Cold Storage Warehouse Uses, Types, & Costs
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Cold storage warehousing is a $35 billion industry with nearly 112 billion square feet of real estate in the US alone. Whether you're a business owner or an investor, cold storage units present a good opportunity for investing in a useful and in-demand piece of commercial real estate.
Here, we'll cover the basics you should know about cold storage warehousing, including its uses, the different types of cold storage units, and the costs involved to rent and buy cold storage. We'll also talk a bit about the commercial industrial warehouse market.
Let's get started.
What Is Cold Storage?
Cold storage is a type of specialized warehouse property that's used for storing perishable goods, such as food items, art, or medicine. Cold storage units keep ambient temperatures and moisture levels low to maintain product quality and shelf life.
Cold storage warehousing plays a crucial role in global trade networks by preserving sensitive goods so they can make their way to consumers. Some cold storage units are similar to flex industrial space and might have separate office and personnel facilities.
Types of Cold Storage
Below are some quick descriptions of the major types of cold storage units that businesses and investors can work with.
#1 – Bulk
Bulk storage units are single facilities used for storing large amounts of the same product, like medicine or a particular food item. Bulk cold storage units are typically the simplest kind of cold storage because you can store a lot of the same type of consumer goods.
#2 – Multi-Purpose
Multi-purpose cold storage is suitable for multiple different products, like meats, fruits, and vegetables. Because they store multiple types of commodities, multi-purpose cold storage has wider operational conditions.
#3 – Small
Small cold storage units are smaller units used for smaller quantities of specialized goods. Small cold storage might be used for seasonal goods that vendors buy and sell in smaller amounts.
#4 – Frozen
Frozen storage is for perishable goods that require especially low temperatures for preservation. Frozen storage units can operate as low as -30°F, and vendors usually slightly thaw frozen goods before shipping them out.
#5 – Controlled Atmosphere (CA)
CA units not only control ambient temperatures but also regulate the atmospheric composition of the storage space. Companies lease or rent CA units for goods that need a specific environment for preservation. For example, a CA unit might add carbon dioxide and remove ethylene to preserve fruits.
What Businesses Require Cold Storage Warehousing?
Any business that deals with environmentally and temperature-sensitive goods uses some kind of cold storage facility to store and transport goods.
#1 – Restaurants
Restaurants use cold storage units to store all kinds of frozen and prepared foods. Restaurants typically use some kind of cold storage freezer on site and purchase goods from larger cold storage food suppliers.
#2 – Supermarkets & Farms
Supermarkets and other larger agricultural producers also use large cold storage facilities at distribution centers to send to local grocery stores.
#3 – Importers/Exporters
Many importers and exporters that deal with sensitive materials, like textiles, flowers, makeup, and art, must use cold warehouses for storage and transportation.
#4 – Pharmaceuticals
Many pharmaceuticals, such as antibiotics or vaccines, need to be stored and transported in temperature-controlled environments. For example, the COVID-19 pandemic dramatically boosted demand for cold storage due to vaccine storage needs.
How Much Does It Cost to Store in Cold Storage?
It depends on whether you're renting or buying a cold storage warehouse.
According to market data, the national average cost to rent and buy commercial cold storage was approximately $7.28 and $157 per square foot, respectively. If you buy a cold storage warehouse, you'll need to also account for additional maintenance, insurance, taxes, and closing costs.
Another option is to buy commercial land and build cold storage warehousing. Below is a quick list of average commercial land costs in popular cities and states.
- Houston, TX: $1.92 per square foot;
- Miami, FL: $19.65 per square foot;
- Los Angeles, CA: $23.26 per square foot;
- Chicago, IL: $2.80 per square foot;
- Philadelphia, PA: $2.99 per square foot;
- Phoenix, AZ: $5.38 per square foot; and
- San Antonio, TX: $1.70 per square foot.
Average cold storage construction costs come out to about $33,000 per above-ground unit.
If you're looking for a way to finance a warehouse purchase, you can look at SBA loans. You can get an SBA loan for an investment property provided your business does not make the majority of its income from real estate investment and your business will occupy at least 60% of the property.
Should I Buy or Rent Cold Storage?
Both buying and renting cold storage have their advantages: Renting provides more flexibility as you can break your lease agreement should your business needs change. The trade-off is that your landlord will likely limit what you can do with the property.
Buying commercial property, on the other hand, gives you complete control over the space.
The downside of buying a commercial cold storage warehouse is that you're responsible for all property maintenance and upkeep. Cold storage facilities have complex cooling systems that can be expensive to repair. Also, commercial property is relatively non-liquid, so it can take a while to sell if you need the cash.
Is Cold Storage a Good Investment?
Commercial real estate investors can greatly benefit from investing in cold storage units. According to a recent report from Market Research Future, the total value of the global cold storage warehouse market is projected to grow 14% each year, reaching a total value of over $400 billion by 2032.
Key factors driving this growth is growing consumer demand for cold storage goods and international food trade agreements.
Cold storage warehousing also has strong financials and tends to be more profitable than traditional warehouse space. Cold storage averages a 5.5% annual investment yield, compared to an average of 4% for other types of warehouses. Owners can further increase gains by incorporating AI and robotics to streamline product organization, retrieval, and tracking.
The key to a profitable investment is identifying warehouses with desirable properties, like location, storage amenities, and nearby employment pools. Working with a commercial real estate broker can help you find the right property and negotiate favorable lease or purchase terms.
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