The Cold Hard Truth about Building Cold Storage Warehouse Space
The COVID-19 pandemic has fundamentally changed how many people shop. Now, more than ever, people feel more at ease ordering their groceries and prepared meals online and arranging for delivery – either directly or via a third-party service like DoorDash and UberEats.
This has created a sense of urgency for the food industry, which had already been experiencing new demand for fast and fresh foods. Couple this with the exponential increase in ordering prepared food online, and now demand for freezer and cold storage warehouse space is through the roof. Restaurants and supermarkets are filling existing cold storage facilities to the brim, with demand for new facilities on the rise.
Keeping foods fresh is challenging. Not every warehouse is optimized to be used for freezer or cold storage space. These warehouses require state-of-the-art equipment to prolong the longevity of the foods being stored within. Tenants are also looking for freezers that have been laid out to maximize space, allowing them to store more product per square foot than they could with conventional freezers.
Delivering freezer and cold storage warehouse space is more complicated than ever. Many developers and corporations deliberately avoid the business of constructing and providing cold storage warehouse space, owing largely to how customized most facilities are, along with maintaining them. Here are some of the realities a developer faces when building state-of-the-art freezer and cold storage warehouses:
1. Access to Capital: Developing a state-of-the-art cold storage warehouse is highly capital-intensive, costing at least twice the amount of building a conventional warehouse. The majority of food businesses do not have access to, or the desire to invest this kind of capital, thus discouraging them from even considering it. This creates an opportunity for those willing to invest the capital needed to build a cold storage warehouse, and then charge a premium for companies willing to lease the space in lieu of building it on their own.
2. Need for Qualified Operators: New cold storage warehouses are modern and specialized facilities, and therefore, require operators who understand how to run these unique properties. It can be difficult to find a qualified operator or local technicians who are specialized to operate and maintain cold storage warehouses.
3. Inherent Risk. Given how specialized these facilities are, they carry inherent risk. A property optimized for cold or freezer storage cannot easily be repurposed as a traditional warehouse. Given how capital intensive these properties are, it is important for investors to feel highly confident that they will be able to lease the space at rents that justify the up-front costs of getting the space off the ground.
4. Location and Siting. Companies are increasingly looking for freezer and cold storage warehouses in areas that provide “last mile” distribution to their consumers. The spaces should be easily accessible, usually off highways and other major thoroughfares. Ideally located properties often come at a premium, which is something investors must consider.
Despite the challenges involved in building and maintaining commercial freezer and cold storage warehouses, those who understand this product type will find they can be incredibly lucrative. The market for these properties continues to increase, with tenants now willing to pay more per square foot than ever before.
We expect demand for freezer and cold storage warehouses to continue to increase in the years to come as online grocery shopping and food-related e-commerce becomes more of the norm.
CALL TO ACTION
Whether you’re in need of a standard cold storage warehouse or a refrigerated facility to lease or purchase in South Florida, we can help. Contact us today with your project information and we’ll make sure to help you identify and negotiate the solution that makes sense for you and your company.
The Industrial Team at ComReal | Warehouses Market