Growing investor interest in cold storage real estate has been brewing for some time. This appetite is part of a larger push into less competitive areas of industrial real estate. The shift in demographic and consumer behaviour is also playing a major role in fanning the interest.

There is a robust demand for high quality industrial and logistics assets in Asia Pacific in recent years. Irrespective of asset type, the driver has frequently come from strong domestic consumption.

Coupled with the juggernaut of e-commerce, the associated industry expansion and the ongoing development of modern logistics facilities into an institutional investment product, cold storage has carved out a substantial niche with the promise of sustainable growth for the foreseeable future.

It is not a new concept in Asia Pacific, but the investment opportunity cold storage offers hasnt been fully realised. Until recently, that is. As a result, the pickup in interest has led to investors seeking investment opportunities at all stages of the supply chain, with temperature-controlled warehouses, or cold storage, rapidly emerging as an area of focus.

Part of this pickup can also be explained by investors deeper understanding of cold storage facilities. Increasingly, the latter have been decoupled from other warehouse facilities in industrial and logistical portfolios.

The reason? Cold storage facilities are far more complex than conventional dry warehouses. Irrespective of location, they must be equipped with various structural and mechanical installations to maintain temperature and humidity within a pre-defined range.

Investors also better understand the operators of cold storage facilities. based on their operational model and scope of services, cold storage players can be divided into four main types.

Cold storage and logistics specialists handle agricultural produce in cold storage facilities that often come equipped with food processing capabilities. For example, kiwi fruit in New Zealand are collected and shipped from orchards to specialised cold storage companies, wher they are then sorted, washed, packaged, labelled and boxed for export. This category also includes cold chain providers for restaurant chains.
End-users and owner-occupiers include leading grocery, FMCG and pharmaceutical companies. These firms frequently opt to manage their cold chain in-house as they have special requirements in terms of layout and equipment.
Third-party logistics (3PLs) firms have set up specialised business units catering to rising demand for distribution and delivery service along the cold chain.
Developers and investors are the primary owners of cold storage facilities. Recently, a number of new players have entered the cold storage business, including China Vanke, which purchased Swire Cold Chain Logistics with a portfolio of seven cold storage warehouses in Chengdu, Guangzhou, Langfeng, Ningbo, Shanghai and Xiamen last year.
Demand for cold storage facilities in Asia Pacific is being powered by several factors.

A mix of consumption and omnichannel distribution
Particularly in Asia, a growing middle-class population is driving the fortunes of cold storage. This is especially true when considering robust demand for high quality groceries sourced from home and abroad continues to swell.

Asia Pacific grocery imports were valued at US$373 billion in 2018, with imports of high-value items growing especially rapidly. imports of berry fruits including strawberries and blackberries to Asia Pacific recorded a CAGR of 7.5 percent between 2013 and 2018.

As a result, growing consumption is being facilitated by the expansion of omnichannel distribution. However, online grocery shopping is still at a nascent stage, with less than 5 percent of grocery spending in most Asia Pacific markets occurring online in 2018. This ratio is expected to increase on the back of rapid improvement in delivery speed, especially in Korea and China.

Also, working in the markets favour, is online grocery retailing. Aggregate online grocery sales in Asia Pacific are forecast to surge from US$80.7 billion in 2018 to US$260 billion in 2023.

Food loss and quality concerns
Investors also see the potential of cold storage facilities in maintaining the integrity of food. Cold storage can significantly reduce food loss and wastage during transportation, storage and handling by extending the shelf-life of temperature-sensitive products. For example, post-harvest tomatoes stay fresh for just three days at a temperature of 35 degrees Celsius, compared to 14 days at a temperature of 15 degrees Celsius.

Added to the mix, reducing food loss and wastage can play a key role in improving retailers bottom line. Food losses in China amounted to US$15 billion in 2017, primarily due to inadequate cold chain facilities. The total volume of food losses was around 20 percent of groceries distributed, a ratio three times higher than that in advanced economies. Proper handling and storage of food products can also reduce the risk of cross-contamination.