Wall Street Journal: Cold Snap - Developers Pour Money Into Cold Storage in China
According to The Wall Street Journal:
Some of the world’s largest distribution center developers are beefing up their investments in specialized cold-storage facilities in China to meet the growing demand among Chinese consumers for higher quality vegetables, fruits, cheeses, meats and frozen foods like ice cream.
If all this sounds familiar and a bit risky, it is because this isn’t the first time that the allure of cold storage proved irresistible to several big name real-estate companies. Last time it happened, things didn’t work out too well.
About two decades ago, big U.S. real-estate companies like Vornado Realty Trust and Security Capital Industrial Trust—which later became part of today’s Prologis—bought cold-storage businesses in the U.S. They invested hundreds of millions of dollars each on the hope that food consumption would continue to rise and cold storage would pay much higher returns than traditional warehouse space, according to Eric Frankel, an analyst with Green Street Advisors.
But the capital and labor costs for the specialized facilities were greater than expected, Mr. Frankel said. Running the businesses required different types of skills than traditional real estate and the lack of this expertise cut into profit margins.
To read the full article from The Wall Street Journal, click here.