Commercial Real Estate News / Investing / The Rise of Cold Chain Storage as a Force in CRE

The Rise of Cold Chain Storage as a Force in CRE

Published: 11-02-23 Category: Investing

MyEListings' markets and economics editor and creates content about global macro events and their impact on US commercial real estate.

RealCold, an affiliate of the prominent New York-based developer, Related, is taking major strides in the evolving world of cold storage. With a significant investment of $1 billion, the company is set to pave the way for a robust network of distribution facilities.

This ambitious move is primarily driven by the swelling demand for cold storage spaces, largely influenced by the surge in online grocery shopping.

Expanding the Cold Storage Footprint in Key Locations

RealCold has dedicated $150 million each for their initial two establishments located in Lockhart, Texas, and Lakeland, Florida. These facilities, spanning more than 300,000 square feet, are slated to commence construction within the current year.

Furthermore, by 2025, the vision for RealCold extends to having an expansive reach of over 10 facilities, distributed across six pivotal markets. Supporting this endeavor is their parent company, Related, which boasts a monumental asset portfolio surpassing $60 billion.

Cost Implications and the Cold Storage Niche

Venturing into cold storage isn't a first for CRE investors; however, the intrinsic capital-intensive nature of this segment renders it specialized.

Last-mile delivery infrastructure demanded by e-commerce is necessarily more complex, and therefore higher cost than higher infrastructure tiers.

Highlighting the financial specifics, the development cost for cold storage warehouses is notably higher, ranging between two to four times more per square foot than their standard counterparts. The need for access to shipping facilities remains constant as costs accrue.

Collaborative Ventures and Major Investments

The cold storage sector has not remained impervious to the interests of major players. A notable collaboration occurred when Bain Capital entered into a joint venture with Dallas' Barber Partners to construct an impressive 15 cold storage warehouses, boasting a cumulative value of $500 million.

In another significant move, Envision attracted an investment of $500 million from an institutional investor. This fund is aimed at facilitating the acquisition and further development of cold storage assets worth over $1.5 billion.

RealCold's thrusts at better sectoral distribution capabilities therefore present exciting opportunities for both investors and consumers.

The Interlinked Growth of E-Commerce and Cold Storage

It is difficult to overstate the influential role of e-commerce in amplifying the demand for cold storage. The realm of online shopping has grown exponentially.

To illustrate, e-commerce's contribution to the total US grocery sales is projected to escalate to 21.5% by 2025, marking a substantial increase from the 13% recorded in 2021.

This data, as presented in a 2022 report by CBRE, also shed light on the anticipatory rise in cold storage demand, which had a development pipeline of 3.3 million square feet during the report's publication.

Potential Challenges and the Way Forward

The cold storage sector, akin to the broader CRE landscape, is not without its challenges. Factors like inflation, escalating interest rates, labor intricacies, and prevailing economic uncertainties could potentially affect its growth trajectory.

Yet, the silver lining lies in the considerable potential for high returns. The rationale behind this optimistic outlook? The minimal volume of new construction juxtaposed with the existing inventory, as deduced from a study by BentallGreenOak.

The cold storage sector, backed by colossal investments and a clear vision, is poised for substantial growth as consumers continue to effortlessly adopt e-commerce for more and more daily needs.

Despite the anticipated challenges, the sector's potential, coupled with the increasing demand influenced by e-commerce, ensures its prominence in the evolving real estate opportunity landscape.

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