Navigating Challenges And Leveraging Insights Dynamic Cold Chain Industry

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The cold-chain real estate market in Singapore presents a promising investment venture, given the expected growth in demand for high-specification cold storage facilities in the near future. However, strict development regulations and limited land availability in Singapore mean that the supply of new cold-storage facilities will be restricted.The multi-temperature-controlled facilities, equipped with various specifications such as different temperature ranges for different products, are usually custom-built to cater to a wide range of industries. The cold-chain market in Singapore is crucial for the smooth operations of various industries, including F&B and supermarket chains, pharmaceuticals, and third-party logistics.For instance, Singapore heavily relies on cold-storage facilities for its robust food import and export market. The country exports around 60% of its locally manufactured food and imports over 90% of its food supply. As a result, agricultural products constitute the majority of items stored in cold-chain facilities here.E-commerce and online supermarket sales have also played a significant role in driving the growth of the cold-chain perishables market in recent years. As the demand for perishable food increases in the coming years, a continuous demand for ambient, air-conditioned, and chiller food-storage spaces can be expected.The burgeoning biomedical industry in Singapore has also led to an increase in demand for pharmaceutical cold-chain facilities. We anticipate that many pharmaceutical firms will increase their investment commitments and real estate needs in Singapore in the next few years. This indicates a sustained demand for more high-specification cold-chain facilities that cater to the requirements of this industry. The growing demand for food-storage space is straining Singapore’s limited capacity. The relatively low supply of existing facilities, coupled with costly and lengthy construction periods, and complex operational requirements, make it challenging to increase the future supply of this niche asset. The issue is compounded by high interest rates.Limited stock of cold-chain facilitiesSingapore’s cold-storage capacity consists mainly of a small number of existing facilities. While official supply statistics are not available, it is estimated that Singapore has over 5.4 million square feet (in gross floor area or GFA) of cold-chain warehouse capacity, based on the basket of major properties tracked by Cushman & Wakefield Research. Of this, only 36% (in GFA) are multi-user facilities. The majority of cold-chain facilities in Singapore are typically owned by owner-occupiers due to the specialized requirements of cold-chain facilities.Graphic: JTC, REITS’ ANNUAL REPORTS, CUSHMAN & WAKEFIELD RESEARCH.Most of the cold-storage facilities are located in the western region (around 70% of stock) and the northern region (approximately 20% of stock) of Singapore. The western region is a preferred location due to its proximity to major seaports such as Jurong Port and Tuas Mega Port, as well as key infrastructure developments like Tuas Second Link. The northern region is also attractive to cold-chain players as it is near the Singapore Causeway and Sembawang Wharves. The remaining 10% is scattered across the central and eastern regions of Singapore.High development costsDeveloping new cold-chain facilities in Singapore involves relatively high construction costs and longer timelines compared to other logistics assets. This is because cold-storage facilities are a complex asset class with varying requirements depending on the needs of the end-user or tenant.The construction of a new cold-storage warehouse in Singapore typically takes about 2½ years, which is six months longer than the development of a conventional warehouse that usually takes two years to complete.The emphasis on sustainability will result in energy-efficiency standards gaining more importance for future asset enhancements and new developments. This could lead to an increase in the development periods of future cold-storage projects in Singapore, further shrinking the supply pipeline and contributing to stronger rental growth in the short term.In addition, developing new cold-chain logistics facilities in Singapore can be challenging due to the complex operational requirements. It is difficult to find suitable industrial sites for new developments. For instance, cold-storage facilities that involve food processing and manufacturing can only be built within JTC food factory industrial estates, and new facilities must adhere to current food safety regulations. Some cold-chain storage facilities that do not require food processing can be developed outside food factory estates, although this is still subject to approvals.Read also: Office fit-out costs in Singapore rise to $188 psf, highest in Southeast AsiaAdvertisementThese requirements limit the number of potential development sites for cold-storage facilities.Underrated asset class with potential for growthCold-storage facilities in Singapore already command higher rents compared to conventional warehouse assets, owing to their higher initial capital expenditure, operating costs, and limited market supply. The rents for cold-chain warehouses in Singapore increased by 13% in 2023, while overall industrial rents grew by 8.9% over the same period of 12 months. The strong demand for cold-chain facilities has resulted in yields of 6.5% to 7%, which is on par with prime 20- to 30-year leasehold logistics assets.Table: Cushman & Wakefield Research.Given the limited supply of new cold-storage projects being developed here, we can expect to see a yearly increase in the average rents for cold-chain facilities of 2% to 4% over the next six years, including this year.The combination of limited future supply and high leasing demand makes the cold-chain market a real estate asset class to watch this year. Although cold-chain projects may be more operationally demanding, investors who capitalize on this opportunity can look forward to steady long-term cash flows underpinned by a limited supply pipeline. Brenda Ong, an executive director of logistics & industrial at Cushman & Wakefield Singapore. To see the latest Industrial Real Estate property listings, visit our website.