Growth Drivers For Cold Storage Segment In India

Cold Storage (CS) facilities play an integral role in improving the shelf life of products, thereby reducing wastage. Over recent years, increasing urbanisation and organised retail food processing and servicing sectors have been accelerating the demand for products that need an efficient cold chain. Following the COVID-19 outbreak, the demand is now being further fueled by a huge omnichannel distribution of F&G across tier I and tier-II cities in the country.

CBRE believes that brands and manufacturers, especially those engaged in the production of necessities, may tend to store more stock and keep inventory closer to consumption points and service locations. Maintaining higher stock levels locally would generate higher industrial and logistics (I&L) demand and is likely to transform how companies store goods, plan infrastructure, and serve their local customers going forward.

Need for Cold Chain Infrastructure

CS facilities act as an important facilitator for several industries working across fresh food production and delivery; along with healthcare and other products such as flowers and chemicals. Considering the potential of the CS segment in the country, consumer/industry-led factors in India would continue to attract the interest of leading players in the coming years.

With the rising demand for cold storage facilities, there is a growing need for cold chain infrastructures such as pack houses, ripening chambers, and reefer freight in the country. In India, states including Uttar Pradesh, West Bengal, Gujarat, Punjab Andhra Pradesh, Bihar, Madhya Pradesh, Maharashtra, Haryana, and Karnataka account for 91% of the total CS capacity as of 2019. Following the COVID-19 outbreak, the demand for CS will further rise and the cold chain network would also play a vital role in reducing the loss of the produce and improving CS efficiencies. On the back of this, the overall CS real estate stock is estimated to reach 1,400 – 1,500 million sq. ft. by 2023.

A rise in Omni-channel distribution of F&G

Owing to the increasing urbanization and a rise in retail food processing the demand for products that need efficient CS facilities has accelerated in the country. Over the next few years, the estimated growth of industries such as F&G, online F&G, dairy, food processing, and pharma is thus likely to drive demand for CS and reduce product wastage.

CS facilities also play an integral role in the promotion of the rural economy as they would link the marketplaces across all locations. In this age of digitisation and improved internet access, CBRE expects the demand for online food delivery services in both rural and urban areas to grow and further propel the demand for cold chain infrastructure in the country. In addition to that, the emergence of the ‘cloud kitchen’ concept is also likely to boost demand for CS facilities.

Increased demand for quality spaces and lease flexibility

Considering the demand, quality projects, well-connected assets, especially those developed by prominent players, are expected to see traction in demand. Emphasis on improving efficiencies in last-mile delivery is also expected to drive demand for assets located closer to the city. Keeping in mind the situation, occupiers are also likely to seek flexibility in leasing terms – reduced lock-in period in long-term leases and more short-term leases.

Formalisation of the segment

In the Union Budget 2020-21, the government announced the formalisation of the cold storage segment by commissioning National Bank for Agriculture and Rural Development (NABARD) to map and geo-tag agri-warehousing, CS, and reefer van facilities. In addition to this, government initiatives around reducing post-harvest waste, encouraging investment, and improving logistics efficiencies are also expected to boost the overall CS capacity, value, and real estate stock.

Regular policy interventions would boost global investment in the CS segment, leading to increased regularisation and efficiency over the medium to long term. In turn, real estate investments are expected to increase as investors will be increasingly attracted to the higher returns offered by cold storage and will see it as an opportunity to diversify their portfolio.

Jasmine Singh

Guest Author Senior Executive Director Advisory & Transaction Services, India