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Cold Storage Industry Review

Investor Appetite for Cold Storage

Investors’ interest in industrial real estate has grown significantly as a result of strong market fundamentals and growth in e- commerce sales. Furthermore, this demand growth has pushed industrial cap rates to historically low levels, often pricing buyers out of gateway U.S. markets. As a result, investors are looking towards secondary markets and alternative industrial assets to garner additional yield.

Given attractive supply and demand fundamentals, cold storage is emerging as a favorite alternative industrial asset class for investors. More specifically, according to CoStar data, cold storage sales figures have continued to rise with $560 million in sales of refrigerated and cold storage space in 2016, $783 million in 2017 and $963 million in 2018(1).

What is Cold Storage?

Cold storage distribution facilities typically serve as an intermediary between farmers and food production facilities, which are more specialized facilities that process and handle food at the initial stages of preparation, and companies that sell food directly to consumers, such as grocery stores and online food delivery platforms. Furthermore, while production facilities focus on food preparation, distribution warehouses focus on providing storage, product handling, and logistics services for large food companies that are focused on serving the end user: the consumer.

According to CBRE, cold storage distribution facilities are typically measured by cubic feet, are cross-docked and feature clear heights of 40 to 60 feet. The high clear heights represent the need from users to maximize the space of the facility in order to increase the number of pallet positions available. According to JLL, due to the complexities and expenses involved in developing cold storage facilities, development costs often reach $150 to $170 per square foot compared with $50 to $65 per square foot for typical, non-refrigerated distribution facilities(2) (3).

1) Lou Hirsh. “US Cold Storage Demand to Heat Up in Next Five Years.” CoStar, July 2019.
2) “2019 U.S. Food on Demand Series: Cold Storage Logistics Unpacked.” CBRE, June 2019.
3) “US Cold Storage Demand Expected to Heat Up in Next Five Years.” SVN, June 2019.

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