APAC Cold Storage Investment Headed for $5B a Year Within a Decade: JLL

The wide adoption of online grocery shopping and food delivery could see investment in Asia Pacific’s cold storage market quintuple to between $4 billion and $5 billion a year by 2032, according to JLL.

Meanwhile, demand for cold storage in the region is likely to grow by at least 20 percent annually over the next three years, led by Australia, China and India, the global property consultancy said in a recent report.

Cold storage investment lags three to four years behind run-of-the-mill logistics investments such as dry warehouses, with cold chain assets making up just 4.3 percent of the $48 billion in APAC logistics investment tracked by JLL in 2021.

“Asia Pacific’s cold storage sector has traditionally lacked liquidity, but a combination of declining logistics yields, a deepening investor pool and broader movements in consumer behaviours will ultimately change investor perceptions,” said Tom Woolhouse, head of APAC logistics and industrial at JLL. “Given that the sector is primed for an extended period of strong growth regionally and facilities will require sustained investment to meet demand, we anticipate cold storage will emerge as a stand-alone asset class in the coming years.”

Minding the Gap

Current cold storage capacity fails to meet existing or future demand in Asia Pacific, and JLL estimates that 500 million cubic metres (17.7 billion cubic feet) of new supply is required to fill the existing gap, or more than double the available stock.

“As the limited new supply of cold storage in the market cannot fulfil the surging demand brought by the rise of e-commerce under the pandemic, we expect it will remain one of the focuses for investors in the next 12 to 18 months,” said Oscar Chan, head of capital markets at JLL in Hong Kong.

Lower liquidity and higher costs mean greater risk premiums for cold storage assets, and those fatter premiums are attracting investors as logistics yields decline generally. The increased risk is offset by the cold storage sector’s benefits, including higher rents and occupancy rates, longer weighted average lease expiries and fixed rent escalation.

The spread between cold storage and general warehouse yields ranges from 5 basis points or less in Sydney and Melbourne to 30 basis points in Shanghai, 50 basis points in Seoul and 80 basis points in Tokyo, JLL said, citing data from the fourth quarter of 2021.

Another factor is the high power consumption required for industrial refrigeration, placing pressure on existing facilities to retrofit with greener features. JLL reckons that 10 to 15 percent of existing Grade A cold storage stock needs replacing.

“Cold storage facilities in Asia Pacific face increasing obsolescence as much of the market is operated by small and medium-sized players that lack efficiency, which is creating substantial opportunity for investors,” said Pamela Ambler, head of investor intelligence and strategy for APAC capital markets at JLL.

Chill and Serve

The pipeline of cold storage projects in Asia Pacific includes a $1.4 billion facility at Hong Kong’s Kwai Chung container port under development by industrial giant ESR in a joint venture with Chinachem Group. The partners will provide up to 1.48 million square feet (138,000 square metres) of warehouse space, with ESR indicating that the project will incorporate both cold chain and ambient logistics space.

US builder Hines is developing several cold storage projects in the region, including two in South Korea. The Houston-based firm also bought completed facilities and an adjacent development site in China’s Guangdong province in 2020.

In March, Singapore’s CapitaLand Investment and US-headquartered PGIM Real Estate paid $74 million for a cold storage facility in South Korea’s Gwangju. In May, Chicago-based fund manager Heitman acquired a 100,000 square foot logistics asset in Hong Kong’s Fanling area for a reported $57.3 million to repurpose into a cold storage facility.

The world’s biggest asset manager, BlackRock, has invested an undisclosed sum in mainland operator Metcold’s Opportunity Funds I and II. Metcold manages 15 cold chain facilities across China with a total investment of more than RMB 6 billion ($930 million).