Navigating Challenges And Leveraging Insights Dynamic Cold Chain Industry
The cold-chain real estate market in Singapore presents an attractive long-term investment opportunity due to the projected increase in demand for specialized cold-storage facilities in the coming years. However, strict regulations and limited land availability for new developments in Singapore mean that the supply of new cold-storage facilities will be limited.
These multi-temperature-controlled facilities are custom-built to cater to a wide range of industries, including F&B, supermarkets, pharmaceuticals, and third-party logistics. Singapore’s cold-chain market is vital for the smooth functioning of these industries, with the majority of cold-storage facilities housing agricultural products due to Singapore’s heavy reliance on food imports and exports.
The growth of e-commerce and online supermarkets has also fueled the demand for cold-chain perishables market in recent years, and this trend is expected to continue as the demand for perishable food items increases. The biomedical industry in Singapore has also contributed to the demand for pharmaceutical cold-chain facilities, and this trend is expected to continue as more pharmaceutical firms increase their investment in Singapore.
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However, the limited capacity for food-storage space in Singapore poses a challenge as the demand continues to grow. The current stock of cold-storage facilities in Singapore is relatively small, with only 36% of the facilities being multi-user facilities. The majority of these facilities are held by owner-occupiers due to their specialized requirements.
Most of the cold-chain facilities are located in the western (70%) and northern (20%) regions of Singapore, with the remaining 10% distributed across the central and eastern regions. Developing new cold-storage facilities in Singapore is costly and time-consuming due to the complex nature of these facilities and the strict regulatory requirements. The construction of a new cold-storage warehouse typically takes 2.5 years, and the development of more energy-efficient and sustainable facilities is expected to further increase development periods.
Moreover, finding suitable industrial sites for new cold-storage facilities is a challenge due to complex operational requirements, limiting the number of potential development sites. As a result, cold-storage facilities in Singapore command higher rents compared to conventional warehouse assets, with a 13% increase in rents in 2023. This is expected to continue, with an average yearly increase of 2% to 4% over the next six years.
The limited supply of new cold-storage projects presents a promising opportunity for investors, who can expect steady long-term cash flows with yields of 6.5% to 7%, on par with prime 20- to 30-year leasehold logistics assets. In conclusion, the cold-chain market in Singapore is a real estate asset class to watch this year, given its limited supply pipeline and high leasing demand.