Global real estate funds are tapping growing demand for cold-storage facilities in Hong Kong as the tough social distancing rules and work from home arrangements amid the pandemic accelerates online sales of groceries. Chicago-headquartered Heitman, with over US$50 billion in assets under management, is the latest entrant into the sector, acquiring a 100,000 sq ft industrial building in Fanling for an undisclosed price. The fund will commence a fit-out of the property to repurpose the asset into a cold-storage facility. “We expect demand for specialised en-bloc facilities to continue to grow on the back of close to full occupancy of cold-storage space currently across Hong Kong,” said Brad Fu, head of Asia-Pacific acquisitions at Heitman, which has been investing in Hong Kong’s traditional industrial and office properties since it set up an office here in 2012. The facility is 100 per cent pre-let to end users even before the completion of the renovation work, which is likely to take around 12 months, Fu said. He added that the tenants include high-end fresh and frozen food operators, but declined to name them. “Demand growth for cold-storage space has remained resilient as the online sale of groceries in the city has multiplied in recent years, while consumption of fresh and frozen foods has also continued to increase,” said Fu. While imports of frozen food in terms of weight into Hong Kong grew at 11 per cent from 2016 to 2020 annually, cold-storage space by gross floor area saw a mere 4 per cent growth over the same period, according to the latest figures from Colliers. Cold storage also enjoys a rental premium of about 20 per cent to 25 per cent above traditional warehouses, which rent for between HK$10 and HK$16 per square foot per month. Hong Kong’s cold storage market heats up, ripe for investment amid short supply In recent years, cold storage has emerged as a sought-after subsector in Hong Kong’s industrial market, with investment funds typically showing huge interest, according to a report by Colliers. International funds have bought three cold-storage assets since last year for a total of HK$2.3 billion. New York-headquartered Angelo Gordon paid HK$1.43 billion for the 291,697 sq ft Kai Bo Group Centre in March last year. The deal came one month after Australian property group Goodman bought the 103,746 sq ft Seapower Industrial Centre for HK$520 million, and Singapore-headquartered SilkRoad Property Partners paid HK$321 million for Smile Centre, a 97,751 sq ft cold-storage building. Kwai Chung stands out as one of the most promising sub-markets, accounting for 44 per cent of the licensed cold-storage space that is well connected via the highway network, the Colliers report said. Total cold-storage investment in Asia-Pacific reached US$2 billion in 2020, growing at an average annual rate of 21 per cent since 2011.