Fresh is best. Just look to the industrial sector where cold storage facilities are streaking ahead. The last time the asset class was front and centre was 2014/15 when more than $450 million worth of property changed hands largely on Australia’s east coast. After a quieter period, transactions picked up again in 2019 as changing consumer tastes led to higher demand for produce fresh enough not to spoil in the crisper just days after purchase. Enter the covid-19 pandemic and suddenly there was a need for more cold storage facilities suitable for vaccines and other medical supplies. Combined, these two drivers have been helping the narrow subset of industrial sector – also known as refrigerated warehousing – maintain an upward trajectory and signalling opportunity for all levels of investors.

No slowdown

During 2021 more than $320 million of cold storage changed hands which has seen yields drop to as low as 4.3% from levels of 6% to 7.5% a few years prior according to Ray White Commercial. This year transaction levels have decreased in line with the correction in commercial and other real estate markets generally triggered by rising interest rates and inflation.

Projections for online grocery sales however indicate there will be no slowdown in requirements for cold storage facilities and other warehousing suitable for groceries. IBIS World market research forecasts Australia’s online grocery sales – which currently stand at $9.9 billion - to increase by almost 30% in 2022.  A 2022 Hootsuite and We Are Social study into e-commerce in Australia shows just over 20% of internet users now buy their groceries from an online store and almost 53% buy goods and services online.

This turnaround in only a few years has been marked. Pre-covid, online grocery sales were just 4% of total supermarket sales in Australia, and the country lagged about five years behind the likes of the United Kingdom in terms of both online grocery sales and the capability to deliver those orders. But international consultants GLG found that since covid, the industry in Australia has shot ahead to make at least a decade’s worth of progress in a matter of years, “growing at remarkable speed”.

Better, faster, stronger

While Australia has historically been the most active market for cold storage transactions within APAC, rising affluence across the region is leading to similar scenarios elsewhere. Online grocery is expected to be the fastest-growing category within APAC’s retail e-commerce sector according to the recently released report Cold Storage – Keeping It Fresh by ARA Asset Management Limited, APAC’s largest real asset manager and the third largest listed real estate investment manager globally.

Likewise, leading international market research company Forrester forecasts online grocery demands to exceed 30% per annum in the next two years.

JLL is also reporting intensified investor demand in the cold storage sector throughout APAC since the pandemic hit as pharmaceutical companies compete with for premises alongside food and beverage producers. Cold storage investment volumes in Asia Pacific grew nearly fivefold from 2019 to hit US$1 billion in 2021, according to data from Real Capital Analytics, JLL reported.

If there is any downside to investing in any cold storage facility it is cost. Colliers’ estimates that the cost of constructing a cold storage facility is three times that of a stock standard warehouse, completion times are lengthier, and once up and running, such facilities cost more to operate given their high energy needs. There is also the consideration that specialists need to be hired to manage such complex assets.

Despite these hurdles analysts say the asset class is worth the dollars involved especially given that cold storage facilities attract far higher rents than traditional warehouses. Rental premiums can be 100% higher or more than those commanded by regular storage facilities according to Colliers’ data, while cold storage occupiers are more likely to commit to longer lease terms – 10 to 25 years - more than double that of a run of the mill warehouse.