Exploring the Future of Cold Storage

Cold storage facilities are specialized, and often purpose-built, buildings designed to store commodities at controlled temperatures, ranging from -20° to 55°. They may be operated as public, private, or semi-private enterprises, depending upon whether operators store commodities for others, only themselves or both. Public Refrigerated Warehouses (PRWs) owned and operated by third-party logistics (3PL) providers are a major player in the cold storage warehouse business.

Modern-day cold storage warehouses are designed with up to 100’ tall clear heights; floor systems piped with glycol to prevent subfloor freezing and heaving; vapor barriers to prevent condensation; refrigerated cold dock areas; overhead speed doors that automatically open and close for movement between demised spaces; and ceiling only and in-rack dry double interlock fire sprinkler systems. Features can include specialized racking systems, Automated Storage and Retrieval Systems (ASRS), blast freezing, plate freezing and building systems that support the user's needs. New facilities are designed and constructed to carry on specific operations efficiently and economically.

Logistics services—all offered with storage services—can include labeling, breaking bulk, inventory control and management, light assembly, order entry and fulfillment, packaging, pallet assembly, rental and repair, pick and pack, price marking and ticketing, and transportation arrangement.

It’s important to note that food products are not produced or processed in these facilities.

Cold storage facilities come in a wide variety of configurations, all driven by the specific needs of either the user or the market segment the building is designed to support. The different types of storage warehouses include:

1. Cool facilities: clear heights usually less than 50’ that allow for abundant turnover due to the short shelf life of the product. Cool buildings generally support produce users and non-frozen dairy products.
   
   
2. Freezer facilities: clear heights up to 100’, which may include automated storage and retrieval systems, and specialized freezing systems (blast freezing, plate freezing, etc.) located adjacent to or within close proximity to food production facilities.
   
   
3. Cool or frozen cross dock: lower clear height buildings constructed like a cross-dock with internal coolers and exterior shore power for refrigerated trailers. These buildings are most common in port markets or logistics hubs.
   
   
4. Tri-temp facilities: clear heights up to 50’, conventionally racked, designed to support users who require temperatures from 55° to -20° F. These buildings are typically located near population centers and are designed to be flexible to support either a wide variety of unique users or a user who handles a wide variety of SKUs (e.g., grocery or food service distributor).

Food has a longer shelf life if stored in a temperature-controlled facility. Whether fresh from the field or processed into a ‘ready to cook’ state. We’ve even seen clients who specialize in the storage of ready-to-eat nuts (almonds, walnuts, etc.) as that product retains water when stored in a cool versus ambient facility. Consumers, in all cases, want fresh products and the cold chain from “source-to-end” works to ensure they’ll receive what they seek.

Here are three examples of “source-to-end” journeys:

1. Farmed fish: Norwegian farms produce 51% of the world’s farmed salmon. Their farms are located not only in Norway but also in Chile, Ireland, Scotland, Iceland, and the Faroe Islands. The fish are cultivated in offshore pens, processed at plants adjacent to the farm, and then shipped via airfreight or ocean container to a distribution facility in the destination market. Once a fish has been extracted from a pen, it must stay at or below 32° F to extend its shelf life.
   
   
2. Fruits and vegetables: The production of dragon fruit grown in Vietnam, mandarin oranges in Australia, blueberries in Peru, and cherries in Washington state exceed their respective markets’ consumption and get shipped globally. Depending on the type of produce, the crop will be picked, packaged, and loaded into a container for shipment. The origin and destination will determine if a truck, rail, or cargo ship is used for transportation. Upon arrival at a cooled distribution center, the product will be deconsolidated into a warehouse and immediately repacked for shipment to a grocery or specialty distributor.
   
   
3. Beef: The U.S. leads in the global production of beef (20.44%), closely followed by Brazil (16.67%). Beef is processed near its origin, frozen, and then shipped via freezer container to its destination. Depending on the end product, there may be additional processing steps, but in most cases, the product is frozen to (-20°) after processing. It will remain at that temperature until it arrives at its destination. As a result, shippers must have freezer capacity, specialized freezer containers and enough power from distribution centers to power those containers. Beef produced in Brazil finds its way to the U.S. to be processed into hamburgers, and product from the U.S. finds its way through the supply chain to global markets.

Opportunities and challenges for operators in the cold storage industry revolve around consumer preferences. Some changing consumer habits and trends within the industry include:

• Families continue to rely on frozen foods for price and convenience. Demographic trends such as an increase in smaller households will further enhance demand for single portions and other formats that employ this type of packing. Further, continuing high levels of households where all adults work, leaving less time for home cooking, is likely to bolster demand for packaging of this nature.
  
  
• According to the American Frozen Food Institute (AFFI), frozen food is actively being introduced on menus in convenience stores and fast-casual restaurants. Approximately 90% of food operators use frozen food to battle supply chain disruptions and labor shortages. The most popular frozen food products include frozen vegetables, potato products, and fruits. Older millennials comprise a large share of frozen food customers, accounting for 48% of all frozen food customers—as millennials generally believe that frozen food is equal to or better for you than fresh food. The growth of this generation is likely to create strong demand for cold storage in the near term.
  
  
• Speculative development of cold storage facilities saw a spike in late 2020 through 2022 when supply chain disruptions highlighted the need for more space, which—when combined with historically low interest rates, favorable rental rates, and historically low cap rates—created the perfect storm to incentivize developers to deliver new buildings. As interest rates have increased, the volume of speculative development has dropped significantly, but demand has remained relatively stable. As a result, new projects are being delivered, but they are typically either partially or fully leased before construction starts.

In October 2023, the National Agricultural Statistics Service (NASS) identified 900 refrigerated facilities, down from 904 in October 2021. As shown, California leads by far with 102 facilities, representing 11.3% of the nation’s total. Wisconsin is second in the share of number of facilities, with 10.6% of the nation’s total facilities, and Texas has 6.1% of the nation’s facilities.

The five States with the largest gross general warehouse capacity (million cubic feet) were:

• California (369.8)
• Washington (294.3)
• Wisconsin (289.9)
• Texas (262)
• Florida (236.2)

Developers of new cold storage facilities generally follow the three “P’s” when considering where to place new facilities: Population, Production, and Ports.

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Developers will first look at proximity to an existing producer(s) or access to major arterials to support truck traffic. Once a general location is identified, developers will evaluate the power supply available to the site; if the power required is not present, the time to complete the connection is a close second. The typical 200,000 sf cold storage building will need a minimum of 3-4 megawatts of power. Once those two criteria have been satisfied, site zoning to allow for the desired building clear height (new buildings are typically 45’ or taller) and other site elements are evaluated.

The frozen food market has faced challenges in recent years, none more prevalent than the move to fresh, less-processed foods. In response, some food companies are introducing new products to appeal to both the health-conscious and time-strapped consumer and those looking for more upscale dine-at-home options. The frozen food industry continues to expand, and as both the population and the prevalence of two-income families increase, so too will the need for cold storage. Moreover, frozen foods are believed to be just as good, if not better, by millennials and is expected to sustain demand over the next few years.

U.S. trade activity will grow as world economies recover post-pandemic, yielding gains for refrigerated storage companies specializing in storing traded goods. This will be bolstered by the increasing popularity of online shopping options for grocery deliveries as the industry expands to include the facilitation of same-day and next-day food deliveries. Through the near term, industry performance will be strengthened by revived growth in the total value of U.S. trade activity, rebounds in consumer spending, and higher commodity prices through the end of 2028. Increased outsourcing of warehouse services to refrigerated storage companies will also stimulate growth.

Cushman & Wakefield experts recognize the growing importance of cold storage and its implications for the industrial sector's future. Get in touch with us to learn more about our cold storage services and capabilities.