What is Cold Storage in Commercial Real Estate?

SKIP AHEAD TO

• Defining Cold Storage
• Why Is Cold Storage Growing?
• Challenges in Cold Storage CRE
• Future Outlook for Cold Storage
• Conclusion

Cold storage has become one of the hottest topics in commercial real estate (CRE) as demand for temperature-controlled facilities continues to grow. This sector plays a critical role in the supply chain, ensuring that perishable goods like food, pharmaceuticals, and flowers remain fresh from production to consumption. But what exactly is cold storage, and why is it such a big deal in CRE? Let’s break it down.

Defining Cold Storage

Cold storage refers to specialized industrial facilities designed to store temperature-sensitive goods. These properties include refrigeration and freezing systems to maintain specific temperature ranges, depending on the product. Cold storage facilities often fall into three categories:

1. Refrigerated Warehouses
   These are general-purpose spaces used to store various products like fresh produce, dairy, or meats.
2. Distribution Centers
   These facilities combine storage with logistics, ensuring products are quickly transported to retail or consumer markets.
3. Specialized Cold Storage
   These are tailored for unique requirements, such as pharmaceutical-grade cold storage, which maintains ultra-low temperatures for vaccines or medications.

Why Is Cold Storage Growing?

The growth of cold storage can be attributed to several factors:

• E-commerce and Grocery Delivery
  The rise of online grocery shopping and services like meal kit delivery have skyrocketed demand for cold storage facilities. Cold Storage leases command a rent premium to all other industrial leases. Today, the current rent being paid by cold storage tenants is 52.7% higher than all other industrial tenants according to CompStak data nationally ($12.81 vs. $8.39). The average starting rent for cold storage leases has grown 55.1% from 2019 to 2024 YTD, according to CompStak’s data.

• Globalization
  As supply chains stretch across continents, there’s a greater need to store and ship perishable goods efficiently.
• Health and Pharma Needs
  The pharmaceutical sector’s expansion, especially during events like the COVID-19 pandemic, underscored the importance of cold storage.

Challenges in Cold Storage CRE

Cold storage facilities are expensive to build and maintain. These properties require advanced insulation, energy-efficient systems, and compliance with stringent regulatory standards. Developers often face high upfront costs, which can deter speculative construction in this space.

The Role of Data in Cold Storage Leasing

Data-driven insights are vital for understanding market trends and optimizing cold storage investments. Here’s where CompStak can provide value:

• Lease Comparisons: Cold storage leases often command premium rents compared to traditional industrial spaces. Incorporating CompStak data on lease terms and market trends can highlight how landlords and tenants are navigating this high-demand sector. In the Los Angeles-OC-Inland Empire market, cold storage leases command a 48.3% rent per square foot premium to all other industrial leases based on weighted average starting rents in 2024 to date.
• Vacancy and Occupancy Rates: While CompStak doesn’t directly track vacancy rates, you could feature a snippet of CompStak’s lease data to illustrate market activity and demand for cold storage facilities in key regions.

Future Outlook for Cold Storage

The cold storage sector is poised for continued growth as consumer habits evolve and supply chains adapt. Developers and investors are recognizing the long-term value of these facilities, particularly in major metropolitan areas where demand for last-mile delivery remains strong. Cold storage facilities that are purpose-built and specialized and of newer construction tend to attract more interest from tenants, contributing to the rent premiums observed in these leases. For example, over the past 12 months in the Philadelphia-Central PA-DE market, the average year built for properties with cold storage leases was 2010, compared to 1990 for all other industrial leases.

If you’re considering investing in cold storage or want to better understand how this sector fits into broader CRE trends, data is your best ally. Leveraging platforms like CompStak can help you stay informed and make smarter decisions.

Conclusion

Cold storage is no longer a niche asset class; it’s a critical component of modern supply chains and a burgeoning segment within commercial real estate. As demand grows and new technologies emerge, the sector presents significant opportunities for investors, landlords, and tenants alike.

For deeper insights into the cold storage market or to explore leasing data, CompStak is here to help.