The popularity of cold storage has been rising amongst both end-users and investors. The net impact of COVID-19 has been to increase demand for warehousing generally and cold storage in particular. Uncertainty in the global supply chain is driving companies to seek domestic inventory control, even if it is more expensive.

As a result, trading in cold storage assets has also been steadily increasing, with very strong volume recorded so far this year.

Cold storage, also known as refrigerated storage, is a specialised form of warehousing where products (either fresh or frozen) are stored, packaged and distributed. Products are usually of a food or medical nature. Cold storage assets are typically owned by their developer, investors or their end-user as an owner occupier.

While asset sales have been mostly on the East Coast, there’s evidence of trading right across Australia. Real Capital Analytics (RCA) data over the past 20 years shows 38% of sales (dollar volume) have occurred in Victoria, followed by 28% in Queensland and 22% in New South Wales. 

total leased office stock in Australia, in million square metres. Q1 2020: 24.63, Q2 2020: 24.46, Q3 2020: 24.16, Q4 2020: 23.96, Q1 2021: 24, Q2 2021: 24.03, Q3 2021: 24.22

Although at a small proportion of total industrial property trading activity, cold storage assets are trading at record levels. The average sale price has also doubled in 2021 to reach $55 million.

In 2021 so far, sales volume is well above the average of the past 10 years and about 45% above the next highest annual level of trading which occurred in 2014.

total leased office stock in Australia, in million square metres. Q1 2020: 24.63, Q2 2020: 24.46, Q3 2020: 24.16, Q4 2020: 23.96, Q1 2021: 24, Q2 2021: 24.03, Q3 2021: 24.22

Cold storage transactions recorded in 2021 have all been bought for investment purposes with Asian buyers most active and accounting for more than 70% of dollar volume sold. The type of property purchaser highlights Sovereign Wealth Funds accounting for about two-thirds of these sales.

Yields for cold storage property have been on a downward trend. The boost in sales volumes have driven yields lower, suggesting the average cap rate has compressed to 4.5%, (still 600 basis points above the Australian weighted average Prime industrial yield as at Q3, 2021). Over the past few years, the average cold storage cap rate has hovered around the 6% mark. These cold storage cap rates are based on actual sales activity.

total leased office stock in Australia, in million square metres. Q1 2020: 24.63, Q2 2020: 24.46, Q3 2020: 24.16, Q4 2020: 23.96, Q1 2021: 24, Q2 2021: 24.03, Q3 2021: 24.22

Despite its alternative industrial asset status, cold storage’s popularity among property investors has continued to rise with further yield compression likely, supported by the sub-sector’s growth and strengthening fundamentals.

The outlook for the General Warehousing and Cold Storage industry is positive with IBISWorld forecasting revenue to rise at 3.1% (annualised) over the five years to 2025-26, reaching $6.2 billion. The economic recovery following the pandemic impact is supportive of this.

Also contributing to the industry’s revenue increase is growth in total merchandise and food imports and exports, as well as the popularity of online retailing.

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