Heitman buys into demand for cold storage

Global investors have recently spent HK$2.3b to acquire three such assets in Hong Kong

Global real estate funds are tapping growing demand for cold-storage facilities in Hong Kong as tough social distancing rules and work from home arrangements amid the pandemic accelerate online grocery sales.

Chicago-headquartered Heitman, with over US$50 billion in assets under management, is the latest entrant into the sector, acquiring a 100,000 sq ft industrial building in Fanling for an undisclosed price. The fund will commence a fit-out to repurpose the asset into a cold-storage facility.

“We expect demand for specialised en-bloc facilities to continue to grow on the back of close to full occupancy of cold-storage space currently across Hong Kong,” said Brad Fu, head of AsiaPacific acquisitions at Heitman, which has been investing in Hong Kong’s traditional industrial and office properties since 2012.

The facility is 100 per cent prelet to end users even before the completion of renovation work, which is likely to take around 12 months, Fu said. He added that the tenants include high-end fresh and frozen food operators, but declined to name them.

“Demand growth for coldstorage space has remained resilient as the online sale of groceries in the city has multiplied in recent years, while consumption of fresh and frozen foods has also continued to increase,” said Fu.

While imports of frozen food in terms of weight into Hong Kong grew at 11 per cent from 2016 to 2020 annually, cold-storage space by gross floor area saw a mere 4 per cent growth over the same period, according to Colliers. Cold storage also enjoys a rental premium of 20-25 per cent above traditional warehouses.

In recent years, cold storage has emerged as a sought-after subsector in Hong Kong’s industrial market, with investment funds typically showing huge interest, a report by Colliers said.

International funds have bought three cold-storage assets since last year for a total of HK$2.3 billion. New York-headquartered Angelo Gordon paid HK$1.43 billion for the 291,697 sq ft Kai Bo Group Centre. Australian property group Goodman bought the 103,746 sq ft Seapower Industrial Centre for HK$520 million, and Singapore-based SilkRoad Property Partners paid HK$321 million for Smile Centre, a 97,751 sq ft cold-storage building.

Total cold-storage investment in the Asia-Pacific region reached US$2 billion in 2020, growing at an average annual rate of 21 per cent since 2011.