Savills Research June, 2023: Asia Pacific Cold Storage Spotlight
Savills Research examines the cold storage investment environment and looks at the factors that have positioned the sector for significant growth in Asia Pacific in the coming years.
The cold storage sector is one of the fastest growing asset classes in Asia Pacific, thanks to changing demographics that are in turn underpinning rising demand. The sector is poised for significant growth after attracting US$4.9 billion worth of investment in 2022 and growing at 29.6% CAGR between 2017 and 2022.
Fundamentals Support Demand for Cold Storage Assets
The cold storage sector is still in its infancy in Asia Pacific The region is dominated by a small number of mature markets, including Japan, South Korea, Australia and China. Among the main drivers are the region’s growing urban middle class, increased consumer spending, shifts in retail consumption, and the continued rise in e-commerce sales. Additionally, demand for higher-end foods, healthcare and pharmaceutical products, and rapid digitisation in ASEAN nations are contributing to demand. Consumption in APAC is projected to grow at global best CAGR of 4.4% through 2032, in turn supporting government and private investment.
Cold Storage Undersupplied Regionally
Per capita availability of cold storage space in APAC is well below global averages with the exception of New Zealand. Available space ranges from a low of 0.03 cubic metres per person in Indonesia to a high of 0.34 in India. In the US that rate is 0.49, and in the UK it is 0.44. The APAC region requires 325 million cubic metres to reach those capacities in the coming years. APAC’s smaller, older facilities also require better automation, and improved transport logistics and technology options. This structural shortfall will translate into higher occupancy rates, stronger rental growth, and desirable investment opportunities. The sector is poised for considerable expansion.
Higher Yield Spreads Attract Investors
Despite higher operating costs and risks, economic volatility, and narrowing yield spreads, investment is APAC cold storage is attractive. In China and South Korea, e-commerce penetration exceeds 27% and has supported substantial cold storage development to date. India is currently the world’s largest cold storage market, with 150 million cubic metres of available space. However, high entry costs and inadequate infrastructure pose major challenges in the sector. Vietnam represents the potential in emerging economies for cold storage growth. Rising middle class numbers and new demand for high quality foods is driving sector demand.
Higher risk premiums are partly balanced by tight vacancy, longer lease terms and the ‘stickier’ tenants the sector offers amid an environment of undersupply. Positive sentiment is being priced in with yield compression noted even during the pandemic. On average, prime cold storage warehouses offer 4% to 5.5% yields across major APAC markets, representing a 30 to 150 bps spread over margins for dry warehouse. Though more regulations and challenging built-to-suit spaces favour high-end retail snd 3PL providers, investors can benefit from partnering with cold chain operators.
For all the details, read the complete Asia Pacific Cold Storage Spotlight at Savills Research: http://sav.li/2eu
