Vietnam sees strong demand for cold storage facilities

New Land Viet Nhat Long An is a new joint venture that is available on the market in mid-July 2023. This is a corporation with three Japanese investors: Sojitz (51%), Kokubu (44%), and New Land Viet Nhat (5%). 

The joint venture will expand Vietnam's food value chain by strengthening cold chain logistics functions at the Huong Thuy facility, one of Vietnam's major wholesale companies.

Mr. Thomas Rooney, Senior Manager of Savills Hanoi Industrial Services, assesses the supply of cold storage in Vietnam as relatively low. New Land Viet Nhat Long An, with a 36,000 m3 floor area and a maximum storage capacity of 39,000 pallets and 70 trucks, is a bright spot in the market.

Last year, Cold Storage Logistic Hau Giang (a member of Cafatex Seafood Company) also started the first cold storage project in the cold storage center investment project for outsourcing.

Hung Vuong has invested about VND 1,300 billion in cold storage with a capacity of 60,000–70,000 tons of goods, with the expectation that after 4 years of operation (2021–2025) it will be able to recover capital. Hung Vuong also plans to invest in another warehouse in Hiep Phuoc Port.

With 5 cold distribution centers (DCs) (3 ABA and 2 partners), ABA Cooltrans is the company with the most. ABA Cooltrans CEO Luong Quang Thi said: "With 40,000 pallets, ABA Cooltrans ranks 4th in cold storage. ABA has the most chilled cars with 300."

Thaco also invested in a large cold storage system in the Chu Lai Economic Zone with a capacity of 2,400 tons. Sao Ta Seafood also contributed capital to Khang An to invest in 9,000 tons cold storage in industrial parks in Soc Trang. As for ITL Corp., it increased investment in cold storage after receiving a loan from IFC.

By the end of 2022, Hoang Lai Group, Hung Vuong, ABA Cooltrans, Transimex, Mekong Logistics, MP Logistics, Vinafco Vietnam, An Viet, Phan Duy... are still the leading cold storage providers in Vietnam. However, about 60% of the market share is in the hands of foreign investors such as Lineage Logistics, SK Logistics, Lotte Logistics, etc.

Despite the active participation of domestic and foreign companies, the situation of supply not meeting demand still continues. Mr. Truong Dinh Hoe, General Secretary of the Vietnam Association of Seafood Exporters and Producers (VASEP), confirmed that Vietnam is seriously lacking cold storage. 

JLL reports that real estate investors, venture capital firms, and lenders are evaluating cold storage as an industrial real estate option. Ms. Trang Bui, General Director of Cushman & Wakefield Vietnam, suggested that investors and property owners convert warehouses into cold storage to take advantage of lower rental rates.

Savills predicts about 40 cold storage projects by 2022, totaling 460,000 m2 of storage space. Ho Chi Minh City and nearby provinces, including Binh Duong, Long An, and Dong Nai have 87% of the country's cold storage supplies. 

Cold storage is crucial to food security and retail expenditures. Despite the economy, people still buy food, and cold storage facilities are essential to the food supply chain, said Savills Australia Director of Industry and Warehouse Michael Fenton.

Despite more units participating, only 3-4 cold storages were opened in 2022. Supply is hampered by "high investment costs for cold storage". Construction can take up to 6 months and cost 2-3 times more than a normal warehouse. The lease duration is normally 15-20 years, making the short supply even scarcer, "Ms. Trang Bui said.

Mr. Rooney suggested strengthening infrastructure (bridges, highways...) and technology to make Vietnam's cold storage more competitive. Vietnam's cross-border trading procedure, including time and cost, requires improvement. Mr. Rooney says obtaining a cold storage license is harder because of safety and health restrictions. 

"Investors also need to identify problems and risks that may occur during operations, economic fluctuations, and reduced yields to better take advantage of the opportunities that the cold storage segment offers," he added.

Mr. Rooney stressed that well-invested, well-designed, prime-location cold storage will beat conventional competitors and attract more transactions. as well as an eventual larger company investment.

This industry's appeal is hard to refuse. According to Savills, cold storage real estate has grown approximately 30% in the previous five years (2017–2022), outpacing other categories. Savills expects Vietnam's cold storage real estate to reach $295 million by 2025, a 12% annual increase.

According to Savills, cold storage is always over 90% full in Ho Chi Minh City and nearby areas. Cushman & Wakefield report that food preservation and pharmaceutical storage cost 45–90 and 160 USD/m2, respectively, compared to dry warehouses. "High rent will be a strong motivation for investors to be willing to build cold storage," Ms. Bui added.