A quick search via your favorite search engine or AI enabled application with the key words “Cold storage issues in the West” will net any number of interesting headlines: “U.S. Cold storage market expected to grow at double digit rates”, “The Hot business of cold storage”, and “Supply chain woes unlikely to abate…at cold storage facilities” being among them. The primary drivers for this specialized sector are population growth, West Coast port activity, and significant agricultural production.
Add the shift in consumer behavior to online grocery ordering and an increase in global sources of food, demand for cold storage solutions has only become more pronounced. Food has a longer shelf life if stored in a temperature-controlled facilities 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.
Despite the robust demand, the market has been challenged (but not by a lack of effort) to deliver new facilities to meet the food chain’s needs. The reasons are many:
- Land in port adjacent cities is scarce and expensive. An acre of land in eastern Washington (adjacent to potato processing, for example) is approximately $100,000 per acre. Land near the Port of Tacoma is almost $1,000,000 per acre.
- Construction costs for a new cold storage facility are almost double the cost of ambient warehousing. A 50’ clear insulated metal panel building capable of holding product below freezing might cost $275 per foot or more to construct.
- The market of potential users of cold storage is shallower than the pool of users for ambient. Despite the volume of product moving through the ports, there are a limited number of end users who prefer to control their space. In the Cold 3pl space, Lineage and Americold have captured up to 75% share in some markets. That share has given them tremendous market power, but also created opportunity for smaller, more nimble competitors seeking to enter the space.
- Cold storage is often specialized to the needs of a particular user which makes repositioning an asset upon vacancy more challenging. A produce importer might need 24’ clear opposed loading and cool storage, a dairy processor might need ‘tri-temp’ (ambient, cool to 34 degrees, cold to -10), and a protein distributor might need a space that’s entirely cold (-10).
- Cold storage requires a “ton” (technical term) of power. A freezer facility, depending on size, might require 4 MW of power or more. Depending on location, that might not be achievable.
The challenges the development community face when considering cold storage as a product type have led, as is often the case, to groups who specialize in the product type, in order to mitigate their overall risk. Even within the cadre of the cold development community, we’ve seen further specialization. There are groups that are highly port centric and will specifically seek opportunities adjacent to major gateways. A second group looks to position its projects near major metropolitan areas where product is in short supply or population has grown above the national average. The last group is those who seek to align their projects near major food processing activity.
Despite the challenges to delivery, we’re seeing a robust effort to deliver new projects. Across the Western US, we’re aware of several proposed new projects, buildings in development, and/or projects under construction and set to deliver in late 2024, and 2025. Even with the pipeline of new product in process, the average age of the cold storage inventory will still likely remain around 35 years old. Existing buildings will continue to age and become less efficient to operate, which will ensure demand will remain robust for newer, more efficient facilities.
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.
This article first appeared in Western Real Estate Business in the September 2024 issue.