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Is cold storage still a hot investment pick?
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Commentary


IS COLD STORAGE STILL A HOT INVESTMENT PICK?

The resilience of cold storage assets is making the alternative asset class a
compelling investment opportunity

November 29, 2023
Contributors:
 * Peter Guevarra

Interest in cold storage reached fever pitch during the pandemic, driven by the
dramatic rise in demand for online grocery shopping and the growing spotlight on
the life sciences sector.

In 2021, cold storage deal sizes averaged US$29.6 million, significantly higher
than the 10-year average of US$19.1 million, while the number of major deals
more than doubled to 32 transactions.

While activity has slowed in the past 12 months, the core drivers that initially
attracted investors to this alternative asset class remain intact.


Its resilience stems from the nature of goods typically stored in these cold
storage facilities — primarily essentials and perishables that are unaffected by
economic cycles, keeping it insulated from the volatility otherwise experienced
by other sectors.

For investors, this means stable cash flows in the long term, bolstered by
favourable rental rates and lease terms for these assets compared to general
logistics and industrial (L&I) facilities.

Crucially, in today’s high interest rate environment, cold storage assets offer
higher yields than traditional warehouses, typically fetching yields that can be
50 to 100 basis points (bps) higher across the more mature markets. The spread
could be higher in emerging Southeast Asia markets.

BARRIERS TO ENTRY

Although the fundamentals are positive, the highly specialised sector means a
relatively shallower pool of occupiers, ranging from food and beverage producers
to pharmaceutical companies.

Technical specifications for these facilities differ significantly from standard
L&I facilities in areas such as the building structure, clearance and floor
loading, air-conditioning and fire suppression, and power provision.


For instance, concrete construction in cold storage facilities needs to be
reinforced for better sealing and to limit condensation. Facilities that store
goods at extremely low temperatures may also require more advanced airlock
compressors and fire compression systems.


These unique features contribute to higher capital expenditure (CapEx) and, over
time, higher operating expenses (OpEx) for maintenance.


Another factor that investors need to be aware of are operational issues such as
additional health and safety training, which is often mandatory for workers
operating in sub-zero temperatures. This is compounded by the relatively tight
labour markets in many countries at present.


Take a pharmaceutical cold chain facility, where there must be on-site
pharmaceutical technicians to handle storage of goods, and compliance officers
to monitor adherence to pharmaceutical regulations and guidelines. This is in
addition to technicians handling the maintenance, repair, and troubleshooting of
refrigeration systems.


To complicate the challenge, investors and operators face the additional hurdle
of navigating varying local regulations in different markets when building and
maintaining these assets.


For established investors, these heightened barriers to entry work in their
favour to limit competition. Meanwhile, newcomers face an uphill battle to adapt
and get up to speed in the sector.


ROBUST GROWTH

With the requirements of cold storage facilities constantly evolving, there are
still plenty of opportunities for investors and operators in this sector.

Single-temperature facilities started out as the norm. But with occupiers
demanding more, complex multiple-temperature facilities, capable of offering
fulfilment and value-added services to consolidate logistics operations, are
emerging.


This evolution will persist as real estate prerequisites must be tailored to
meet the specific needs and operational strategies of occupiers.


With global cold storage capacity projected to reach 1.1 billion cubic metres by
2030, up from 785 million cubic metres in 2022, there may be selected
opportunities for investment in the asset class in Asia Pacific.

Are cold storage assets on your investment radar? Gain more insights on this
alternative asset class from our latest report, or connect with a JLL expert to
help formulate your logistics strategy today.


THE COLD STORAGE OPPORTUNITY IN ASIA PACIFIC

EXPLORE THE OPPORTUNITIES FOR INVESTORS, OWNERS, AND DEVELOPERS IN COLD STORAGE.

Download report




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