Cold storage developers and owners expect activity to increase next year after a slowdown in demand and difficulties in the broader commercial real estate market.
Still, they said the industry's momentum will depend on the outcome of the election in November and future interest rates.
"We’re seeing things start to, as we speak, pick up,” said Scott McGarity, executive vice president of industrial with cold storage developer Barber Partners.
The intricacies of leasing cold storage properties, used for holding and preserving perishable goods at low temperatures, can make deals take longer than traditional real estate transactions, said Anthony Rinaldi, founder and managing principal at investment and development company Saxum Real Estate. That can mean a slower recovery in a property market restrained by higher rates as the industry watches whether the Federal Reserve cuts rates for a second time this year.
McGarity and Rinaldi spoke on panels during the I.CON Cold Storage conference, part of the Commercial Real Estate Development Association's event this week at Caesars Palace in Las Vegas.
As professionals mingled between panels, shaking hands and sipping coffee in the elaborate banquet hall, industry veterans and novices alike used ample networking opportunities to discuss trends.
First-time conference attendee Salvador Carrazco, a Las Vegas-based director of business development at Wright Structural Engineers, came to learn more about the cold storage market.
“It’s a growing industry and we’re just trying to learn about it and see how we can get more involved,” Carrazco said.
The global cold storage market was valued at $7.83 billion in 2023 and is expected to reach $12.22 billion by 2029, according to a July report from Research and Markets.
Factors contributing to the growth of the cold storage industry include more consumers buying frozen foods for price and convenience, an increase in smaller households and demand for frozen single portions, and the majority of U.S. food operators using frozen food to combat supply chain disruptions and labor shortages, according to a report from Cushman & Wakefield.
Supply and demand
Andrew Lucas, a pre-construction manager for cold storage facilities at Brinkmann Constructors, said demand for cold storage projects is increasing. His team is working on how to speed up the design phase so they can complete properties at a faster pace.
“There’s more demand than there is availability for cold right now,” said Lucas, who works on five to 10 projects across the country at a time.
The public refrigerated warehouse market, where third-party logistics companies operate facilities for food manufacturers and processors, remains strong.
“Grocery retail channels are growing exceptionally fast and have continued to do that and will continue to do that," said Chris Hughes, president and CEO of cold storage operator Arcadia Cold Storage & Logistics. "I don’t see it slowing down much,” he said, adding that population growth and comfort shopping online during the pandemic helped with the market's growth.
Capital markets seem to be awakening to the cold storage sector, in part because of Lineage's initial public offering over the summer. The IPO from the world's largest cold storage provider by capacity has helped bring attention from investors and lenders to the sector.
The percentage of lenders who look at traditional dry storage facilities that are also considering investing in cold storage is about 50%, up from around 25% two years ago, said Blake Thompson, vice chairman of global debt and structured finance at real estate firm Newmark.
Still, the industry is dealing with its fair share of challenges, including access to capital, high construction costs and power constraints.
West Hutchison, president and CEO of operator Vertical Cold Storage, said the idea that 40-year-old cold storage facilities need to be replaced is a myth.
“You will not overcome the cost to construct a new building with power savings and labor efficiencies,” Hutchison said.
But design characteristics of older facilities don't always meet customers’ needs, said Arcadia's Hughes. Properties built more than 40 years ago are not always as flexible to handle both refrigerated and frozen products, he said.
Utility constraints and power grid limits also pose challenges for the cold storage industry, much like they do for data centers.
“I do think that that will be something we need to consider and be a little concerned about,” Hughes said.