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Home/News/Cold storage real estate potential in Vietnam

Cold storage real estate potential in Vietnam

12/09/2023

Savills report shows that fresh food industry revenue in Vietnam has increased by 6.3% in the period 2020 - 2022 (from 40.4 billion USD in 2020 to 45.7 billion USD in 2022). Strong domestic demand and a booming e-commerce landscape are key drivers for the growth of the cold storage market.

The cold storage supply in Vietnam is currently relatively small and concentrated in a few large cities.

In the past few years, industrial and logistics real estate has received more and more attention from investors, recording investment capital flows at record levels. In particular, according to Savills Research Department, cold storage real estate, used to preserve specific goods, is one of the attractive investment options, attracting capital of about 4.9 million VND. billion USD in 2022 globally.

Demand for cold storage is increasing in Asia

According to the Asia-Pacific Cold Storage Real Estate Report published by Savills in June 2023, although it only accounts for about 11.4% of the total transactions in the industrial real estate segment, the real estate market Cold storage products have recorded a growth rate of 29.6% from 2017 to 2022, far exceeding other types in the market. Rising demand for cold storage is believed to stem from growth in household income, growing urban and middle-class populations as well as changes in consumer habits.

Following the increase in income in the region, consumer shopping habits are gradually shifting to fresh foods of higher quality. They gradually give up the habit of shopping at traditional markets and go to supermarkets to look for a variety of foods, preserved in a modern and convenient way.

In addition, the development of e-commerce is also a key lever for the cold storage segment. Mr. Thomas Rooney, Senior Manager, Industrial Services, Savills Hanoi said: “During the pandemic, e-commerce and online shopping for essential goods has exploded with high commercial penetration rates. The global average e-commerce reached 22%. Notably, China and South Korea are the two countries with the highest e-commerce penetration rates in the world, with 27%. In emerging markets such as Southeast Asia, the main consumer customer group is mostly young population, which is expected to achieve a growth rate in e-commerce penetration rate of about 17% during the period. 2022 - 2026”.

Additionally, the pandemic has also accelerated the need to stockpile vaccines, pharmaceuticals and healthcare products that require cold chain supply.

In Asia-Pacific, the cold storage market is in a new stage of development with a few prominent markets such as China, India, Japan, Korea and Australia. According to a recent report by the Global Cold Chain Alliance (GCCA), India is the largest cold storage market globally based on total capacity, up to 150 million m3, followed by China (105 million) and Japan (38 million m3). million) in third and fourth place globally.

However, the current cold storage supply still cannot meet demand. Savills' Asia-Pacific Cold Storage Real Estate Report shows that the average available cold storage volume per capita across major markets in Asia ranges from only 0.03 - 0.50m3 in year 2018.

Outside of New Zealand, the regional average is currently much lower than the US or UK markets, at 0.49 m3 and 0.44m3 respectively. Accordingly, Asia - Pacific will need about 325 million m3 more to reach the level equivalent to the US and UK, which is double the level of 2018 according to GCCA estimates. Furthermore, much of the supply available today in the region is smaller in size than in developed markets. For example, cold storage in India usually has a capacity of 15,000 - 25,000m3, smaller than the capacity of 100,000m3 in markets such as the UK, US or Australia.

In general, the shortage in cold storage supply will remain in the short and medium term. This will lead to higher occupancy rates, stronger rent increases at existing supply, and create attractive investment opportunities.

Cold storage rental prices in different markets are very diverse

Vietnam's e-commerce market also witnessed a significant growth rate, reaching 21.5% in the period 2017 - 2022, promoting the expansion of all supporting services. The online food delivery industry thus also recorded a rapid growth rate, reaching 5.5% in the period 2020 - 2022. Similar to other developing markets in the region, Savills' report said, Vietnam's cold storage market is considered to still be developing on a small scale, with just over 40 projects, providing a total area of about 460.00m2 of cold storage area as recorded by 2022.

The cold storage supply in Vietnam is currently relatively small and concentrated in a few large cities. The market in the South recorded more dynamic development due to greater demand for food, seafood and retail products. Data published in Savills' Asia-Pacific Cold Storage Real Estate report shows that the majority of cold storage supply is concentrated in Ho Chi Minh City and neighboring provinces such as Binh Duong, Long An or Dong Nai, with The total area accounts for 87% of the country's total supply.

In the Northern market, in recent years Hanoi, Bac Ninh and Hung Yen have also recorded a significant increase in supply but are still limited in relation to the Southern market. Cold storage rental prices in different markets are very diverse. Ho Chi Minh City has rental prices nearly twice as high as other areas thanks to better facilities and many other value-added services.

Market share of cold storage real estate supply in Vietnam. Source: Savills Research and Consulting Department

Mr. Thomas Rooney said: "The average cold storage rental price in the Vietnamese market currently reaches USD 22/ton/month (in Bac Ninh) to USD 50/ton/month in Ho Chi Minh City. The current supply of new cold storage mainly comes from domestic enterprises. By the end of 2022, An Viet, Phan Duy, Hung Vuong, ABA Cool Trans are the leading cold storage providers. In addition, foreign businesses such as Lineage Logistics, SK Logistics and Lotte Logistics are actively investing in their own storage systems in the Vietnamese market. However, the situation of supply not meeting demand continues."

The expert also commented that the growth of e-commerce platforms and online shopping habits will lead to increasing pressure on cold storage capacity, especially when the average occupancy rate is above the national average. water level has reached about 88% by the end of 2022, with major markets such as Ho Chi Minh City, Binh Duong, Long An, and Bac Ninh provinces fluctuating at over 90%.

This change in consumer habits will be the main driving force driving growth in the cold storage and logistics services segment in the long term. According to Mr. Thomas Rooney, the cold chain's transportation and storage services need to continue to be improved. Although there are still barriers in terms of infrastructure and suitable technology, the Asia-Pacific market is still receiving a lot of support from the government through policies and subsidies.

With continuous investment from private enterprises in developing new technology and automation systems, the cold supply chain is assessed to possess many favorable potentials for further development in the future.

In addition, the complexity of the cold storage operating system requires higher investment capital and operating costs than conventional types, leading to the need for more time to recover capital. Furthermore, the characteristics of cold stored products cause safety and health regulations for cold storage to be tightened. From there, it makes the regulatory system and licensing process for cold storage more difficult, especially for new investors participating in this field. Therefore, cold storage investors are often investors with experience and financial potential.

“Investors also need to identify risks such as many problems that can occur during operations, economic fluctuations and reduced yields to better take advantage of the opportunities that the cold storage segment offers. . Based on my experience supporting tenants and investors in the cold supply chain, I believe that cold storages that are well-invested, well-designed, have prime locations and optimize operating costs will outperform conventional competitors, thereby attracting more transactions and investments from larger businesses in the future," the expert commented.

Nguồn: Pháp luật & Xã hội

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