Hong Kong Increases Demand for Investment in Air Conditioned Real Estate

Investment in the Asia-Pacific refrigeration market is expected to grow five-fold over the next 10 years, driven by rapid changes in consumer demand caused by a shortage of new supply, dilapidated existing facilities and widespread online grocery shopping.

According to JLL, a global real estate consultant, refrigerated real estate investment in the Asia-Pacific region is expected to reach $5 billion a year by 2032, in response to an average compound annual growth rate of 12% in the broader cold chain market in the region from 2021 to 2028.

JLL’s analysis shows that investments in cold storage lag behind traditional logistics investments, such as dry warehouses, by 3-4 years. In 2021, JLL’s investment in logistics in the Asia-Pacific region was $48 billion. However, according to a more detailed analysis, investment in cold storage was about $1 billion, or 4.3 percent of total investment in the sector.

For investors, the barriers to entry into cold storage facilities are still high compared to traditional logistics assets. Refrigerated warehouses tend to be highly customizable and regulated by multiple levels of regulation. They can require two to three times the cost of building a dry warehouse. However, as yields have shrunk global logistics assets, investors have been urged to consider more specialized storage assets, including cold storage facilities.

“The cold storage sector in Asia Pacific has traditionally lacked liquidity, but the combination of lower logistics yields, an expanding investor pool and broader changes in consumer behavior will ultimately change investor perception. Given that the sector is poised for a long period of strong regional growth and will require continued investment to meet demand, we expect cold storage to become an asset class in its own right in the next few years. “This is a great opportunity,” says Tom Woolhouse, head of logistics and industry at JLL Asia Pacific.

JLL expects the new supply of 500 million cubic meters to fill an existing gap, and current cold storage capacity does not meet existing or future demand in Asia Pacific. This discrepancy is interpreted as more than doubling existing reserves.

In addition, due to the high energy consumption to power industrial refrigeration, existing facilities are facing the need to convert to more environmentally friendly ones. JLL estimates that 10 to 15 percent of existing Class A refrigerator inventory needs to be replaced to meet consumer demand.

“As much of the market is driven by less efficient small and medium-sized companies, refrigeration plants in the Asia Pacific region are increasingly aging, which creates a significant opportunity for investors. This reality, as we see it, suggests that new investment is needed not only to meet demand, but also to replace aging stocks, which we believe can be placed in deep pools of capital.” Here’s what Pamela Embler says.

“Refrigerators are one of the industry assets that have attracted increasing investor attention in recent years, given their protective nature and relatively high returns,” said Oscar Chan, head of capital markets at JLL in Hong Kong. “Because the supply of new refrigerators is not meeting the growing demand driven by the pandemic e-commerce growth, we expect this to remain one of the investors’ concerns over the next 12 to 18 months.”

The emergence of cold storage as a unique asset tier in the Asia-Pacific region will be driven by income growth and urbanization over the next decade. Between 2020 and 2025, total personal disposable income for households is projected to increase by about 24% across the Asia-Pacific region. According to JLL’s analysis, demand for cold storage is currently strongest in Australia, China and India, while Southeast Asia has seen an increase of 70 million online shoppers since the pandemic began. JLL’s analysis shows that many markets, including China, India and Indonesia, have seen double-digit growth in online grocery shopping since 2020.