The growth of online grocery sales has stoked demand for additional cold storage warehousing space in the United States, but the cost and complexity of constructing cold storage facilities might make meeting that demand challenging, according to a new report from CBRE, Los Angeles.
 
In a report earlier this year, CBRE forecasted that the U.S. industrial cold storage industry, currently spanning 2-3% of overall U.S. office real estate, will need to add up to 100 million square feet of additional capacity to keep up with anticipated growth of online grocery sales through 2022.
 
“There are a lot of complexities inherent in developing cold storage facilities, but the most critical component driving more construction is well established at this point—strong user demand,” says Matthew Walaszek, associate director of industrial and logistics research. “As online grocery sales grow, grocers and other users will migrate more of their cold storage operations from stores into industrial cold storage facilities to better facilitate delivery.”
 
The cold storage renaissance is in its early days. In-progress and newly completed construction of cold storage space in the United States amounts to just 4.5 million square feet, or 1.5% of overall industrial real estate construction at the end of the second quarter.

CBRE teamed with Bridge Development Partners, Chicago, to identify primary differences between cold storage facilities and traditional warehouses that developers new to the sector would need to embrace to build more facilities. 

• Cold storage construction costs on average 2-3 times as much as building a traditional, “dry” warehouse, due in part to the need for insulated metal paneling, mechanical equipment, refrigeration equipment, rooftop equipment, premium concrete slab and subfloor heating, as well as designs for multiple temperature zones with their own loading docks.
• For similar reasons, construction of cold storage warehouses often can take 4-5 months longer than for dry warehouses.
• Cold storage warehouses need taller ceiling heights – 40-60 feet – than the range for traditional warehouses of 34-36 feet. The extra height makes for greater efficiency, accommodating more pallet positions per cubic feet.
• These facilities need to maintain temperatures between -25°F and 55°F, depending on the inventory. Hence the need for significantly more equipment.

Meanwhile, CBRE foresees three major shifts defining the rise in development and construction of cold storage in coming years.
 
First, developers will need to construct more facilities on spec, meaning commencing construction without tenants signed up. Spec building is a rarity in cold storage, and boosting it might require additional developers and specialized contractors to enter the market.
 
Small markets likely will see more cold storage construction. Most construction has taken place in large markets for decades, but rising land and construction costs are likely to push developers and users to smaller markets nearby, like Wilmington, N.C.; San Antonio, Texas; and Savannah, Ga.
 
Automation will make more headway into cold storage facilities, allowing big retailers and other users to streamline processes and improve productivity.
 
“Markets adapt to demand, which we anticipate will happen in a big way in cold storage,” says Adam Mullen, Americas leader of industrial and logistics. “In the meantime, existing, state-of-the-art cold storage warehouses and those newly constructed will attract significant attention from grocers, food producers and investors as grocery delivery gains momentum.”