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It’s about to become a hot market for cold storage facilities, firm says

Hot times for cold storage (Photo: Jim Allen/FreightWaves)

Cold storage is expected to become a hot commodity, at least in some parts of North America.

The growth of online grocery sales will spike demand for specialized cold-storage facilities, especially in U.S. gateway markets like Los Angeles and New York, and in big food-production states like Wisconsin, Florida and Washington state, according to real estate services firm CBRE, Inc.

About 100 million square feet in cold storage capacity will be needed in the U.S. and Canada over the next five years, an increase of nearly 50 percent from the current level of 214 million square feet, CBRE said. California is currently the largest U.S. market for cold storage space, followed by Washington state and Florida, according to CBRE estimates.

The catalyst is the projected quadrupling of North American online grocery sales to 13 percent of all total grocery sales by 2022 from 3 percent in 2018, said CBRE, citing estimates from the Food Marketing Institute (FMI) and market research firm Nielsen. This will amount to a $100 billion annual increase in online sales through 2022, FMI and Nielsen said.

The shift is expected to cause profound changes in inventory management and distribution patterns for an industry whose operational models have not changed since grocers’ inceptions. Grocery is one of the last online verticals to experience significant e-commerce penetration. The combined factors of more online ordering and grocers’ investment in new delivery techniques will accelerate investment in cold storage facilities, CBRE said.

However, the pace of growth will be more measured than in the dry goods warehouse segment because cold storage facilities require more capital investment to build and operate, and must meet stringent standards set forth by the U.S. Food and Drug Administration (FDA).

Staffing those facilities is also a challenge, according to Brian Devine, senior vice president for EmployBridge, a warehouse and DC staffing firm. On top of an already-tight market for warehouse labor, there are even fewer people who want to work in what might be considered an inhospitable physical environment, Devine said. In addition, many of the labor positions filled for cold storage or freezer labor require workers to perform heavy lifting throughout their entire shift, Devine said. This also demands a higher pay rate, he said.

As a result, companies today typically pay warehouse workers a $1 to $2 an hour premium over regular pay rates in a traditional DC to work in a cold storage facility, Devine said.

In most U.S. markets, experienced forklift operators in traditional warehouses are, on average, starting at about $15 to $16 per hour, according to EmployBridge estimates. The starting wages are higher in more expensive markets and lower in areas where the cost of living is lower, Devine said.

Mark Solomon

Formerly the Executive Editor at DC Velocity, Mark Solomon joined FreightWaves as Managing Editor of Freight Markets. Solomon began his journalistic career in 1982 at Traffic World magazine, ran his own public relations firm (Media Based Solutions) from 1994 to 2008, and has been at DC Velocity since then. Over the course of his career, Solomon has covered nearly the whole gamut of the transportation and logistics industry, including trucking, railroads, maritime, 3PLs, and regulatory issues. Solomon witnessed and narrated the rise of Amazon and XPO Logistics and the shift of the U.S. Postal Service from a mail-focused service to parcel, as well as the exponential, e-commerce-driven growth of warehouse square footage and omnichannel fulfillment.