Growth in online grocery shopping has triggered demand for new cold storage space, creating 3.3 million square feet of speculative development, up from just 300,000 square feet in 2019, according to a new report from CBRE.
“Many of our pandemic-era shopping practices have become normalized,” said John Morris, CBRE’s president of industrial & logistics in the Americas. “Just as ecommerce spending has driven a need for warehouses, increased online grocery shopping has increased the need for more cold storage space.”
In October of 2021, refrigerated and frozen foods accounted for 9% and 13% of online grocery purchases, respectively. This has more than doubled and tripled from just 4% for both categories in early 2020, according to the market data provider IRI.
Overall, online penetration of total grocery sales reached almost 13% in 2021, up from 3% in 2019. This surging activity has driven the demand for new cold storage space. CBRE estimates the U.S. cold storage footprint to be about 225 million square feet, with a vacancy rate that mirrors the overall industrial sector at an historically tight 3.1%.
“In the past, the construction cost premium for cold storage space was a major barrier to entry, typically at triple the cost to construct compared to a dry warehouse,” Morris observed.
“However, with heightened interest from institutional investors and a lack of supply, many developers are more confident in launching speculative projects.”
That said, new entrants are faced with a challenging market to navigate not only because of high construction and operating costs, but also complex user requirements increasing the risk of not securing a tenant before completion, according to CBRE.
Additional costs in cold-storage construction come from insulated metal panel installation, refrigeration equipment, blast freezing and fumigation, and the installation of premium quality concrete slabs and under-floor heating.