June 18, 2019 Comments Off on Complexities of Cold Storage Keep Supply Low as Demand Rises Views: 493 Florida News

Complexities of Cold Storage Keep Supply Low as Demand Rises

With a booming tourism sector and a growing population overall, South Florida is an especially strong marketplace for cold storage warehouse space. It’s also a vantage point from which Lee & Associates South Florida’s President, Matthew Rotolante, a cold storage specialist, can provide insights into why demand in the sector is growing but supply is not.

Q: We’ve been hearing that demand for refrigerated warehouse space is on the rise. Is supply keeping up with demand?

Matthew Rotolante: Demand for refrigerated space is definitely on the rise, primarily, due to the overall growth in consumption in South Florida. This is fueled by our robust tourism industry, serving 46 million tourists who visit South Florida each year as compared to the 6.2 million residents who live here year-round. The cruise ship industry alone accounts for 10 million of that demand. While there are several new cold storage projects, or a total of about 30,000 pallet positions, supply remains tight and pricing strong.

Q: How is this affecting vacancy rates in this specialty area?

Rotolante: Vacancy rates for cold storage are certainly lower than the overall industrial vacancy rate. Given that cold storage makes up a small percentage of the entire industrial marketplace, combined with the fact that it is much more expensive, it is not common that you will see developers looking to build refrigerated buildings, except on a build-to-suit basis. Naturally, this limits supply, and with high demand we know that vacancy rates must be tight under this scenario.

Q: What are some of the challenges in developing refrigerated product? Can it be adapted/retrofitted from existing space?

A: Until recently, the majority of the cold storage buildings available in the marketplace had been retrofitted for cold storage. Buildings can be either freezer (32°-) or cooler (32°+). Cooler tends to be much easier. Although you still need the heavy power, the panel walls, evaporator equipment, etc., you don’t have to worry about the damage caused by expanding water when it freezes. Freezers have additional requirements that can make finding and retrofitting a building more difficult and expensive, and also make it harder to find a suitable building to convert.

Q: For tenants seeking refrigerated space, what are some of the challenges in finding space that meets their requirements?

Rotolante: There are several types of tenants who will use cold storage, and they run the gamut from pharmaceutical to produce, flowers, frozen meats and vegetables, and then you also have manufacturing/processing vs. distribution. We have also seen an uptick in commercial kitchens, and bakeries have learned that they can extend the shelf life of their bread by freezing it and distributing it nationally in this form. It has taken me almost a decade to learn the nuances associated with cold storage requirements of cold storage users.

Given the overall lack of space available, it becomes very important to have a plan in place with clear objectives, and a good advisor by your side to help guide the site selection process. It probably also helps that we know every cold storage building in the marketplace.

Q: Do you anticipate that tenants will have more options within the next few years?

Rotolante: As the total square footage of South Florida industrial real estate grows, so will the number of cold storage buildings. However, I don’t foresee the options expanding anytime soon. Landlords tend to shy away from the large capital expenditure, and also the maintenance associated with operating a cold storage plant.

Because refrigeration costs so much to put into a building, the companies that choose to retrofit a building will often want to own it, so you tend to have a lot of owner-occupants for this reason. Due to this complication and expense, the Cold Storage 3PL has become a unique player that is utilized at a higher percentage rate than in the respective dry distribution marketplace. Additionally, the cold storage products tend to be seasonal, and the 3PL model allows companies to vary in utilization throughout the year, flexing out during the busy time and then taking up a smaller footprint in the off-season using the pay per pallet or per pound vs. a fixed annual per square foot rate.

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