Consumers continue buying more food online, but the cost and complexity of developing new cold storage facilities to handle the traffic will make it difficult to meet that rising demand, according to a new report from CBRE. But investors in the sector stand to do very well, as the resulting shortage will keep occupancy high, driving up both rents and returns.
CBRE forecast earlier this year that developers for the U.S. industrial cold storage industry, which comprises 2% to 3% of U.S. industrial inventory, will need to add up to 100M SF through 2022 to manage the growth of online grocery sales. “There is a strong demand for this type of product, but there are a lot of hurdles to overcome,” CBRE Senior Vice President Steve Livaditis said. “Most of these users want to be in urban, infill locations where cost is higher and available land is scarce. This has prevented a lot of developers from building speculatively.”
Livaditis, who is Chicago-based, also said food companies don’t typically want to take on a specialized distribution strategy, and the cold storage space is dominated by a small group of third-party logistics providers.