UBS Asset Management is joining Dutch pension fund manager PGGM and other investors to make an initial $700 million investment in building refrigerated storage facilities for food in the U.S., the latest sign that these warehouses remain a real estate bright spot even with supply chain bottlenecks and labor shortages.

UBS, PGGM and a group of family offices will use the initial investment to construct large “build-to-suit” cold storage space across major food and transportation centers across the country, UBS said Tuesday in a statement. UBS, with about $29.4 billion in U.S. real estate investments across industrial, cold storage, residential, office and hotel properties, also manages over 280,000 acres of farmland across 16 states and more than 30 different major perishable and nonperishable food crops.

“By bringing together our firm’s expertise and capabilities in both perishable agriculture and real estate, we believe we are uniquely positioned to execute this cold storage strategy, offering investors access to opportunities early in the replacement cycle of dated facilities and providing tenants with the latest technologies in state-of-the-art facilities,” Darren Rabenou, head of food and agriculture, and Matt Johnson, head of U.S. real estate, said in a joint statement from UBS.

PGGM said it’s partnering with UBS because the move to build “modern, efficient and sustainable” cold storage facilities corresponds with its focus on “sustainable investment initiatives.”

While increased online food shopping during the pandemic has led to growing demand for cold food storage, added institutional investor interest in new energy-efficient cold storage facilities also comes amid an environmental pitch to reduce food and other waste, according to a 2021 UBS study. For instance, in the United States, about 30% to 40% of the overall food supply is wasted and roughly 20% of losses occur at the farm level because of a lack of storage, the study found.

The growing U.S. demand for imported foods from developing countries has also increased the appetite for cold storage facilities in key ports and in repurposed locations, UBS said. Meanwhile, the average age of a cold storage building in the United States is 42 years, making many of them obsolete, or at least highly inefficient for modern logistics operators, according to the report.

“Cold storage has evolved from a niche mainly overlooked sector, to mainstream,” the UBS study said. “The demand growth expected in this historically under-supplied sector is creating what we think is one of the most attractive investment themes looking forward.”

But growth doesn’t come without challenges. Cold storage operators such as Americold and Lineage Logistics have faced headwinds because of supply chain disruptions and labor shortages. And Americold recorded quarterly losses in the second and fourth quarters of 2021 and the first quarter of this year before reporting a second-quarter profit in August, after it hiked rent for space in its freezer-warehouses and charged more to ship goods in trucks on behalf of customers.

UBS and PGGM aren’t unique in their bet on cold storage space.

About 39% of U.S. alternative investors are interested in cold storage purchases this year, up from about 25% in 2021, according to real estate firm CBRE’s 2022 "U.S. Investor Intentions Survey."Cold storage properties, and other alternative real estate classes, are gaining popularity among investors because supply is limited and they can charge higher rents, according to the survey.

Industrial real estate developers are racing to build cold storage on speculation, proceeding without signed tenants on a bet that more consumers will buy groceries, meal kits and other perishable items online.

Developers were constructing 3.3 million square feet of speculative refrigerated space in the United States as of the second quarter, compared to a mere 300,000 square feet underway in 2019 before the pandemic, according to CBRE.

The amount of speculative space under construction represents nearly half the 7 million square feet underway across 26 cold storage buildings tracked by CoStar as of June 30.

In other telling examples, private equity firm Bain Capital and Texas real estate developer Barber Partners said in May they created a $500 million fund to build cold-storage facilities in high-growth markets.