China’s e-commerce giants have bet big on online grocery, and the need for specialised warehouses to distribute fresh food to hungry mainlanders is providing opportunity for North American fund manager BentallGreenOak and its partners.
Mainland logistics developer Metcold announced this week that it has extended its network into northern China for the first time with the acquisition of a 29,000 square metre (312,153 square foot) Beijing industrial project under a $50 million partnership it formed earlier this year with Metropolitan Real Estate, before the fund manager was acquired by BentallGreenOak.
The project “aims to attract both domestically based and internationally renowned food-chain retailers and fresh food e-commerce tenants”, Metcold said in a statement, adding that the facility in Shunyi district will include functions such as centralised intelligent kitchens and temperature-controlled systems.
BGO and Metcold are expanding their cold chain network into northern China as online grocery sales on the mainland are projected to surpass RMB 1 trillion ($155 billion) in 2023 after totalling RMB 458.5 billion last year, according to figures from independent research agency eMarketer. Alibaba now has about 300 Freshippo omnichannel grocery stores in China, according to company statements, while Tencent-backed rival MissFresh debuted on the NASDAQ in June with a $2.5 billion valuation.
Leveraging the location 20 kilometres (12.4 miles) northeast of the city centre and three kilometres from Beijing Capital International Airport, Metcold plans to develop the facility in two stages, with completion of the first phase expected in 2024.
“With the significantly lower levels of both stock and future supply, Metcold has seized this opportunity to deepen its presence in the Beijing market as well as develop strategic business partnerships to provide Beijing consumers with safe, reliable and energy-efficient controlled food supply-chain facilities,” the company said.
The project in the capital city marks Metcold’s first foray into China’s north after establishing a network of 14 cold chain assets centred on the Shanghai area, with a scattering of facilities serving interior cities.
Founded in 2015, Metcold created its Metcold Opportunity Fund I that year to invest in cold chain facilities in Xi’an, Kunshan and Xiajing. Those three projects are in full operation. In 2018, the cold chain specialist received backing from Australia’s Macquarie Infrastructure and Real Assets.
Metcold chief executive Henry Ha set up the company six years ago after having served as a vice president with the private funds management group at mainland sovereign fund China Investment Corporation. The company’s chief operating officer, Yaping Shi, is also a CIC veteran.
Further projects in the cities of Changzhou and Nantong in Jiangsu province were scheduled to be launched in the second quarter of this year, while another Jiangsu facility is set to debut in Wuxi next year, and Hainan is also on the schedule for 2022.
In March of this year, Metcold announced a deal with Metropolitan Real Estate that would see the US fund manager — then owned by Carlyle Group, since absorbed by BentallGreenOak — invest $50 million in Metcold’s Opportunity Funds I and II and in a cold storage project in Shanghai. In April, US investment manager BlackRock agreed to invest in assets held by the two opportunity funds.
As of June, Metcold’s total investment exceeded RMB 6 billion ($930 million), with a planned total construction area of more than 1.3 million square metres and a cold storage capacity of 2.8 million cubic metres.
Zeal of the Converts
In Colliers International’s April report on industrial and logistics real estate in Asia Pacific, the property services singled out China as a popular market for conversion of industrial assets into cold chain facilities.
“Typically, operators obtain long leases in Grade A dry warehouses at market rates,” Colliers said. “The facility is then retrofitted for cold storage and sublet to end-users at a 50-100 percent rent premium.”
Owners in the short term may retrofit dry warehouses for cold storage together with a specialist restructurer or operator, but in the long run they should seek sites for dedicated cold chain warehouses on the edges of Chinese cities, the report said.
“Demand for cold chain facilities has been surging across APAC as shipments of food and perishable goods rise, and this will continue,” said CK Lau, Colliers’ managing director for valuation and advisory services in Asia. “Investors and developers should embrace the opportunity in the cold chain segment to achieve a premium rental outcome.”