The demand for new distribution centers across the country has been well-documented: Consumers increasingly want their gym shoes, video games and flat-screen TVs delivered in one or two days. But the growth of online grocery sales has boosted demand for another kind of warehouse, cold-storage. And that demand is only expected to rise, according to new report from CBRE.
How strong is the demand for new cold-storage space? CBRE says that the country could see the addition of up to 100 million square feet of this warehouse type during the next five years.
CBRE points to an estimate from the Food Marketing Institute and Nielsen saying that online groceries will account for 13 percent of total grocery sales by 2022. That’s a significant increase; online sales only accounted for 3 percent of all grocery sales in 2018.
CBRE says that this growth would mean an additional $100 billion in annual grocery sales.
This will also bring big changes to the cold-storage industry. Today, cold-storage facilities account for 3.6 billion cubic feet. That only accounts for a small portion of U.S. industrial and logistics real estate overall. If this portion of the logistics market grows as quickly as CBRE estimates, it will provide yet another boost to the already soaring industrial sector.
This will impact the Midwest, too. CBRE predicts that the demand for cold-storage space will rise in certain Midwest states.
“Demand for cold-storage space, particularly freezer, has been on a seemingly constant rise in Minnesota, Wisconsin and Iowa over the last several years,” said CBRE’s Andy Lubinski, first vice president in the company’s Minneapolis office, in a statement. “Nearly all existing cold-storage facilities that become available, even those with poor configurations and deferred maintenance, have been acquired or leased in a matter of months in primary, secondary and tertiary markets alike. This is being driven by food processors looking to optimize their distribution network as well as the growing popularity of ordering food and groceries online directly by the consumer.”
Currently, two Midwest states, Wisconsin and Illinois, rank among the country’s leaders in available cold-storage space. Wisconsin, with 228.1 million cubic square feet, ranks fifth in the country, behind California, Washington, Florida and Texas. Illinois, with 188 million cubic square feet of cold-storage space, ranks seventh.
To keep up with the demand of online grocery sales, the cold-storage industry has turned to consolidation as a way to gain economies of scale. CBRE said that four companies now control 73.4 percent of the refrigerated warehouse space in North America.
“Few sectors of commercial real estate will undergo as much transformation in the coming years as the cold-storage industry due to e-commerce’s impact on this previously under-penetrated market,” said Matthew Walaszek, CBRE Associate Director of Industrial & Logistics Research, Americas. “We will see robust demand, further innovation in delivery and automation, and possibly more consolidation among major players.”
