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Asset class takes industrial sector by storm

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Asset class takes industrial sector by storm

Temperature-controlled industrial properties are a little-known, yet superlative, asset class that’s sure to grow in popularity among institutional investors.

The facilities are designed to maintain temperatures as low as -29 degrees Celsius, which makes construction expensive and buy-ins prohibitive for many, but at below 1% of Canada’s overall industrial sector, it teems with opportunity.

“It’s a great investment, not only for REITs, but institutional and private investors, as well,” said Victor Cotic, vice president of national investment services with Colliers International. “All the growth we’re seeing among industrial companies in real estate is all related to consumer goods. Manufacturing has really taken a downturn, so industrial real estate today is predominantly around consumer goods, retailers, and public consumption.”

Temperature-controlled industrial facilities primarily house food and pharmaceuticals, and for that reason they’re more or less recession-proof.

“Those are perfect examples of consumer goods because they’re linked to population, and unlike some other retail sectors, it’s recession-resistant,” continued Cotic. “Even in a down economy, people are going to consume food and need pharmaceuticals. They might buy a cheaper variety, but they’ll still need to put food on the table.”

Colliers oversaw a leaseback sale between Congebec Inc. and Skyline Commercial REIT, with the latter taking ownership of a nine-property national portfolio of temperature-controlled warehouses. Two-thirds of the facilities are divided between Montreal and Quebec City, and the remaining three are in Winnipeg, Saskatoon and Calgary.

The $190 million transaction closed last month.

“The frozen food industry continues to enjoy double-digit annual growth in North America and Congebec’s leadership position in the logistics side of this virtually recession-proof sector bodes well for their continued growth and success” Michael Mackenzie, President of Skyline Commercial REIT, said in a statement.

While Canada’s residential sector has seen astronomical growth in the last seven years, it has been vastly outstripped by a burgeoning industrial sector. Unsurprisingly, Cotic says that interest in the nine-property portfolio was immense.

“We had a lot of interest in the portfolio, and the investment community is becoming more and more interested in this asset type,” he said. “It has scale, and this deal represents the largest industrial investment deal in Canada in the past five years. A lot of investor capital is looking to be deployed in industrial real estate.”