizing on India's Manufacturing Growth

Writer's picture: Vijaya Vardhan RaoVijaya Vardhan Rao

Industrial Real Estate In india

India's industrial real estate market is undergoing a significant transformation, driven by a surge in manufacturing activities and favorable government policies. This article explores the current landscape of industrial real estate in India, highlighting investment opportunities, challenges, and potential returns.


Overview of the Industrial Real Estate Market


The industrial real estate sector in India has gained momentum, particularly in the wake of government initiatives aimed at boosting manufacturing. The country is positioning itself as a key global manufacturing hub, with plans to increase the manufacturing sector's contribution to GDP to 25% by 2025. This ambition is supported by flagship schemes such as the Production-Linked Incentives (PLI) program, which targets various sectors including electronics, automotive, and renewable energy. In recent quarters, the industrial and warehousing segments have attracted substantial investments. In Q2 2024 alone, these sectors captured 61% of total real estate inflows in India, amounting to $1.5 billion. This marked a significant increase compared to previous years, indicating robust investor confidence driven by rising demand for logistics and manufacturing spaces. Moreover, the Indian warehousing market is characterized by a substantial gap between supply and demand. Currently, India's per capita warehousing stock stands at approximately 2.7 square feet, significantly lower than that of developed economies like the United States (54.2 sq ft) and Japan (46.3 sq ft). This disparity creates a fertile ground for investment opportunities in high-quality warehousing facilities.


Investment Opportunities


Investors looking to capitalize on India's manufacturing growth can explore several key areas within the industrial real estate sector:


  • Factories: The demand for leased manufacturing spaces has skyrocketed post-COVID-19, with an impressive Compound Annual Growth Rate (CAGR) of 63%. The total leasing of manufacturing spaces increased from 3.2 million square feet in 2020 to 13.8 million square feet in 2023, with projections suggesting further growth to approximately 16 million square feet by the end of 2024. Key industries driving this demand include automotive, engineering, and electronics.

  • Warehouses: The e-commerce boom has significantly increased the need for modern warehousing facilities. With India's e-commerce market projected to reach $350 billion by 2030, there is a pressing requirement for efficient logistics infrastructure to support online retail operations. Investors can benefit from developing Grade A warehouses that cater to evolving supply chain models and meet the growing demand from both domestic and international clients.

  • Logistics Parks: The establishment of logistics parks is becoming increasingly important as companies seek to streamline their operations and reduce costs. These parks offer integrated solutions that combine warehousing, transportation, and distribution services.


Challenges


Despite the promising outlook for industrial real estate investment in India, several challenges persist:


  • Regulatory Hurdles: Navigating India's complex regulatory environment can be daunting for investors. Delays in obtaining necessary approvals and clearances can hinder project timelines and increase costs.

  • Infrastructure Deficiencies: While significant investments are being made in infrastructure development (such as Dedicated Freight Corridors), many regions still lack adequate transport facilities. This can affect logistics efficiency and increase operational costs for businesses relying on these infrastructures.

  • Market Volatility: Economic fluctuations can impact demand for industrial spaces. Investors must remain vigilant about market trends and be prepared for potential downturns.


Potential Returns


Investing in industrial real estate in India offers several potential benefits:


  • Stable Rental Yields: The demand for high-quality industrial spaces is expected to drive rental growth. Grade A warehouses have shown healthy rent increases of around 5% per annum due to limited supply.

  • Capital Appreciation: As the manufacturing sector expands and more companies seek modern facilities, property values are likely to appreciate over time.

  • Long-Term Investment Horizon: With government policies favouring manufacturing growth and infrastructure development, investors can expect sustained demand for industrial properties over the long term.


In conclusion, investing in India's industrial real estate market presents a compelling opportunity for discerning investors looking to capitalize on the country's manufacturing growth trajectory. By strategically targeting factories and warehouses while navigating potential challenges, investors can position themselves favourably within this burgeoning sector.


Disclaimer: This article is for informational purposes only and should not be considered financial advice. Please consult with a qualified financial professional before making any investment decisions. The content of the above article is based on references, learnings and interpretations. Invest Corners does not guarantee the accuracy of the information provided.


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