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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 JeongPureanae JangChelsea Yip and John Davies

Note1: Census and Statistics Department

 

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鄭 亥延

估價及諮詢服務主管

Valuation & Advisory Services

香港

鄭亥延小姐擁有十五年廣泛的估值和諮詢服務經驗,運用專業知識,提供的服務範疇如最優化使用分析,可行性研究,市場分析,成本效益分析和項目評估研究等。她曾參與眾多亞洲項目,項目地域包括在韓國、香港、中國、中東等國家。項目涵蓋從簡單物業開發到辦公、零售、住宅、酒店、工業和機構的城市綜合體。

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Pureanae Jang

高級經理

Valuation & Advisory Services

香港

Pureanae Jang在高力國際的估值及諮詢服務部門擔任高級經理。 她在提供評估和諮詢服務方面擁有6年以上的經驗,她具備豐富的經驗,可以提供有關房地產投資,發展諮詢,可行性研究以及為基金和機構投資者進行報告的評估方面的綜合知識。 她的工作經驗涉及的地理範圍遍及整個亞太地區,尤其是在香港,中國大陸和韓國。

在2015年加入Colliers之前,Pureanae在HVS擔任諮詢和評估顧問。 她在酒店業諮詢公司的經驗使她能夠很好地為Colliers帶來有關酒店和綜合用途物業開發的全面知識。

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