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Hot demand for cold storage


Cold storage, a sub-sector of industrial properties to store, pack, and distribute temperature-sensitive and perishable products, has recently emerged as one of the most appealing niche asset classes in Hong Kong. COVID-19 has triggered rising frozen food consumption and the related e-commerce demand in the city. Hong Kong’s retained imported frozen food has increased by 49% over the last three years, from 1.1 billion kilograms in 2018 to 1.6 billion kilograms in 20201 with growth accelerating over the last two years, recording 25% YOY growth in 2019 and 20% YOY growth in 2020.

Cold storage’s edge in Hong Kong – rental and yield premium 

Traditional warehouses in Hong Kong generally fetch unit rents in a range of HK$10-16 per sq. ft. on GFA per month, varying based on the location, vertical access (ramp/lift access), floor loading and ceiling height. The rental premium for cold storage is differentiated from traditional warehouses, typically due to their enhanced building specifications, such as higher floor loading and ceiling height and the relatively limited supply making the rental premium about 20%-25% higher than traditional warehouses. This premium is likely to be sustained by the limited cold storage supply, which creates competition among end-users. 

Apart from their rental level, cold storage has a premium in capitalisation rate over traditional warehouses. The limited pool of cold storage operators equally covers a small pool of market participants and thus, would be deemed riskier as it is difficult to seek suitable tenants for replacement.

How can investor enter the market?

Investors who are interested in entering the cold storage market in Hong Kong can explore three options:

  1. development of built-to-suit cold storages,
  2. acquire existing owner-occupied cold storages with sale-and-leaseback opportunities, and
  3. conversion from existing industrial assets. Limited new industrial land supply from the government renders the development of new built-to-suit cold storage difficult.

An efficient way to invest in cold storage in Hong Kong is to look for existing owner-occupied cold storages and propose a sale-and-leaseback deal. Investors should also look out for cold storage units operating under food factory licences, as this type of shadow supply can be seen as potential stocks for investment. 

Apart from sale-and-leaseback opportunities, which are constrained by availability, investors should also explore industrial assets with potential for conversion or refurbishment, especially those assets with good locations and building specifications suitable for cold storage operations.

Latest cold storage transactions 

There were two major en bloc cold storage transactions in Hong Kong since March 2021- Kai Bo Group Centre and Brilliant Cold Storage Tower 2. Kai Bo Group Centre was a sale-and-leaseback transaction sold by Kai Bo Group to institutional fund Angelo Gordon. It was transacted at a record high initial yield of 4.8%, highly likely due to the sale-and-leaseback nature of the deal where the seller raised the committed rent to attract buyers in the market. Meanwhile, Brilliant Cold Storage Tower 2 was acquired by ESR Cayman as their first asset in Hong Kong. According to their announcement, ESR intends to convert the cold storage building to a 40MW data centre. Upon completion of conversion, it will be an example of how cold storage investment can use date centre options as an exit investment exit strategy in Hong Kong. This is made possible by the similar building specification requirements between the two assets, making conversion not only possible but relatively easy. 

If you would like to know more about cold storage in Hong Kong, you can download the latest Colliers Radar: Cold storage’s edge over traditional industrial assets offers investor opportunity. Or, to see what could be and how you can leverage this niche opportunity, contact one of our experts Hannah Jeong, Pureanae Jang, Chelsea Yip and John Davies

Note1: Census and Statistics Department


Related Experts

Hannah Jeong

Head of Valuation & Advisory Services

Valuation & Advisory Services

Hong Kong

Hannah Jeong has extensive valuation & advisory services experience over 15 years including property investment and development projects specialising in valuation, development consultancy, financial analysis and feasibility studies. Project’s geographic coverage span across Asia Pacific and Middle East, in particular Hong Kong, China and Korea. She has started her career with Colliers since 2006 and is now heading our Valuation and Advisory Services - Hong Kong Office with over 40 professionals.

Hannah has strong client coverage on major financial institutions including global real estate funds and private equity firms.

View expert

Pureanae Jang

Senior Associate Director

Valuation & Advisory Services

Hong Kong

Pureanae Jang works as an Associate Director of Colliers' Valuation and Advisory Services in Hong Kong. Pureanae manages a team of eight, and her projects' geographic coverage spans across Asia Pacific, in particular Hong Kong, China and South Korea. She is commited to provide accurate and well-supported opinions of property value to assist her clients to reach their critical goal - to acquire the best asset, secure financing, close a sale, report to investors or identify unlocked potential of an asset.

Her specialisations include:

• Single-asset and Portfolio Valuations

• Appraisal Review / Management

• Discounted Cash Flow Analysis

• Feasibility Studies

• Highest and Best Use Studies

Having grown up in Mainland China and Hong Kong, Pureanae can speak, read and write in English, Japanese, Korean and Chinese. With her diverse background and effective cross-cultural communication skills, she is capable of delivering portfolio valuations on a global scale. She has completed various projects in Australia, Hong Kong, Indonesia, Japan, Korea, Mainland China, Mongolia, Northern Mariana Islands, Singapore, Taiwan and The United States.

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