- ‘Modernized cold-chain facilities, which can minimize distribution losses, becoming more important’
November 12, 2019 (Seoul, Korea) – CBRE Korea, a global commercial real estate service company, released a report entitled Korea Cold Storage: An Investor’s Guide which tracks the evolution of the cold storage market and analyzes its growth potential. Cold storage refers to warehouses where products that require temperature-controlled conditions are stored, packaged and distributed.
The growth of e-commerce platforms, increases in the number single-person households and double-income families and an aging population with increased healthcare needs are driving demand for storing and transporting groceries and pharmaceutical products. Don Lim, Managing Director of CBRE Korea, remarked, “An increasing number of fresh-food retailers and a greater variety in the products they carry creates consistently growing demand for cold storage. Especially, modernized cold-chain facilities that can minimize losses during the distribution process will become more important.”
Currently, pure cold storage supply remains limited. A total of 127 Grade A logistics centers providing 7 million sq.m. of space were operating in the Greater Seoul area as of the end of Q3 2019. The main logistics hub in Greater Seoul to the south of the city in areas such as Icheon and Yongin is home to around of 40% of total Gross Floor Area (GFA). Dry warehouses have long comprised the bulk of logistics supply in Grater Seoul area. However, growing demand for cold storage is prompting more developers to construct pure cold assets or mixed assets that combine dry and cold facilities. Mixed assets tend to be developed in cities near Korea’s west coast or in close proximity to Seoul.
Four of the eight new Grade A logistics facilities completed in 2018 were mixed assets and had an average GFA of 100,000 sq.m. or more. This development trend is expected to continue. If all assets planned for future development are supplied, total GFA of Grade A logistics centers in Greater Seoul will reach 8.6 million sq.m. by 2020, a 50% increase from 2018.
Investment in the domestic cold storage market started to pick up in 2013 as liquidation of fresh distribution centers owned by domestic hypermarkets took place. Still, cold storage accounts for just 9% of total logistics transaction volume in Korea over the past five years. More recently, new supply of large-scale logistics complexes has led to an increase in transactions for mixed assets.
Claire Choi, Head of Research at CBRE, said, “For foreign and domestic investors who wish to diversify their investment channels beyond office assets, not only conventional dry warehouses but also cold storage centers are promising investment options. To minimize vacancy issues, landlords should fully understand the dynamics of cold-chain logistics such as seasonality, change in logistics volume and tenants’ needs.”
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CBRE Group, Inc. (NYSE: CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2020 revenue). The company has more than 100,000 employees serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at https://www.cbre.com.