FROZEN LOGISTICS

Structural Tailwinds Supportive Of Growth

Strong baseline fundamentals support cold storage demand, including population growth (driving food consumption), e-commerce and pharmaceutical investment.

To cater to population growth and to maintain the current per capita stock numbers, 800,000 sqm of additional cold storage stock is required over the next decade. However, sector is undersupplied under the current per capita ratios and closer to 950,000 sqm in supply is expected to be required.

Industry Consolidation Has Been a Theme

Industry consolidation has been a key thematic over the past decade, driven by the aggressive mandates of offshore players. Large offshore groups such as Lineage Logistics and Americold led the way as they entered the Australian market and sought operational efficiencies derived from scale.

Looking ahead, further consolidation is expected; however, a shift towards a build strategy is likely as larger players seek operational efficiencies that are derived from newer facilities.

High Barriers to Entry

The cold storage vacancy rate currently measures just 0.6%, well below the broader logistics and industrial market at 2.7%.

Construction costs for cold storage can be double that of traditional warehouse space given the need for insulation, airproof doors and advanced cooling systems. Consequently, supply has historically been pre-commitment led, underpinned by an economic rent.

Automation Remains Skewed to Larger Operators

The adoption of automation technologies, such as automated picking systems and advanced temperature controls, is enhancing efficiency and reducing costs. AI-driven optimisation is also playing a significant role in improving supply chain visibility and transportation. Larger occupiers, including the supermarkets, have recently made significant investments in automation within their cold storage space. Declining costs and shorter pay-back periods will provide greater scope for smaller cold storage operators to pivot to automation solutions; however, for most facilities below 10,000 sqm, automation in cold storage is not prevalent.

Temperature Flexibility is Key

The need for versatile temperature-controlled storage solutions is increasing as industries expand their range of perishable products. Recent supply additions allow flexibility in temperature controls, from freezer to chiller.

For owners, this provides a deeper tenant pool, which minimises letting-up periods, while for occupiers, flexible temperature controls provide flexibility to their customer base.

Ageing Inventory to Trigger Wholesale Shift

The average age of cold storage facilities in Australia is approximately 23 years. Over the next decade, we estimate that almost 25% of cold storage stock will become obsolete or no longer fit for purpose.

This environment will trigger significant demand for new space, while owners can capitalise on demand through creative solutions such as the retrofitting of ambient warehouse space or speculative development.