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Cold storage real estate market is hotter than ever

Global cold storage construction market to reach $23B by 2026

Companies that build cold storage facilities say they are seeing increasing interest from developers seeking to build or buy space in the sector. (Photo: Jim Allen/FreightWaves)

A surge in online shopping and grocery sales has led to a boom in the global demand for cold storage space.

Companies that build cold storage facilities say they are seeing increasing interest from developers seeking to build or buy space in the sector, despite construction costs that are two or three times higher than an ordinary logistics warehouse.

ARCO National Construction Co., which currently has about seven speculative cold storage projects around the U.S., said the market has continued to expand since the pandemic began.

“I have weekly conversations with developers that are looking to be in the cold storage space,” Brian Westre, director of preconstruction at ARCO National Construction, told FreightWaves. “Some of them are even looking to enter into the speculative cold space for the first time.”

ARCO currently has three cold storage facility projects in Texas, including two for developer Cold Creek Solutions LLC in San Antonio and Denton; and in Houston for CenterSquare Investment Management and Boomerang Interests.

Boomerang and CenterSquare are developing a 315,101-square-foot speculative cold storage facility that will be called the Houston ColdPort, scheduled to be completed in 2022.

“The pandemic highlighted and accelerated the growing demand for online ordering of refrigerated and frozen foods,” Jeff Reder, managing director of CenterSquare Investment Management, said in a statement.

Online grocery shopping grew 81% to $55.5 billion in 2020 compared to 2019, according to Coresight Research, a retail advisory and research firm based in New York.

“We expect a high proportion of shoppers that turned to online grocery during the pandemic to not change course once the pandemic subsides,” according to Coresight Research’s US Online Grocery Survey 2021: Post-Surge Prospects. “Over 60% of online grocery shoppers plan to buy groceries online more frequently.”

With increased demand from consumers, the cold storage construction industry could grow to $22.9 billion by 2026, compared to $7 billion in 2019, according to San Jose, California-based market research firm Global Industry Analysts Inc.

The national reefer — industry slang for temperature-controlled trailers — rejection index (ROTRI.USA) is currently at 36%, significantly higher than the same period last year. Temperature-controlled equipment is at a premium right now across the transportation industry.

This FreightWaves SONAR chart shows the current reefer outbound tender rejection rate for the United States (blue) compared to the 2020 (green). To learn more about FreightWaves SONAR, click here.

In the U.S., cold storage facilities are mostly concentrated across California, Delaware, Florida, Georgia, Illinois, Indiana, Nebraska, North Carolina, Pennsylvania, Tennessee, Texas, Utah and Virginia. 

“A lot of cold storage spaces are near ports and shipping,” said Kurt George, assistant vice president of operations and sales at Property Damage Appraisers Inc.

“What is being stored as a marketplace now isn’t just food and ice cream,” George said. “With COVID, we’re heavily into pharmaceuticals now more than ever and timely pharmaceuticals like vaccines, both of their storage and their shipment.” 

One of the newest cold storage facilities to open in the U.S. is from third-party food logistics company FreezPak Logistics, which recently opened a 103,000-square-foot facility in Philadelphia.

FreezPak Logistics’ Philadelphia location offers dry, cold and frozen temperature controlled areas, along with 15 loading docks and 26 trailer positions. The facility opened Wednesday and is already 100% leased.

Dave Saoud, co-CEO of FreezPak, said the facility was built as a result of increased demand for cold storage because of e-commerce and grocery stores seeing increased sales.

“Every day we are being pushed by our clients to open facilities in every major market,” Saoud said. 

Carteret, New Jersey-based FreezPak will soon announce a sixth location in northern New Jersey to meet the continuing demand for cold storage space, Saoud said.

The cold chain market has also seen several major recent global acquisitions. Lineage Logistics, the largest operator in the industry, announced last week it had acquired the cold storage division of Esbjerg, Denmark-based Claus Sørensen Cold Storage.

Earlier in June, Lineage Logistics also acquired Rotterdam, Netherlands-based Kloosterboer Group. The two acquisitions boost Lineage’s global footprint to over 2.2 billion cubic feet of temperature-controlled capacity in 15 countries across North and South America, Europe and Asia. 

Lineage Logistics, founded in 2008, is headquartered in Novi, Michigan. 

“Demand from the e-grocery market and shifting consumer habits that favor fresh foods have led to an increase in investment in the industry over recent years,” Lineage Logistics said in an email to FreightWaves. “Cold storage is critical to the movement of food to its ultimate destination with food wholesalers, grocers, restaurants and other customers at the end of the food supply chain.”

In 2020, Lineage acquired 38 companies and entered eight new countries, adding over 130 locations to its global facility network. In March, Lineage announced that it had raised $1.9 billion in equity from new and existing strategic partners, following a $1.6 billion raise in September 2020.

“Lineage is using the funds for organic global greenfield developments, facility expansions, M&A activity and technology innovations to fuel end-to-end supply chain efficiency for customers,” the company said. “Lineage is constantly evaluating future acquisition and construction opportunities for future growth to meet customer needs. As Lineage’s customers grow, so does its own network of service offering and the capabilities of its facilities to meet the demand.”

The largest publicly traded cold chain real estate investment trust, Atlanta-based Americold Realty Trust (NYSE: COLD), announced Sunday that it’s investing $84 million in its Russellville, Arkansas, cold-storage operation.

Americold has begun construction on a 131,000-square-foot cold storage and distribution facility in Russellville built to suit the operational needs of Conagra Brands, one of Americold’s largest customers.

Americold operates 242 facilities in North and South America, Europe and Asia.

It’s not only large cold storage operators that are seeing increased demand. Cold Chain Solutions in Laredo, Texas, has seen a surge in business over the last year for products such as fresh produce and frozen foods.

Cold Chain Solutions operates a 15,000-square-foot space for customers that move a lot of cross-border perishable items between the United States and Mexico. 

“One of the reasons behind the strong surge in demand for cold storage is number one, the biggest factor is trucking capacity,” Gerardo Alanis Barrios, CEO of Cold Chain Solutions, said. “Trucking capacity has been low for many years.”

Alanis Barrios said tight capacity plays a role in especially frozen products like frozen mixed vegetables or pharmaceuticals like Tylenol, Advil or Ibuprofen. 

“Since the loads aren’t that urgent, they’ll put them in storage until they can find a truck,” Alanis Barrios said.

“Since there’s no trucks, they can’t move these items north to the U.S. Sometimes even customers are using trailers as storage. We have to charge detention for using the trailers,” Alanis Barrios said.

George with Property Damage Appraisers said cold storage operators have also become targets for cyberattacks.

“Cyberattacks have really started getting into cyber ransom, and that’s what we’re going to with cold storage,” George said. “When it comes to cold storage, with pharmaceuticals, with COVID vaccines, cold storage facilities now have become far more important than just losing frozen food. We’re not only talking about making sure that you’re building safely for everything that’s inside, but really going in and making sure your systems are safe.”

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Noi Mahoney

Noi Mahoney is a Texas-based journalist who covers cross-border trade, logistics and supply chains for FreightWaves. He graduated from the University of Texas at Austin with a degree in English in 1998. Mahoney has more than 20 years experience as a journalist, working for newspapers in Maryland and Texas. Contact [email protected]