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Home » Demand Surging For Cold Storage Warehouses, But Construction Requirements Pose Challenges
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Demand Surging For Cold Storage Warehouses, But Construction Requirements Pose Challenges

September 26, 2019
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Los Angeles - Sept. 25, 2019 - The growth of online grocery sales has stoked demand for additional cold-storage warehousing space in the U.S., but the cost and complexity of constructing cold-storage facilities might make meeting that demand challenging, according to a new report from CBRE. The resulting shortage stands to make cold storage an even more coveted real estate asset for users and investors alike.

In a report earlier this year, CBRE forecasted that the U.S. industrial cold storage industry, currently spanning 2 percent to 3 percent of overall U.S. office real estate, will need to add up to 100 million sq. ft. of additional capacity to keep up with anticipated growth of online grocery sales through 2022. CBRE's new report, released today, outlines the challenges to ramping up construction of cold storage space.

"There are a lot of complexities inherent in developing cold storage facilities, but the most critical component driving more construction is well established at this point: strong user demand," said Matthew Walaszek, CBRE Associate Director of Industrial & Logistics Research. "As online grocery sales grow, grocers and other users will migrate more of their cold storage operations from stores into industrial cold storage facilities to better facilitate delivery."

The cold storage renaissance is in its early days. In-progress and newly completed construction of cold storage space in the U.S. currently totals just 4.5 million sq. ft., or 1.5 percent of overall industrial real estate construction at the end of the second quarter. CBRE teamed with Bridge Development Partners to identify primary differences between cold storage facilities and traditional warehouses that developers new to the sector would need to embrace to build more facilities.

• 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 to 60 feet - than the range for traditional warehouses of 34 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. Hence the need for significantly more equipment.

Some stablished developers and builders in the cold storage sector have mastered these requirements, and new entrants will adapt to them. Meanwhile, CBRE foresees three major shifts defining the rise in development and construction of cold storage in coming years.

First, developers will need to construct more facilities on spec, meaning commencing construction without tenants signed up. Spec building is a rarity in cold storage, and boosting it might require additional developers and specialized contractors to enter the market.

Small markets likely will see more cold storage construction. Most construction has taken place in large markets for decades, but rising land and construction costs are likely to push developers and users to smaller markets nearby, like Wilmington, N.C.; San Antonio, Texas; and Savannah, Ga.

Automation will make more headway into cold storage facilities, allowing big retailers and other users to streamline processes and improve productivity.

"Markets adapt to demand, which we anticipate will happen in a big way in cold storage," said Adam Mullen, CBRE Americas Leader of Industrial & 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."

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world's largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

More Info: https://www.cbre.us/research-and-reports/US-Food-in-Demand-Series-Cold-Storage-Development-Opportunities-Heat-Up?utm_source=Media&utm_medium=News%20Release

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