The Rising Demand for Cold Storage: Transforming Industrial Real Estate

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• Average Industrial Starting Rent, 2023-2024 YTD
• American Food Flows by State
• Key Factors for Cold Storage Location Selection
• Key Cold Storage Markets

Cold storage facilities are rapidly becoming one of the industrial real estate sector’s most sought-after asset classes. This surge in demand is driven by several converging trends that underscore the importance and necessity of refrigerated warehousing.

A foundational trend is the growth of e-commerce and online grocery shopping. As more consumers turn to online platforms for their grocery needs, the demand for efficient cold storage facilities to keep perishable goods at optimal temperatures has increased dramatically.  Groceries that used to be stored on-site at a patchwork of local grocery stores are now stored in centralized cold storage warehouses. These cold storage facilities are essential for maintaining the quality and safety of perishable goods from the point of origin to the consumer’s doorstep. The acceleration of food and grocery e-commerce has particularly boosted the need for last-mile cold storage operations.

The pharmaceutical and biotech sectors also have stringent requirements for temperature-controlled environments to preserve the integrity of sensitive products such as vaccines, biologics, and other temperature-sensitive medications. The COVID-19 pandemic underscored the importance of cold storage in the pharmaceutical supply chain, driving demand for advanced refrigerated warehousing solutions. 

Furthermore, the globalization of supply chains has introduced new complexities, particularly in the transportation and storage of perishable goods. Cold storage facilities play a vital role in maintaining the quality and safety of products as they navigate the various stages of the supply chain. Efficient cold storage solutions are essential for minimizing spoilage and ensuring compliance with regulatory standards. This need for reliable cold storage has become increasingly apparent as supply chains grow more intricate and far-reaching.
The chart below highlights the average starting rents for cold storage leases with the highest rents in Los Angeles – Orange – Inland and New Jersey – North and Central. This reflects strong demand and strategic advantages in these locations for supply chains and distribution centers serving large populations. Emerging hubs like Phoenix and Philadelphia also show high rents followed by Chicago and Houston with more cost-effective options. The CompStak Industrial Market Overview report provides more insights into these variations and underscores the importance of location selection for optimizing logistics and cost efficiency.

Consolidation within the cold storage industry has also played a pivotal role. Leading companies such as Lineage Logistics and Americold have expanded their market share through mergers, acquisitions, and new developments, increasing their storage capacity and driving competition. This consolidation creates opportunities for new and smaller users to enter the market, fostering the development of next-generation cold storage spaces that cater to a variety of specific needs.

For instance, cold storage leases command significantly higher rents compared to other industrial leases, as shown in the figure below. These disparities highlight the premium placed on refrigerated storage due to its specialized requirements and high demand. Industries like food and beverage, pharmaceuticals, and biotechnology heavily rely on these facilities with particularly pronounced demands in regions with strong logistical advantages and large consumer bases.

Average Industrial Starting Rent, 2023-2024 YTD

Additionally, aging inventory presents challenges. Many existing cold storage facilities are outdated, with inefficient systems that lead to higher operating costs and increased risk of product spoilage. The average age of cold storage facilities in top U.S. markets is 37 years, necessitating the development of modern, functional spaces that support supply chain optimization, warehouse automation, and energy cost reduction.

American Food Flows by State

Source: ArrowStream Foodservice

Key Factors for Cold Storage Location Selection

Several critical factors shape the choice of location for cold storage facilities:

• Proximity to key markets: minimizes transportation times and costs, and ensures quick delivery of perishable goods. Urban centers and densely populated areas are prime locations for cold storage facilities, as they provide easy access to a large customer base.
• Efficient connectivity to transportation networks: facilitates the seamless movement of goods. Proximity to ports, railroad networks, and major highways facilitates efficient distribution, reducing delays and ensuring timely deliveries. Locations with robust transportation infrastructure are highly desirable for cold storage facilities.

Operating costs: encompassing energy expenses, labor costs, and the region’s climate, operating costs, significantly impact the feasibility of cold storage operations. Colder areas are more favorable due to the natural advantage of lower energy costs for maintaining refrigerated conditions. Cold storage costs almost twice as much per square foot to construct compared to traditional warehouses. Thus, regions with competitive labor costs can further enhance the cost-efficiency of cold storage facilities, which is a crucial consideration for developers and investors looking to maximize their return on investment.

Key Cold Storage Markets

Los Angeles

Los Angeles, with its major port facilities and vast consumer market, is a critical location for cold storage. The city’s role as a gateway for international trade, particularly from Asia, underscores the importance of efficient cold storage solutions to support the supply chain. The high demand for fresh produce and other perishable goods in the region further drives the need for advanced refrigerated warehousing.

New Jersey/New York

The New Jersey/New York metropolitan area is a prime market for cold storage due to its proximity to one of the largest consumer bases in the United States. The region’s extensive transportation networks, including ports and highways, facilitate efficient distribution. 

Chicago

Chicago’s strategic central location, robust transportation infrastructure, and access to major highways and railroads make it a key hub for cold storage facilities. 

Dallas/Fort Worth

The Dallas/Fort Worth area is emerging as a significant market for cold storage due to its central location, favorable climate, and lower operating costs. 

Houston

Houston is seeing rapid growth in its cold storage market due to its port’s handling of seafood from the Gulf of Mexico and fruits and vegetables from Central and South America. 

Texas Triangle (Austin, San Antonio, Houston, Dallas/Fort Worth)

The Texas Triangle is a major area for cold storage development, driven by solid demographic fundamentals and economic output. The region’s significant population growth and economic activity make it a vital hub for cold storage facilities.

The growing demand for cold storage facilities is reshaping the landscape of industrial real estate. As trends such as the rise of e-commerce, the specific needs of the pharmaceutical and biotech industries, and the complexities of global supply chains continue to evolve, the importance of strategic location selection for cold storage facilities becomes paramount. 

Leveraging data and insights from reliable sources can provide a competitive edge. Get access to CompStak data to keep the pulse on current CRE trends, make informed decisions, and capitalize on the dynamic opportunities in the cold storage sector.