Greater Investment Demand for Cold Storage Real Estate in Hong Kong

Investment in Cold Storage Properties in Asia Pacific to Reach $5 Billion in the Next Decade

The cold storage market in the Asia Pacific is anticipated to see a five-fold increase in investment over the next ten years due to a lack of new supply, ageing facilities, and quickly shifting consumer demands brought on by the widespread use of online grocery shopping.

The investment in cold storage properties in the Asia Pacific is anticipated to reach $5 billion annually by 2032, according to global real estate consultant JLL, in response to the expected 12% compound annual growth rate of the regional cold chain market between 2021 and 2028.

According to JLL analysis, investments in cold storage are three to four years behind more conventional logistics projects like dry warehouses. JLL monitored $48 billion in logistics investments in the Asia Pacific region in 2021. However, a more thorough analysis reveals that the amount of capital invested in cold storage assets was roughly $1 billion, or 4.3% of all sector investments.

Compared to traditional logistics assets, cold storage still has high entry barriers for investors. Most of the time, cold storage warehouses are highly customised and governed by numerous regulations. They may cost two to three times as much to build as a dry warehouse. Investors have been prompted to consider more specialised warehouse assets, including cold storage facilities, as yields on global logistics assets have decreased.

“Cold storage has historically lacked liquidity in the Asia Pacific, but a combination of falling logistics yields, a more comprehensive range of investors, and broader changes in consumer behaviour will eventually alter investor perceptions. We predict cold storage will become a stand-alone asset class in the upcoming years given that the industry is poised for an extended period of strong regional growth and facilities will need ongoing investment to meet demand “states Tom Woolhouse, Director of Logistics & Industrial for JLL in Asia Pacific.

JLL estimates that 500 million cubic metres of additional supply are needed to close the existing gap in Asia Pacific’s cold storage capacity because it cannot keep up with current or anticipated demand. More than twice as much stock is currently available as a result of this mismatch.

Additionally, existing facilities are under more pressure to make greener upgrades due to the high energy consumption of industrial refrigeration. According to JLL, 10% to 15% of the current Grade A cold storage stock needs to be replaced to meet consumer demand.

“As a large portion of the market in Asia Pacific is run by inefficient small and medium-sized players, cold storage facilities there are becoming more and more obsolete. This presents a sizable opportunity for investors. This reality, in our opinion, indicates that new investment is required to meet demand as well as to replace ageing stock, which deep pools of capital, in our opinion, can accommodate “the Head of Investor Intelligence & Strategy, Capital Markets, Asia Pacific, JLL, Pamela Ambler.

Head of Capital Markets at JLL in Hong Kong, Oscar Chan, stated: “Given their defensive nature and relatively higher yield, cold storage is one of the industrial properties that has attracted more interest from investors in recent years. We anticipate it will continue to be a point of interest for investors in the coming 12 to 18 months because the market’s meagre new supply of cold storage cannot keep up with the soaring demand caused by the rise of e-commerce under the pandemic.”

Rising incomes and increased urbanisation will be the driving forces behind the development of cold storage as a distinct asset class in the Asia Pacific region over the next ten years. In the Asia Pacific region, total household personal disposable income is anticipated to rise by about 24% between 2020 and 2025. According to JLL analysis, Southeast Asia has added 70 million online shoppers since the start of the pandemic, and Australia, China, and India currently have the highest demand for cold storage facilities. According to JLL analysis, since 2020, online grocery purchases have seen double-digit growth in many markets, including China, India, and Indonesia.