The Rise and Fall of Cold Storage Logistics Centers in South Korea
Cold Storage Boom and Bust: South Korea's Logistics Center Market Evolution
The Boom of Cold Storage Logistics
The cold storage logistics market in South Korea experienced a significant boom starting in 2018, driven by the rapid growth of fresh food delivery services. Companies like Coupang, with its "Rocket Fresh" service, and Market Kurly led the charge in the dawn delivery market for fresh and frozen goods. This new trend created an unprecedented demand for cold storage facilities.
Key Factors Driving the Boom:
- E-commerce growth
- Changing consumer habits
- COVID-19 pandemic boosting home delivery
- Expansion of major players like Coupang and Market Kurly
The Supply Rush
As demand surged, developers and investors rushed to build new cold storage facilities. The construction of these specialized warehouses typically takes about 30 months for a 33,000 square meter facility. This led to a significant time lag between the initial demand spike and the eventual supply increase.
Cold Storage Facility Development Timeline:
| Year | Stage |
|---|---|
| 2018 | Planning and initial investments |
| 2019-2020 | Construction begins |
| 2021-2022 | Completion and market entry |
Market Saturation and Challenges
By 2022, the market began to show signs of saturation. Several factors contributed to this:
- Coupang completed its nationwide expansion of Rocket Fresh service
- Market Kurly's growth slowed down
- Traditional retailers like E-mart repurposed existing stores as logistics centers
- Rising interest rates increased financing costs
Cold Storage Market Share:
| Type | Optimal Share | Actual Share (2022) |
|---|---|---|
| Ambient Storage | 85% | 77% |
| Cold Storage | 15% | 23% |
The Downturn
The oversupply of cold storage facilities led to several issues:
- Vacancy rates in the Seoul metropolitan area rose from 4% to over 20%
- Western regions like Incheon, Gimpo, and Bucheon saw vacancy rates exceeding 50%
- Rental rates for cold storage facilities dropped, approaching those of ambient warehouses
- Many projects became financially unviable due to increased construction and financing costs
Cold Storage Facility Supply in Seoul Metropolitan Area:
| Year | Supply (Square Meters) |
|---|---|
| 2018-2021 (average) | 231,000 |
| 2022 | 390,000 |
| 2023 | 594,000 |
| 2024 (projected) | 772,000 |
Foreign Investors Seizing Opportunities
As the market corrected itself, foreign investors began to see opportunities in the distressed Korean cold storage market:
- Singapore's GIC (Government Investment Corporation)
- Blackstone
- Hines (managing $67 billion in assets)
These investors are acquiring properties at discounted prices, anticipating a market recovery by 2025 when new supply is expected to decrease significantly.
Notable Acquisitions in 2024:
| Investor | Property | Price (KRW) |
|---|---|---|
| LaSalle Investment Management | Anseong Daedeok Logistics Center | 603.1 billion |
| GIC | Bucheon Naedong Logistics Center | 300 billion |
| Blackstone | Gimpo Seonggwang Logistics Center | 90 billion |
Future Outlook
The cold storage logistics market in South Korea is expected to stabilize and potentially recover from 2025 onwards. Factors contributing to this outlook include:
- Significant decrease in new construction starts since 2023
- Gradual absorption of excess supply
- Continued growth in e-commerce and fresh food delivery services
- Increasing interest from global investment firms
As the market corrects itself, it's likely that well-located, efficiently designed cold storage facilities will remain valuable assets in South Korea's logistics infrastructure.