Investors, both private and public, need to take a second look at the cold storage market as a secure place to park funds for the next few years. Burgeoning demand for more cold storage warehouses is predicted to explode now that Amazon is in the grocery delivery business. Many other food merchants and drug makers are also looking to increase the amount of cold storage they will need for their expanding customer base. But there’s a fly in the ointment, and that is that right now the demand for cold storage is far bigger than the amount of cold storage warehouse space available in the United States. That means cold storage warehouse real estate is now at a premium, and likely to go higher and stay higher for the next ten or so years.
The cold storage business in the United States is straining to add around one million square feet of additional storage capability in the next few years. Statistically speaking, that’s nearly a fifty percent increase — and most of it is for online grocery merchandising, according to real estate investment firms. One of the challenges with increasing cold storage capability is the fact that many facilities cannot be added on to because of zoning restrictions and physical limitations such as the storage sizes. Perhaps it was short-sighted, but most industrial cold storage companies decided long ago that they were going to keep their physical plants small in order to minimize utility costs. But in the long run, that is going to cost the whole cold storage industry more money as they scramble to quickly build more cold storage warehouses of an industrial size. The more centralized a business can be with its cold storage inventory, the more cost efficient it will become. And that’s probably the biggest selling point for investing in cold storage real estate today.
There seems to be no end to the demand for farm fresh produce delivered directly to consumers at home. But farmers are able to keep perishable items such as eggs, dairy, fruits, and vegetables on their own properties for only a brief period before they lose their vitality and become blemished, wilted, and lose taste. The agricultural sector is working hand in glove with some of the biggest cold storage companies in the nation to bring industrial size cold storage warehouses, and of course the accompanying cold storage door frames, to within a hundred miles of the biggest agricultural producers in the Midwest and the West Coast. Take the case of apples, for instance. Once harvested in the fall, apples can be stored at room temperature for up to forty days, but after that if they are not placed in cold storage at temperatures around forty-five degrees Fahrenheit their quality begins to decay rapidly. In the past apple growers could turn that loss into a profit by making their own apple cider or apple sauce — but in today’s market, the economy of cost just won’t let them compete with the big food retailers, so they are forced to get their entire crop into cold storage or face escalating spoilage and subsequent loss of income. To reiterate: this brewing agricultural crisis is spurring cold storage construction at an unprecedented rate. Those with the real estate and zoning permits to build cold storage warehouses can just about write their own ticket.
