Experts at NAIOP’s I.CON West Are “All In On Cold”

LONG BEACH, CA—The COVID-19 pandemic has dramatically changed consumer expectations regarding how fast groceries and other refrigerated items such as medicines are delivered to the home. And that has left the cold storage segment of industrial real estate in a race to keep up.

The subject was discussed at NAIOP’s I.CON West conference this week in Long Beach, California, in a session led by moderator Kate Lyle, director, industrial cold and food, Ware Malcomb, and featuring a panel of industrial experts, including David Aschenbrand, vice president cold storage, Bridge Industrial; Eric Cox, vice president, CBRE; Chris Cummings, national director – food advisory services, Colliers International-Atlanta; and Ken Reiff, co-lead food and beverage advisory services, Cushman & Wakefield.

Aschenbrand noted that demand is up significantly and that much of the current supply of cold storage is out of date. The market is prime for increases in investment and redevelopment.

“We’re all in on cold. Space is constrained. It’s tight everywhere you go. A lot of cold storage facilities are very old and decrepit and an update is required. It took a while for the capital markets to get educated on this vertical and we think they are now,” he said.

Cox pointed out that in 2019 only 3% of groceries sales were delivered, and today that figure has doubled. That trend is driven not just by the pandemic, but by changing consumer tastes and many more options in terms of frozen and refrigerated foods. Think of the types of beer, frozen pizza and practically any other item in your grocer’s refrigerated and freezer sections.

The panel agreed that speculative development is difficult because of the increased costs, the need for automation and the fact that there is no universal approach to designing and building cold storage facilities: every tenant need is different.

Aschenbrand said that the solution is to make the project as flexible as possible and remain focused on the needs of the marketplace. Developers should understand the needs of the material systems handler as well as the nuances of the various storage modalities.

While automation is critical, he also pointed out that demand for specific types of automation on speculative building projects can limit developers. A wise approach, the panel said, is to design the handling system and construct the building around it, as opposed to the other way around.

Restaurants and food service, core users of cold storage, are low margin businesses, leading cost for storage to be a critical factor.

Cox said that that institutional investors are beginning to see the value of speculative development in part because the difference in costs between cold storage and traditional industrial real estate is narrowing.

Developers are also facing the needs of last-mile delivery – the final leg of the supply chain journey – which may be more critical for cold items than any other. One solution in the marketplace is the development of “hub-and-spoke models,” large facilities of 300,000 square feet or more, built in a network with smaller facilities closer to where people live and work.

And, as with any type of industrial real estate, communities may be resistant. Cold storage warehouses are taller, noisier, require more power and may use chemical refrigerants.

But there is no question, the panel agreed, that as the pandemic has redefined how people shop for and consume items, and expect delivery within hours, the challenges facing development of cold storage will soon be overcome.