Strong growth of online grocery shopping is spurring demand for cold-storage warehousing space in the United States, but the cost and complexity of building such facilities may pose challenges to meeting that demand, according to a report from real estate services and investment firm CBRE Group Inc., released Thursday.

Earlier this year, CBRE forecast that the U.S. industrial cold storage industry—which makes up 2% to 3% of overall U.S. office real estate—will need to add up to 100 million square feet of additional capacity to keep pace with the anticipated growth of online grocery sales over the next three years. In its newest report, CBRE points to a host of challenges associated with filling the void, including higher construction costs and longer development times associated with cold storage.

As of the second quarter of 2019, in-progress and newly completed cold-storage construction amounted to just 1.5% of overall industrial real estate construction in the United States, according to CBRE. The real estate services firm teamed up with Bridge Development Partners to identify some key differences in constructing cold-storage facilities as compared to traditional warehouses: 

• Cold-storage construction costs on average two to three times as much as building a traditional, "dry" warehouse, due in part to the need for insulated metal paneling, mechanical equipment, refrigeration equipment, rooftop equipment, premium concrete slab and subfloor heating, as well as designs for multiple temperature zones with their own loading docks.
• For similar reasons, construction of cold-storage warehouses often can take four to five months longer than for dry warehouses.
• Cold-storage warehouses need much taller ceiling heights—40 feet to 60 feet—than the range for traditional warehouses of 34 feet to 36 feet. The extra height makes for greater efficiency, accommodating more pallet positions per cubic feet.
• These facilities need to maintain temperatures between -25 degrees and +55 degrees, depending on the inventory. This creates a need for much more equipment.

CBRE also identified what it calls "three major shifts defining the rise in development and construction of cold storage in the coming years." These include the need to build more facilities on spec (which means beginning construction without tenants signed up); a movement to develop facilities in smaller markets; and the drive for more automation in cold-storage facilities.

"Markets adapt to demand, which we anticipate will happen in a big way in cold storage," Adam Mullen, CBRE Americas leader of industrial and logistics. "In the meantime, existing, state-of-the-art cold storage warehouses and those newly constructed will attract significant attention from grocers, food producers, and investors as grocery delivery gains momentum."