Building speculative space in traditional industrial warehousing has been a long-standing market segment, but it’s relatively new in the cold storage world and both real estate developers and design-build companies are positioning to take advantage.
“I will tell you that the amount of interest from developers and other investors – even developers that were in something other than industrial real estate – [they] see the allure of cold storage and want to get in and build spec freezer/cooler buildings,” said David Sours, senior vice president for CBRE Food Facilities Group, part of commercial real estate giant CBRE, during a fireside chat Friday during the FreightWaves Cold Chain Summit.
He added, however, that “caution is probably the word. You need to have a building that can match the historical and hopefully future demand for freezer and cooler space within a given market and realize that these buildings are three to four times as costly as building a dry warehouse. You also want to have solid underwriting if you’re going to move in that direction. It’s a speculative bet that you don’t want to be guessing on.”
On the construction side, John Atcheson, president of ARCO Design/Build for the company’s Houston and Salt Lake City divisions, has seen a significant shift in the cold storage spec market over the past 12 months.
“We’ve had a tremendous amount of interest, not only from the capital side but from traditional developers of big box distribution that are looking at this space as well,” Atcheson said. But because of the complexities around cold storage warehousing, building on spec in the cold-storage sector can also be a difficult concept as opposed to building in the traditional distribution world, he said.
“I think some people will get it right, I think some will get hurt in this space. It’s all about having the right team in place that understands what needs to go in these buildings and how to angle yourself properly.”
Cold-storage real estate saw significant shifts over the last eight months as the effects of the pandemic spread up and down the supply chain.
“During the pandemic, people have changed the way that they acquire food,” Sour said. “We’ve seen a shift from institutional food that was packaged and made to go to convention centers, sports arenas, large-scale events that ended up sitting in the freezers at large refrigerated warehouses because the demand wasn’t there and everything just kind of stopped.”
A lot of the food manufacturers – where they had the ability to do so – switched from institutional packaging to retail, he said. “It was an overall shift and that really changed the way companies used their freezer and cooler space. They really had to adjust on the fly.”
Atcheson said the construction side also witnessed a lot of pivoting as clients reassessed the market – but cold storage has remained resilient throughout, he noted.
“The situation will continue to evolve, but we’re excited – we’ve got a lot of projects that are pedal to the floor right now and we’re going to continue to adapt to help our clients get through this.”
Automation in cold-storage warehousing and real estate has tended to lag behind technology advances going on in dry distribution – but it’s catching up, according to Sours and Atcheson.
“We’re seeing more automated systems in Europe and we’re starting to adapt to them here as well,” Atcheson said. He pointed out that automated storage and retrieval systems (AS/RS), a type of warehouse automation designed to store and retrieve product and inventory on demand, is starting to gain traction in cold storage.
“AS/RS is becoming bigger, as long as you can provide the up-front capital and you’re doing a lot of turns in a warehouse,” he said.
Sours commented, “We’ve had users talk to us about being able to accommodate a movable rack and other sorts of pick systems and conveyors that is all very cutting edge.”
However, he added, “you certainly need to have a lot of time to develop those systems. In some cases, you’re building the building around the technology, rather than putting the technology in the building. So it’s a longer decision-making process and more capital intensive and really requires proper planning.”