2019 U.S. FOOD ON DEMAND SERIES: COLD STORAGE DEVELOPMENT OPPORTUNITIES HEAT UP - CBRE
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2019 U.S. FOOD ON DEMAND SERIES: COLD STORAGE DEVELOPMENT OPPORTUNITIES HEAT UP CBRE RESEARCH
INTRODUCTION
As detailed in the first report of
this series, Cold Storage Logistics
Unpacked, there is heightened
demand for cold storage capacity
in the U.S., driven by growing food
sales (up 24% in the past five years)
and the increased outsourcing of
food storage and distribution.
Changing consumer preferences toward
online grocery also will require more cold
storage capacity in years ahead, as direct-to-
consumer food delivery becomes more common.
1| CBRE RESEARCH © 2019 CBRE, Inc. |2
ABOUT THIS REPORT EXECUTIVE SUMMARY
This second installment of a
three-part CBRE Research report
series exploring the cold storage
industry’s impact on industrial &
logistics (I&L) real estate reveals the
opportunities and challenges for STRONG DEMAND AMID LIMITED CAPACITY
developers.
Despite strong demand for cold storage space,
there is very limited refrigerated warehouse
development in the U.S. for five primary reasons:
UNIQUE
COST EXPERTISE COMPLEXITY
The cost to build and The number of Traditional developers
operate cold storage refrigerated- rarely venture into cold
facilities can be warehouse storage due to the
prohibitive, especially developers and complexity and cost of
for inexperienced operators is small building temperature-
developers, and fragmented. controlled facilities.
contractors and asset There is only a
managers. small pool of skilled
contractors who can
properly build these
facilities. INFLEXIBILITY
RISK Although possible,
it is difficult and costly
to convert a cold
Development seldom occurs without having
storage warehouse
a tenant in place. As a result, there is little
to a dry warehouse.
speculative development; just one spec cold
storage project, totaling 300,000 sq. ft., was
recently completed near Fort Worth, TX.
3| CBRE RESEARCH © 2019 CBRE, Inc. |4
EXECUTIVE SUMMARY
WHAT SETS COLD STORAGE APART
FROM A TRADITIONAL DRY WAREHOUSE?
Construction costs vary widely
based on many different factors
such as land values, labor costs,
40-60 FEET
project specification and customer BUILDING
needs. The cost per square foot to HEIGHT
construct a refrigerated warehouse Other building features that
is typically double to triple the cost
Available cold storage space is for a dry warehouse.
set cold storage apart from a
conventional warehouse include:
very limited in the U.S. industrial refrigeration systems
2-3X (ammonia and/or freon) to control
temperatures ranging from -25
CBRE Research estimates that the cold storage vacancy CONSTRUCTION to 55 degrees, fire protection,
rate is in line with the historically low national industrial COSTS under-floor heating and enhanced
dock leveler systems to control
vacancy rate of 4.3%. The construction process for a temperatures, among many others.
cold storage facility also is more
In some markets where cold storage demand is at an
all-time high, the vacancy rate is much lower. Cold
complex and time-consuming than
a traditional dry warehouse, taking -25 to 55
up to five months longer to build. DEGREES
storage occupiers rarely vacate their space unless TEMPERATURE
they are scaling back their business or moving to a +5 MONTHS RANGE
new facility. Since there is a limited amount of new CONSTRUCTION The complexity of cold storage
TIME development is attributable
inventory, relocations happen infrequently.
to the design, construction
IMP (insulated metal panel) and understanding of the
construction, as opposed to mechanical equipment. What’s
traditional tilt-up construction, is a more, one size does not fit all,
major differentiator. making it very user-specific.
The standard clearance height for
a modern freezer/cooler building
ranges from 40 to 60 feet,
compared with 34 to 36 feet for a
dry warehouse.
5| CBRE RESEARCH © 2019 CBRE, Inc. |6COLD STORAGE
DEVELOPMENT PIPELINE WHO IS DEVELOPING AND
BUILDING COLD STORAGE?
CBRE estimates approximately Given the shortage of new cold storage development and the highly
4.5 million sq. ft. of new cold specialized nature of executing these projects, it is not surprising that
there are few active developers and builders of these facilities.
storage construction has
been recently completed or is SOME COMPANIES THAT HAVE RECENTLY COMPLETED OR ARE
underway nationally. CURRENTLY BUILDING COLD STORAGE FACILITIES IN THE U.S.:
4.5M 1.5% BUILDERS/
TOTAL OF TOTAL DEVELOPERS CONTRACTORS
SQUARE INDUSTRIAL
FEET CONSTRUCTION • Bridge Development Partners • ARCO Design/Build
• Hunt Southwest • Primus
• Flagler Development (Florida • FCL Builders
This accounts for just 1.5% of the current
industrial construction in the U.S. as of Q2 Only) • Griffco Design/Build
2019. • Insite Real Estate LLC • Steller
• Campanelli • Victory Unlimited Construction
Speculative development is rare, given the
complexities of building cold storage, the lack
of active developers and the difficulty in re-
purposing these facilities for other uses.
Strong demand for cold storage space, along
with growing investor interest and understanding
of this property type, likely will spur more
speculative development in the near future. Source: CBRE Research, August 2019.
7| CBRE RESEARCH © 2019 CBRE, Inc. |8DEVELOPMENT PIPELINE
CLASS A COLD STORAGE FACILITIES BUILT SINCE 2016 ELIZABETH, NJ (Newark Area)
Limited cold storage construction is occurring nationwide. The following A 130,000-sq.-ft. expansion by Seafrigo,
a French logistics company specializing in
representative projects include facilities for food producers and retail operators, foodstuffs. Seafrigo increased its footprint by
as well as third-party public refrigerated warehouse companies like Americold 74% in 2016 given strong demand from online
and Lineage Logistics. Most of these buildings are already leased and/or food companies serving the New York metro
occupied. population.
FT. WORTH, TX BURLEY, ID (Twin Falls Area)
A 300,000-sq.-ft. speculative cold storage development A 180,000-sq.-ft., fully automated cold storage
by Hunt Southwest and FCL Builders in July 2019, which warehouse developed by Netherlands-based NewCold.
can be operated as freezer or cooler. This modern facility Conveyors and automated storage and retrieval systems
has a building clearance height of 45 feet among other handle the pallets with minimal manual interference
desirable features, including an 8-inch-thick shrinkage- into and from a large rack system. NewCold developed
compensating floor slab, penthouse design for the this type of automation for its European operations to
refrigeration system, with vertical storing levelers and cut labor, land and energy costs, and to meet strong
abundant trailer parking. customer demand for more efficient storage and
shipping options.
Photo Credit: FCL Builders, July 2019. Photo Credit: NewCold, June 2019.
ROMULUS, MI (Detroit Area) ROCHELLE, IL (Chicago Area) LOS ANGELES, CA
A 606,000-sq.-ft. cold storage distribution facility A 183,000-sq.-ft., 14-story cold storage facility built A 490,935-sq.-ft. cold storage
developed by Insite Real Estate (ARCO Design/Build by Griffco Design Build for Americold Logistics in facility, known as “Big Bear,”
was the contractor) adjacent to Detroit Metro Airport in 2019. The facility contains a series of temperature- built by Victory Unlimited
November 2018. The facility includes 415,000 sq. ft. of controlled rooms serviced by an automated storage Construction for Preferred
freezer space ranging from 0 to 34 degrees, 60,000 sq. ft. and retrieval system. It is co-located with a conventional Freezer Services in 2018. The
of 55-degree produce cooler space, 14 banana-ripening freezer building supplementing two other facilities that facility includes 32 dock doors
rooms, 105 exterior truck doors and 17 electronically Americold has been operating since 1995. and has a clearance height
operated overhead doors. The clearance height is 34 feet. of 58 feet, 6 inches. This is
The building is leased to a national logistics provider for Preferred Freezer’s seventh
10 years with annual rent escalators. OAKLAND, CA L.A. cold storage facility.
Photo Credit: ARCO Design/Build, Inc. 2018.
The building is located near
A 266,000-sq.-ft. cold storage and logistics downtown and covers an
facility opened in 2018 and serving as a hub for
BURIEN, WA (Seattle Area) entire city block.
temperature-controlled cargo transiting through
Northern California. Lineage Logistics and
The 241,140-sq.-ft. Puget Sound Commerce Center
Dreisbach Enterprises are the main operators in
is the first cold storage facility built in the Seattle
collaboration with the Port of Oakland.
area in 10 years. It has a 40-foot clearance height,
32 truck bays and 150 parking spaces. The building
is strategically located near the Port of Seattle
and Seattle-Tacoma International Airport. Bridge MCDONOUGH, GA (Atlanta Area)
Development Partners developed and sold the
property to Bentall Kennedy in 2017. At the time of A 250,000-sq.-ft. public refrigerated warehouse
purchase, the building was 100% leased. 30 miles outside of Atlanta and completed
in 2018. The facility is run by Burris Logistics,
Photo Credit: Bridge Development, 2017. a family-owned-and-operated foodservice
redistribution and retail specialty company.
9| CBRE RESEARCH | 10DEVELOPMENT PIPELINE
FIGURE 1: DEVELOPMENT PIPELINE MAP, 2019 COMPLETIONS AND UNDER CONSTRUCTION
Source: CBRE Research estimates; company reports, local newspapers, and discussions with brokers.
11 | CBRE RESEARCH © 2019 CBRE, Inc. | 12LAYOUT & DESIGN
COLD STORAGE Cold storage facilities are
DESIGN & CONSTRUCTION typically divided into several
areas within the main building by
prefabricated insulated panels.
These rooms operate within
DIFFERENCES BETWEEN COLD MACHINERY & EQUIPMENT distinct temperature and humidity
STORAGE AND DRY WAREHOUSE ranges and sometimes feature
Unlike conventional dry separate docking, loading and
COST warehouses, cold storage facilities sorting areas.
must have various structural and
Construction costs per sq. ft. for a temperature-controlled facility can be mechanical installations. Cooling Another distinctive feature of cold
as much as triple the cost of constructing a traditional warehouse, and the systems include compressors, storage facilities is temperature-
timeframe to build a cold storage warehouse is typically four to five months condensers and evaporators. controlled docks or speed bays.
longer given higher complexity and building standards. Cold storage facilities To achieve efficient cooling, Sometimes occupying as much
require a thermal envelope and insulated panels along with other expensive the cold storage design must as 10% to 20% of total space in
machinery not required in a dry warehouse. also reduce air flow waste by the facility, these areas serve as
In addition, construction costs tend to increase with lower insulation, temperature/air-proof buffers to prevent a rapid change
temperature requirements and higher ceiling heights that increase doors and automatic temperature in temperature between storage
the number of pallet positions. Given the relatively high monitoring systems. and distribution.
construction costs and the required operational features of
cold storage facilities, there is a higher barrier to entry in FIGURE 2: INSTALLATIONS IN COLD STORAGE FACILITIES
the temperature-controlled warehouse sector than in the
standard warehouse sector.
There are many considerations when building cold storage.
The following items impact the cost of construction:
IMP (insulated metal panel) Rooftop penthouse
installation, as opposed to for equipment.
tilt-up construction that is
typical of dry warehouses. Fire protection.
Mechanical equipment. Labor (skilled
contractors).
Premium concrete slab
and under-floor heating. Number of pallets
(rack plan).
Different types of
refrigeration and equipment Above-standard
(package units, ammonia features like packing
systems, freon units, central rooms, blast freezing and
engine room, etc.). fumigation. Source: CBRE Research, July 2019.
13 | CBRE RESEARCH © 2019 CBRE, Inc. | 14DESIGN & CONSTRUCTION
EVOLUTION OF COLD STORAGE
Design and construction of cold storage has evolved
in the past decade.
Engine room in recently completed
40’-60’ project in Covington, TN.
30’-32’
2014 2019
Whereas 30-foot clearance height was HIGH BUILDING STANDARDS
considered state-of-the-art five years Federal and local regulations have a Refrigerated warehouses that receive,
ago, today the standard for modern Photo Credit: Primus Builders, 2019. significant impact on the maintenance store and distribute food products are
freezer/cooler buildings ranges from of cold storage facilities. Property required to register with the FDA and
40 to 60 feet, compared with 32 to heights allow for greater efficiencies
as cold storage warehouses are managers of these buildings must are subject to inspections. A prevention
40 feet. comply with EPA, OSHA, USDA and plan must be written and implemented
measured by the number of pallet
positions per cubic feet. And many of FDA (if it involves pharmaceutical by the cold storage operator, involving
There are various reasons ceiling products) standards; local building and employee training programs.
heights have gotten higher. Since land the newer facilities are investing in AS/
RS (automated storage and retrieval fire protection codes; height restrictions
costs are significant in dense markets, and water supply requirements. This Cloud-based technology can often
a smaller footprint translates into lower systems) for high volume material
handling. This type of automation translates into increased complexity and help minimize the costs associated
real estate costs. Another reason is cost in running these facilities. While with adapting to new regulations.
increased pallet capacity. Higher ceiling requires higher ceiling heights.
these regulations must be considered Warehouse management systems
Other building features like dock from a development perspective, they (WMS), for example, deliver capabilities
Cold storage racking system for
large retailer in a recently completed equipment, LED lighting, fire don’t have a dramatic impact on the like freshness tracking and proactive
project in Forest Park, GA. protection, high-speed doors and development process. alert notifications, and can help
ammonia systems have evolved cold storage operators manage the
over the years as the handling of The Food Safety Modernization Act complexities of the law while keeping
temperature-sensitive foods became (FSMA) of 2011 made the first major track of their goods in real time. Other
more sophisticated. changes to the FDA’s food safety cutting-edge tracking technologies
authorities in more than 70 years. The are under development. In the
Furthermore, construction methods law focuses on preventions, inspections, pharmaceutical industry, for example,
have changed over the years to build compliance, response, imports and drones and AI are being tested to more
longer-lasting facilities. enhanced partnerships. It also provides efficiently track prescription drugs as
the FDA with enforcement authority they move through the supply chain.
designed to achieve higher rates of
Photo Credit: Primus Builders, 2019.
compliance and prevention.
15 | CBRE RESEARCH © 2019 CBRE, Inc. | 16COLD STORAGE
CHALLENGES & OPPORTUNITIES
The development and operation of cold storage
facilities is challenging. Skilled subcontractors
are limited and securing the necessary building
materials is sometimes difficult.
These properties must adhere to Automation also provides higher
strict thermal integrity, therefore density, greater height, a smaller
storing and distributing perishable footprint and around-the-clock
items with different shelf lives operation. The downside to
means that different climates must automation is that significant
be controlled while workers move capital investment is required,
the product in and out. Finding with costs running in the multiples
workers to operate the facilities of standard cold storage
can be difficult considering the construction.
extreme conditions.
UPSIDE TO BUILDING COLD
AUTOMATION STORAGE
Considering the labor challenge Despite high capital expenditures
along with improving other and operating expenses, cold
efficiencies, automation is a storage facilities command
viable solution. When deciding higher rental premiums than
whether to automate a facility, dry warehouses. Occupiers tend
the developer/builder must to stay in the same facility for
determine how many pallets will lengthy periods and are willing to
move through the warehouse and commit to long lease terms (10
weigh this against other costs. For years or more).
a third-party logistics operator
(3PL), flexibility is paramount and
automated systems offer flexibility.
17 | CBRE RESEARCH © 2019 CBRE, Inc. | 18COLD STORAGE REAL ESTATE
LOOKING AHEAD IMPLICATIONS
Expect to see three major
shifts in the development and
construction of cold storage
facilities in years ahead.
REATER AUTOMATION IN THE
G
1 2 3
MORE SPECULATIVE MORE DEVELOPMENT
DEVELOPMENT ACTIVITY IN SMALL MARKETS DESIGN AND OPERATION OF
COLD STORAGE FACILITIES
As demand grows and more While major metro areas will Although robotics technology
investors target cold storage capture much of the demand for hasn’t fully infiltrated these
assets, there will be an increase cold storage development, rising spaces like it has in traditional
in projects without a tenant in land and construction costs will warehousing, expect more
place. This means there will be push activity toward smaller high-tech implementation in
more entrants into this space, markets adjacent to ports, cold storage facilities ahead.
with specialized developers and intermodal hubs and large Large retailers that are already
contractors leading the way. population centers, such as implementing automated
Wilmington, NC, San Antonio, systems will drive this trend.
TX and Savannah, GA.
19 | CBRE RESEARCH © 2019 CBRE, Inc. | 20CONTACTS: RICHARD BARKHAM, PH.D., MRICS DAVID EGAN Global Chief Economist, Senior Director, Investor Services Head of Americas Research Global Head of Industrial Research +1 617 912 5215 +1 312 935 1892 richard.barkham@cbre.com david.egan2@cbre.com SPENCER G. LEVY MATTHEW WALASZEK Chairman Americas Research, Associate Director, Senior Economic Advisor Industrial & Logistics Research +1 617 912 5236 +1 312 297 7686 spencer.levy@cbre.com matthew.walaszek@cbre.com ADAM MULLEN SPECIAL THANKS: Americas Industrial & Logistics, Bridge Development Partners, Greater Philadelphia Market Leader ARCO Design/Build Inc., Primus +1 215 561 8980 Builders, FCL Builders adam.mullen@cbre.com DISCLAIMER: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.
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