November 26, 2019
By Amy Sorter
Two brokers, a developer and an analyst walked into a bar — er — room. They sat down. Then, they discussed . . . cold storage. At least, this is what happened during the recent Connect Industrial conference, which took place in Houston, TX. During the session entitled “Cold Storage: The New Frontier,” moderator Chris Cummings (Colliers International) kept the conversation about the cold storage subsector moving between Chris Copenhaver (Cushman & Wakefield); John Atcheson (Arco Design/Build) and Matthew Walaszek (CBRE).
The panelists agreed that developers and institutional investors are becoming more interested in the space. Noted Cummings, one of the brokers: “Everything that we, as consumers, are doing, is creating a ripple effect in the supply chain, and the distributors are having to change with that.”
And, the panelists also agreed that, even with the interest in the subsector, not much information exists about it. This prompted Walaszek, the analyst, to delve into what he dubbed “a very niche subsector of the industrial market,” but one with a great deal of opportunity. Walaszek, who has issued two papers, so far, about the topic, indicated that the growth of online grocery sales, combined with an increase in food sales overall from restaurants and fast-food places, are driving demand for cold storage.
Another trend driving the industry is the technology being used along the supply chain to preserve foods. “There are 10 to 12 different refrigeration options in the market these days; before it was only freon or ammonia,” observed the developer, Atcheson. He added that new refrigeration technology is coming from Europe, which should prompt more change in the subsector.
And, as the technology is encouraging the larger grocery and food delivery firms to move operations to more modern facilities, “the ones they’re coming out of aren’t obsolete,” explained broker Copenhaver. “That’s what have led some of the more entrepreneurial companies and equity funds to buy up the older buildings, lease up the freezer/cooler parts of them, and make the rest dry.”
The other issue on which panelists agreed on was that there hasn’t been a whole lot of speculative development on the cold-storage front, mainly because of “the specialized nature of the business,” Walaszek explained. “We typically see build-to-suits, though could see more spec development.”
Atcheson agreed that the future could see more cold-storage spec development, primarily due to the new refrigeration systems available, leading to more space flexibility. He cautioned, however, that developing cold-storage facilities are not for the faint-of-heart. “There are challenges with the development,” he said; one of which is a much higher dollar-per-square-foot cost, due to different racking and installation requirements necessary with the facilities. “I think we’ll see some players who will figure it out, and do a good job with it,” he predicted.
Cummings, the broker, also added that, even with more private equity coming into the food space, “the one thing they don’t underwrite is the cost to operate these facilities,” which can be huge, and unexpected.
One of the players that succeeded in spec cold-storage development was Hunt Southwest Real Development, which built the 300,000-square-foot DFW ColdSpot, then leased the Fort Worth-based facility to Emergent Cold. The facility, Copenhaver noted, was a well-thought-out one.
Still, the panelists acknowledged that cold storage will continue to be the target of potentially hot investments. Noted Walaszek: “We’ll likely see more institutional capital partnering up with specialized developers that understand the business . . . it will be one of the biggest opportunities going forward in the markets where population growth and density support it.”
Pictured (L-R): Chris Cummings (Colliers International); Chris Copenhaver (Cushman & Wakefield); Matthew Walaszek (CBRE); John Atcheson (Arco Design/Build)
For comments, questions or concerns, please contact Amy Sorter