Driven by the ongoing growth of online grocery sales, the future looks bright for United States-based cold storage warehouses, according to a recent report issued by Los Angeles-based industrial real estate firm CBRE.
Entitled “Cold Storage Space: One Size Does Not Fit All,” the report cited a projection from the Food Marketing Institute and Nielsen that there could be demand for up to 100 million square-feet of industrial real estate space over the next five years, with online grocery ordering expected to account for 13% of total grocery sales by 2022, marking a 3% gain from 2018. This level of growth, the report explained, would be the equivalent of another $100 billion in annual online grocery sales.
What’s more, the report pointed to how total industrial cold-storage industry space, at an estimated 214 million square-feet (3.6 billion cubic feet) represents a very small amount of the total U.S. industrial and logistics real estate market. And it added that cold-storage sector growth is largely expected to take place in what it called gateway markets such as Los Angeles and New York, in addition to the top food production states, including California, Washington, Florida, Texas, and Washington.
In an interview, Matt Walaszek, CBRE Associate Director of Industrial & Logistics Research, said that the expected 3% growth rate between 2018-to-2022 could be viewed as somewhat “bullish,” with the caveat that for online food and beverage sales, the perishable portion of that is not extracted out.
“We are making the assumption that a large amount of that will be perishable, given the trend towards this hyper-awareness that consumers have towards fresh foods and foods without preservative in ingredients, whether it is in the grocery store or for fast food, and other places,” he said. “We took that estimate and worked with it and translated it into what it means for the industrial real estate market.”
And that led to a determination that there will be growth in demand for cold storage space as a result of that projection and a metric developed in recent years by CBRE, based on the calculation of $1 billion in e-commerce sales equates to 1.25 million square-feet of industrial space demand.
When looking at the total inventory of the industrial and logistics real estate market, at 14 billion square-feet, Walaszek noted that while cold storage is a very niche market, it is also one that CBRE thinks is about to take off.
“It is really driven by changing consumer behavior; that is what it really boils down to,” he said.
CBRE noted in the report that other growth drivers include grocers’ investment in new delivery strategies and warehouse technologies. But while growth is expected, it will not come without challenges, said Walaszek.
“It is not just a box, which is essentially what a distribution center is, and is not very sophisticated,” he said. “Cold storage facilities require a lot more in terms of ammonia, refrigeration, piping throughout the building, and huge HVAC systems on top of the buildings. These are very capital-intensive items that are required. It is like a box within a box, in that they construct a building and then build the cold storage facility within that. There is the building portion and the freezer portion, and the latter needs to stay at the same temperature or else the items in the facility might spoil. One of the biggest challenges is keeping temperatures the same when transporting goods, especially when it is coming to or from a truck.”
What’s more, the financial aspect of cold storage facilities cannot be overlooked, with the costs per square-foot ranging from $80-to-$120 based on market, with that figure potentially being twice as high out West, where land values are higher.
The largest refrigerated North American warehouse companies cited in the report––Lineage Logistics, 31.8%; Americold Logistics, 29%; United States Cold Storage, 8.9%; and Versacold Logistics, 3.8%––make up the top four players, as per the May 2019 ARW North American Top 25 List.
Looking at the leading market placers in the cold storage sector space, Walaszek said it is likely there will be further consolidation within the market, as well as further fragmentation, too.