Now Is The Time To Invest In Cold Storage FacilitiesJuly, 1 2022
Written by Michael Korine Co-Founder & CFO Astor Realty Capital
The industrial real estate market has been growing and accelerating rapidly in the past few years, and the global pandemic has only highlighted its resilience. Against that backdrop, cold storage is emerging as a new favorite among alternative asset classes.
Also known as refrigerated logistics, cold storage is a crucial link in the delivery supply chain. These facilities are the warehouses used to store, package and distribute products in need of temperature-controlled space, most notably food and perishables.
Demand Squeezing Supply
The pace and volume of construction of refrigerated warehouses is rising ,but may not be enough to meet demand. According to consulting firm Emergen Research, the monetary value of worldwide cold storage development is predicted to expand to $18.6 billion in 2027, up from $7 billion in 2019.
While the shift to e-commerce has increased demand for cold storage facilities, there are other driving forces as well, including existing facilities reaching their maximum capacities and experiencing aging in their infrastructure features.
Meanwhile, demand for the product type is outpacing supply. In the United States, the supply of cold storage facilities is outdated and construction of modern facilities lags in demand. According to research from JLL, more than 78 percent of cold storage properties in the country. were built before 2000, indicating they often lack the resources of modern facilities.
Elevated clear heights of 40 to 50 feet and wide spaces between columns are required to stage pallets and racks efficiently and garner the most profit per pallet. With those requirements largely nonnegotiable, users face with the challenge of securing cold storage for both the short and long term.
Warehouses that are built and/or owned by the same company that owns the merchandise housed within the facility are known as private and semi-private warehouses Public Warehouses
are run as separate businesses and provide a variety of services such as handling, storage, and shipping for a set or variable cost per pallet.
Chilled warehouses hold fresh perishable products and other items at temperatures between 32 and 33 degrees Fahrenheit. Warehouses that store icy perishable products and other items at temperatures ranging from -10 to -20 degrees Fahrenheit.
In addition to new construction efforts, the sector has seen considerable acquisition activity, retrofitting of older warehouses to accommodate demand and the implementation of innovative strategies to expand, reduce waste and transport temperature-sensitive products.
Valued at $89 billion in 2018, the cold storage industry is projected to reach $218 billion by 2026, growing at a compound annual rate of 11.7 percent from 2019 to 2026. According to the Global Cold Chain Alliance’s 2020 Global Cold Storage Capacity Report, North America and China have accounted for most of the increase in reported capacity since 2018.
Population growth drives increased volumes of consumption, and the United States is currently the largest market in the world, followed by India and China. The Top 5 global cold storage owner-operators are Lineage Logistics, Americold Logistics, United States Cold Storage, AGRO Merchants Group, and NewCold Advanced Cold Logistics, none of which primarily develop refrigerated space. As demand for new facilities has exceeded supply, the rental prices for old cold storage facilities have surged, if not doubled, in the past 5 years.
E-commerce Hits Grocery Market
E-commerce growth has created a demand for temperature-controlled food storage warehouses that can properly house perishable goods. To meet this demand, Astor Realty Capital is in the process of partnering with seasoned experts that have significant experience in the development, acquisition, finance, and sales of all properties to purchase massive facilities to meet demand.
From 2018 up to date, the Global Cold Chain Alliance predicts a 4 percent compound annual growth rate in the cold storage sector. And according to research fro CBRE, about half of all U.S. consumers buy food products online, with that percentage expected to climb by 20 percent in 2022.
In 2017, the United States’ gross refrigerated storage capacity was 3.6 billion cubic feet. California, Washington, Florida, Texas, and Wisconsin were the five states with the highest gross warehouse capacity in terms of millions of cubic feet.