cold storage
Posted on February 18, 2020 · Posted in Industrial / Flex, Investments, Retail

Residential real estate buyers are usually attracted to South Florida’s warm climate, but in the commercial real estate arena, investors and developers are getting sold on the cold.

As the local industrial market continues to increase in demand and value, the property type with the greatest potential moving forward is the cold storage warehouse facility.

There has always been the need to store perishables; however there have been recent global innovations that have changed much of the landscape of industrial refrigeration and distribution. Companies such as Blue Apron, Instacart, and Amazon have radically altered the way food is brought to our homes.

In 2018, over $19 billion of groceries were delivered via e-commerce services, according to the Food Marketing Institute and Nielsen. Despite only accounting for 3% of total grocery sales in that year, FMI/Nielsen predicts this number will grow to $100 billion by 2022. The demand for grocers to acquire, develop, or outsource temperature-controlled warehousing will surge as consumers continue to partake in e-grocery shopping and organic produce remains high in demand.

In fact, this was part of the logic behind the $13.7 billion acquisition of Whole Foods by Amazon in 2017. Not only has Amazon bought the future operations of this grocer, it conveniently received thousands of widespread cold storage warehouses at each of Whole Foods’ retail locations. This acquisition has allowed Amazon to control cold storage warehouse space within 10 miles of approximately 250 million Americans.

Americold Realty Trust, the largest global REIT by market share of temperature controlled holdings, was just included in Forbes’4 REITs to Buy in 2020”, and Maersk, the largest global shipping company, has recently announced plans to focus on cold-chain logistics. This level of interest bodes well for consumers who want their frozen pizzas and produce delivered as soon as possible. However, for principals in the industrial warehousing space, the race to identify, develop, and acquire cold storage assets has just begun.

The upside for this asset class is significant. However, this wave of new development will be expensive. As it stands, it costs almost 40% more to develop a cold-storage facility than a comparable dry goods warehouse, with much of the buildout and fixtures requiring unique expertise in cold-storage assets.

These challenges have led to two unique market factors: a tendency to deliver new properties with tenants already signed to leases, and a push for flexible warehouse facilities that can be used for both cold and dry storage. As a result of this anticipated growth in revenue and demand, we are seeing increased interest from capital sources to structure creative solutions to finance the acquisition, rehab and construction of freezer buildings.

 

Source: Miami Herald

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