Industrial real estate developers are hot about cold storage

Industrial property developers have been pushing to build cold storage warehouses in the US with no tenants in line, betting that pandemic-induced changes in the way consumers shop Grocery and dining here.

Nearly 3.3 million square feet of cold storage space is under construction in the second quarter of this year nationwide with no company expected to receive the space in advance, about 1,000% more than the amount built in 2019, according to a report by real estate services firm CBRE released on Wednesday.

The growth in the so-called speculative construction real estate sector follows the upheaval in consumer buying patterns during the Covid-19 pandemic, as Americans rush to buy groceries online and stockpiling more frozen food while supermarket chains and food suppliers improve their supply chains to meet demand.

Consumer spending has shifted more recently as shoppers return to stores, cut back on e-commerce sales, and as rising inflation affects broader retail demand. .

Every day, millions of sailors, truckers, commuters, warehouse workers and delivery drivers keep mountains of goods moving into stores and homes to meet the growing expectations of consumers. consumers about convenience. But the complex movement of goods that underpin the global economy is much more vulnerable than many people imagine. Artwork: Adele Morgan

“We are closely monitoring retail sales,” said Matthew Walaszek, research director at CBRE and one of the report’s authors. “If that happens a drop, that will hit the market and there will be a setback in expansion, but we haven’t seen that yet.”

The cold storage market is mostly insulated from the economic downturn because people have to keep eating, whether they’re buying food at the grocery store or sitting at a restaurant, Mr. Walaszek said.

Grocery sellers including Walmart Inc.

and Kroger Co.

rolling out a host of new logistics operations to meet online demand during the pandemic, and many are continuing to invest in areas like home delivery and curbside pickup. Kroger is working with UK automated grocery fulfillment specialist Ocado Group PLC to build a series of robot-filled distribution centers in the US to reach e-commerce customers.

There are signs that demand for refrigerated products may be fluctuating. Spot prices for refrigerated trucks fell nearly 10% in May compared with March, according to online freight marketplace DAT Solutions LLC.

Developers, brokers and other industry experts say the market still has more space, especially in areas with rapidly growing populations, including Texas, Arizona and Florida.

About a third of the 3.3 million square feet being developed so far has been leased, Mr. Walaszek said, which is in line with what is typical in the broader industrial market for projects. speculation project.

Marc Duval, managing director of capital markets at real estate investment services firm JLL,

said a large portion of U.S. cold storage is “inefficient and outdated,” which will also drive demand for new locations that can operate more efficiently.

Interior of Win Chill, a cold storage in Sioux Falls, SD


Loren Townsley / Associated Press

New developers are entering the field, which is considered a niche in the industrial real estate market because of the special needs of cold storage. An April CBRE survey found that about 40% of real estate investors were interested in cold storage, up from 7% in 2019.

Thomas Eldridge, principal at RL Cold, an Atlanta-based RealtyLink company, entered the field in 2020. “There is a lot of demand and this is very important,” he said. “It’s very important to our economy.… Everyone has to eat. We didn’t experience any slowdown at all. If anything, it is picked up. “

RL Cold has three refrigerated buildings measuring approximately 300,000 square feet, each under construction in Charleston, SC, Baytown, Texas, and Wilmington, NC.

Mr. Eldridge said RL Cold expects to close three more cold storage locations over the next 90 days, a sign of continued confidence in the sector.

However, newer projects face difficulties that are affecting much of the construction business, including rising labor and material costs such as steel.

In Charleston, “what we thought was a $60 million project ended up being a $100 million project,” says Mr. Eldridge.

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