PEAKLIFE

By Shilpi Madan

As a global player, the ESR Group ranks high in serving up diverse real asset investment and development solutions across public and private vehicles. Powering the successful trajectory across Asia-Pacific’s new economy real asset management is Abhijit Malkani, CEO, ESR India.

The gamut of operations in India move in sync with the company’s footprint through the fully integrated fund management and development platform across Australia, New Zealand, Japan, South Korea, Greater China, Southeast Asia, including a presence in Europe and the United States. Malkani is spearheading the focus in India on New Economy real assets, offering customers modern solutions for logistics, data centres, life sciences, infrastructure, and renewables.

Excerpts from a conversation:

1. What has been the growth trajectory in India over the past five years in terms of industrial infrastructure development?

India’s industrial landscape has undergone a massive transformation in the past five years, emerging as a global manufacturing powerhouse. The pandemic accelerated this shift, driving companies to diversify supply chains and seek alternative production bases. The country’s growing economy, skilled workforce, and increasing consumer spend has made it an attractive destination. Government initiatives like the Production-Linked Incentive (PLI) scheme and Make in India initiative further boosted the manufacturing sector.

2. If you were to identify an example that mirrors this growth…

Apple’s success in the Indian market is a testament to India’s potential as a manufacturing hub. With iPhone revenue in India surging 42 percent year-over-year to $8.7 billion, India has become Apple’s fifth-largest smartphone market. This success story, highlighted by Apple’s decision to produce 25 percent of their iPhones in India by 2028, is just the tip of the iceberg.

Numerous other companies are now looking to establish or expand their manufacturing presence in India. To support this manufacturing boom, world-class industrial infrastructure is essential. The demand for Grade A facilities in key industrial hubs is soaring. ESR, a leading player in industrial real estate, is meeting this demand by providing state-of-the-art facilities tailored to meeting the needs of businesses.

India’s industrial and warehousing real estate sector has witnessed robust growth, with a 15 percent year-on-year increase in top cities. The government’s National Infrastructure Pipeline (NIP), with a planned investment of US$1.4 trillion by 2025, is set to further enhance the infrastructure landscape. The country’s industrial transformation is a compelling story. ESR is proud to be at the forefront, providing the infrastructure that supports India’s manufacturing aspirations.

3. Which are the cities in the country that are poised for viable growth in this sector?

Several key cities and regions in India are poised for significant industrial development growth. Cities like Pune, Mumbai, Chennai, Bengaluru, Hyderabad, and Ahmedabad continue leading India’s manufacturing growth, benefiting from well-established industrial ecosystems with higher ease of doing business and a skilled workforce. Alongside these established hubs, we’re witnessing the rise of specialised manufacturing clusters nationwide. Hosur, for instance, has emerged as a centre for electric vehicle (EV) manufacturing. This trend of creating industry-specific ecosystems will likely continue, driven by targeted state government policies.

Three states stand out for propelling major industrial growth: Tamil Nadu, Maharashtra, and Gujarat. These states have proactively attracted investments and created favourable conditions for industrial development. We anticipate the emergence of new industrial cities within these regions in the coming years.

4. How do you foresee the growth in Tier 2 and Tier 3 cities?

While the established hubs will continue growing, Tier 2 and Tier 3 cities show tremendous potential. Cities like Jaipur, Coimbatore, Lucknow, Cuttack, and Indore increasingly attract attention from manufacturers and investors. These areas often offer advantages in terms of land availability, cost-effectiveness, and untapped talent pools. The key factors driving growth in these areas include supportive government policies, improving infrastructure, the
availability of a skilled workforce, proximity to key markets, and multimodal connectivity, especially with access to ports. This evolving landscape presents exciting opportunities for companies looking to support and benefit from India’s industrial growth trajectory.

5. With realty pegged at high prices in metros, which are the Tier 3 cities that are on the radar now?

ESR has already invested in key Tier 2 and Tier 3 cities, including Cuttack, Jhajjar, Nagpur, and Rajpura, due to their strategic locations and growth potential. With the rising real estate costs in metropolitan areas, many businesses and investors are turning their attention to Tier 2 and 3 cities for warehousing and manufacturing opportunities. These smaller urban centres offer several advantages, including lower land prices, reduced operational costs, and often less congested environments.

6. What percent of the total spend on industrial infrastructure is pegged on these locations over the next five years?

Predicting the exact distribution of industrial infrastructure spending across India’s cities over the next five years is challenging due to the dynamic economic landscape.

However, based on current trends and government policies, we anticipate a clear pattern. Tier 1 cities will likely retain a substantial share of investment, approximately 60 percent, leveraging their existing infrastructure, skilled workforce, and market access. Tier 2 cities are poised for growth, driven by improving connectivity, lower costs, and government initiatives promoting balanced development. We expect a noticeable increase in industrial infrastructure spending in these cities. Tier 3 cities, while starting from a lower base, are projected to experience the most rapid growth in industrial infrastructure investment. Factors such as lower land costs, emerging industrial corridors, and targeted government incentives are fuelling this momentum.

It is crucial to remember that these projections are subject to change due to evolving economic conditions, policy shifts, and business decisions. Nonetheless, the overall trend indicates a shift towards a more decentralised industrial landscape in India.

7. What is your biggest challenge on Indian turf?

Our greatest challenge in India has been land acquisition, a complex and time-consuming process involving securing clear titles in areas with multimodal connectivity and industrial potential. Till now, we have been successful in identifying and developing emerging locations with immense future potential, which have now become prominent industrial and warehousing hubs and we will continue to do so. We also closely work with government and industry bodies as their growth partners. We are optimistic about policies such as land record digitisation, which will streamline this process over time. Another critical issue is the imbalance between rising land and construction costs and slower-growing rents. This disparity limits our options for acquiring land in prime hubs, as high costs are not offset by market rents, potentially making investments less viable.

8. How are you combating this successfully?

We’re adopting a strategic approach to address these challenges by focusing on emerging areas with growth potential but lower current costs. We’re also diversifying our portfolio by introducing new products like multilevel in-city distribution centres and data centres. These offer higher rental values and are expected to see huge demand in the coming years.

9. Share with us the major projects by ESR unveiling by end-2024?

ESR is set for a remarkable year, with several groundbreaking projects due for completion by the end of 2024. A cornerstone of our achievements is the imminent completion of our first multi-level urban distribution centre in Delhi. Strategically located in one of the nation’s most dynamic and densely populated areas, this state-of-the-art facility is a game-changer for quick commerce. By enabling rapid, 20-minute deliveries, we revolutionise the customer experience while addressing the critical need for Grade A logistics infrastructure within city limits. The centre’s strategic proximity to the upcoming UER 2 ensures seamless connectivity and operational efficiency.

Additionally, we are thrilled to announce the completion of Chakan 1, our flagship industrial and logistics park. This world-class facility has already attracted a prestigious clientele, including BMW, Tata Auto Comp, Vertiv, and FM Logistic. The park’s exceptional location in one of India’s most sought-after industrial locations, human-centric design, and amenities create an unparalleled work environment for our customers and their employees.

Our projects in Oragadam, Chennai, and Taloja, Mumbai, have garnered immense interest from leading domestic and international manufacturers. They feature state-of-the-art amenities such as a sports turf, water ponds for rainwater harvesting, a walking track, and ample green areas to create a holistic environment at our facilities. Our certified green buildings are designed for human-centricity and include ample natural light integration.

As we approach the end of 2024, ESR is excited to deliver these transformative projects that meet and exceed industry standards. Our focus on innovation, sustainability, and customer satisfaction positions us as one of the frontrunners in shaping the future of logistics and industrial real estate in India.

10. Share with us ESR’s contribution to sustainability.

ESR is committed to a net-zero future by 2040, and ESR India is at the forefront of this ambitious goal. Sustainability is the bedrock of all our projects.

Our developments are carefully planned to exist in harmony with the environment. Our parks are certified by the Indian Green Building Council (IGBC). We are pioneering a sustainable energy model by incorporating solar panels into our rooftops and using solar power for common areas. Our parks are more than just industrial spaces; they are thriving ecosystems.

Expansive green areas, peaceful water bodies, rejuvenating walking paths, and sports facilities create an environment that nurtures both nature and human well-being. By promoting electric vehicle adoption through charging stations and using EV vehicles for internal transportation, we are actively contributing to cleaner air and a reduced carbon footprint. Our commitment to sustainability goes beyond our operational boundaries and positively impacts local communities. We have built bus stops to improve connectivity options for surrounding communities. We have also been actively involved in upgrading neighbouring schools and providing essential facilities and technological resources. These initiatives empower the next generation and foster a brighter future for all.

11. What is your targeted growth over the next two years?

We have been steadily growing our portfolio by 15-20 percent yearly. However, we intend to increase our new economy real estate portfolio in the coming years to include more data centres and life sciences parks.

12. What’s next?

At ESR India, we’re not just building spaces but developing essential real estate to drive the country’s economy and digital transformation. Our properties will become the nexus of innovation and sustainability in the country.

With our green data centres, we are at the forefront of India’s digital revolution, enabling cloud computing and facilitating large-scale AI adoption. Simultaneously, our ESR parks will become thriving ecosystems for domestic and international manufacturing companies, as well as a breeding ground for research and development. We are excited to witness a growing customer base engaged in R&D activities, and our parks will be instrumental in fostering innovation.

To further expand our new economy real estate portfolio, we will venture into life sciences and biotechnology parks, complementing our existing industrial and logistics parks. Sustainability remains a core value at ESR India. We are dedicated to achieving net zero emissions by 2040 through strategic investments in renewable energy and green building initiatives. Additionally, we will continue to leverage technology to optimise the operations and management of our parks, ensuring efficiency and sustainability.