Fresh, cold food is a hot commodity, increasing the need for cold storage facilities that make supply chains possible

Dining out at restaurants took a significant hit during the pandemic. But while the industry isn’t out of the woods yet, restaurants have started to recover strongly. Meanwhile, “online grocery sales, subscription meal services, [and] consumer preferences for fresh and perishable goods” were robust during lockdowns and show no signs of abating.

Unfortunately, getting fresh ingredients onto diners’ plates involves some serious logistical work. Food needs cold storage throughout the processing, storage, and shipping stages, including in warehouses and vehicles. This has created drastically increased demand for various types of cold storage facilities as crucial links in the fresh food supply chain.

The effect of online grocery shopping

Growth in the demand for cold storage is impacted by more than a restaurant industry rebound, of course; other types of retailers use up much of the available space. For example, Amazon offers two-hour grocery delivery for Prime members, putting significant strain on the existing cold storage infrastructure. And estimates by the Food Market Institute and Nielsen suggest that online grocery sales will account for 13% of industry totals by 2022, and 70% of households will do regular online grocery shopping by 2029. 

Future demand for cold storage facilities may be much higher than current levels because of a transformation in the grocery-delivery model. Currently, most online purchases and deliveries are conducted through brick-and-mortar grocery stores and their existing supply chains. But David Egan, a senior director and global head of research for CBRE, sees this paradigm changing:

[A]s online grocery shopping grows, a greater percentage of fulfillment would have to come from warehouses to keep up with demand. CBRE predicts that more grocers will shift cold-storage operations from their stores to free-standing refrigerated facilities to save money.

“If you look at the economics of a grocery store, it’s a low-margin business,” Egan said. “To accommodate e-commerce, grocers would have to add more inventory, more overhead and more people working in the stores. Those margins would start to get squeezed. So there’s going to be a desire to move out of that store into a more efficient, cost-controlled warehouse. They’re very capital-intensive for sure, but in the end the costs would be more manageable.”

Thus, while there is already a significant need for cold storage facilities, a move to a complete online grocery model will add a new, massive factor to demand for refrigerated warehouses and distribution nodes.

The existing and looming cold storage shortage

Digging into the numbers, the total capacity for cold storage worldwide was 8.6 million square feet in 2020, 16.7% higher than in 2018. The United States alone has over 3 million square feet, the largest global share. Money-wise, the cold storage market was worth $89.32 billion in 2018 is projected to hit $217.59 by 2026, an eight-year growth rate of 143%. 

Contributing to a facility shortage are issues with existing cold storage infrastructure. Chief among them is that many current facilities are outdated; over 78% of the existing buildings were constructed before 2000 and don’t use advanced cooling technology.

This aging infrastructure means demand for newer facilities may be even greater than current numbers suggest. Emergen Research estimates that “Cold storage construction is projected to reach US $18.6 billion in value by 2027 — an increase of 13.8 percent per year.”

The Food Institute also reports that technology, retrofits, and repurposing are playing a role in meeting this need:

In addition to new construction efforts, there has been 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.

Food supply chains, cold storage, and CRE opportunities 

The growth of e-commerce has created significant demand for the general-purpose warehousing and distribution centers that make online shopping possible. But within those sectors, there could be enhanced demand for—and returns from—cold storage-ready or equipped facilities that help get fresh food where it needs to go. 

Of course, leveraging this trend requires a careful assessment of specific local demand, the costs of developing, improving, or retrofitting facilities, and the ROI of an individual opportunity.

Morris Southeast Group can help as you assess market trends and make property investments in South Florida and nationwide. We’re available at 954.474.1776 to go over your Florida commercial real estate queries. You can also talk to Ken Morris directly at 954.240.4400 or kenmorris@morrissegroup.com.