Has 2020 Changed the Industrial Cold Storage Market?

                With its sights set on continued world domination, the Amazonian distribution machine arms itself with “same day” delivery and an ever-increasing arsenal of offerings featuring perishable product lines such as e-groceries and e-pharmacies.  Both of these sectors will have climbed to a larger percentage of their overall sales in the time it takes to read this paragraph. This is just one of the Jenga pieces which set the stage for a true uptick in demand for cold storage and distribution facilities.

Reports show that online grocery shopping jumped from 3.4% of all grocery sales in 2019 to 10.2% in 2020. This pivotal year was unquestionably influenced by the pandemic, however the uptick in online grocery shopping is expected to continue to grow, projected to reach 21.5% by 2025.

With consumer demand increasing, logistics continue to take a higher priority in the strategic planning of producers and distributors of perishable products.  Offerings must be readily and continuously available for delivery to a consumer’s door in short order.
All this translates into the need for “Last Mile” facilities at increasing rates never seen. These locations are smaller footprint facilities than that of the primary production and distribution locations.  These small to mid-sized facilities provide staging for the strategic logistic needs of storage and distribution to a denser regional market.

In contrast to the larger production facilities being traditionally located in more rural settings, these smaller facilities need to be positioned closer to the population they serve. This presents as a challenge from a real estate perspective as available sites with the qualifications of conformant zoning, proximity to major thoroughfares, and infrastructure can be rare. Often it is the repurposing of a now-defunct, former manufacturing/distribution facility that allows for this addition to a company’s strategic growth initiative. Company’s looking to utilize flex and industrial buildings, which have NOT  been previously used as cold storage and distribution facilities, often face the challenge of reinventing the building’s infrastructure, which can take many months and cost hundreds of dollars per square foot. In contrast, available “in place” facilities, offering significant speed-to-market at fraction of new construction or full retrofit pricing, but come with the increased acquisition cost.

Look for this trend toward needing small to mid-size facilities to increase as delivery takes the priority in consumers’ minds and producers look to compete in an ever increasing “need it now” market.

January 11, 2021 | Eric Kuhn and Shannon Caldwell | Pillar Real Estate Advisors, LLC.