Finding the Perfect Cold Storage Facility: A Guide for Tenants

Published: 03-27-24    Category: Leasing/Renting

Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.

The inside of a cold storage facility.

Business owners and managers whose products require refrigerated storage will need to conduct a search for the ideal facility, with or without the assistance of a broker who specializes in commercial real estate (CRE) leasing.

Before beginning your search, it's vital to determine what type of storage your products require.

For example, if your business provides fresh fruits and vegetables to grocery and restaurant businesses, your products will require storage in a facility with temperatures between 32° and 50° Fahrenheit (F).

In addition, it's important to research the building's docks and loading/unloading equipment to ensure they're compatible with your delivery vehicles and goods' packaging.

In this guide, we'll discuss key considerations for tenants and offer tips on finding the ideal cold storage property and negotiating the best deal.

Like any other rental, the right location helps ensure efficient transfers of your goods to the cold storage facility while also providing a convenient pick-up point for transportation to their end destination.

Here are some factors to keep in mind when determining the best location.

Convenient Access, Affordable Costs

When searching for a cold storage facility, you'll want to determine your definitions of the following checklist of “must-haves” before asking to view the property.

  1. Proximity to your established customer base or distribution center(s).
  2. Accessibility for your delivery trucks, including ease of navigation for drivers. No driver wants to negotiate outdated or unsuitable dock surroundings.
  3. Distance from major highways or transportation hubs, combined with ease of access to and from the facility.

If you need to hire staff to handle the storage and delivery of your goods, you may want to inquire about the availability of reliable staff in the area.

Next, it's time to inspect the features of your shortlisted cold storage facilities to ensure they align with your business needs and personal preferences.

Does the Facility Check All of Your Boxes?

Like other types of CRE, not all refrigerated and freezer storage facilities are created equal.

After reviewing the ideal environment for your products and composing a shortlist of suitable locations, it will be helpful to compose a viewing checklist with precise descriptions of each, especially if you're working with a CRE broker.

Your checklist should include these items, plus any that are pertinent to your business requirements.

  1. Temperature technology: Check that the facility can maintain the precise temperature range required for your products. If you're planning to store different types of goods, look for a facility with multiple temperature zones.
  2. Onsite security: Look for reliable security measures like 24/7 surveillance cameras, on-site security guards and access control systems.
  3. Cleanliness and hygiene: No matter what products you plan to store, a storage facility must be able to prove compliance with local sanitation codes.
  4. Loading and transfer docks: Review the number, size, and type of loading docks available. Are they compatible with your own or your customers' trucks and equipment? Is there enough space available for the efficient loading and unloading of your goods without the risk of damaging their packaging or contents?

While many of these requirements can be confirmed during your initial visit to a facility, it's helpful to bring a list of industry regulations to discuss with a potential landlord or owner to ensure compliance.

Depending on your budget and needs, you may want to decide if your facility should provide a Warehouse Management System (WMS). Here are details of two you may encounter.

Warehouse Management Systems (WMS) for Refrigerated Goods

Standalone WMS offers standard functionality to manage a variety of cold storage warehousing operations. These include:

  • Inventory tracking for goods arriving and departing the facility.
  • Order management functionality, which enables tenants to reduce paperwork while increasing customer satisfaction
  • Labor management tasks recording, from hours worked to actions performed.

Despite being a more affordable option, a standalone WMS system may have limited scalability and integration functionality.

Cloud-based WMS has become popular as these systems can be modified for managing perishable refrigerated items, including those requiring Food and Drug Administration (FDA) compliance.

Features include:

  • Validation processes and monitoring that maintain the system's integrity.
  • User access and authentication mechanisms that limit different levels of access to authorized personnel.
  • Audit trails that record user activities, timestamps, data changes, system events, and more.
  • Data encryption with SSL and TLS protocols, together with the archival of electronic records, may be required for federal compliance.

No matter which WMS you choose, it should provide the necessary tools for streamlining your business operation while improving inventory accuracy.

After you've gone through your checklist, inspected one or more properties, and found a suitable cold storage facility, it's time to review your landlord's lease, preferably with the assistance of an experienced CRE broker or attorney.

Clauses of Cold Storage Facility Leases

While a lease for a temperature-controlled storage facility will contain details pertinent to your requirements, it will also contain standard clauses such as these:

  1. The proposed length of the lease, plus any renewal options available to you.
  2. Clearly defined rent amounts, together with additional costs such as maintenance and utilities.
  3. Insurance and security deposit requirements.
  4. Termination clauses and penalties.
  5. Tenants' maintenance and repair responsibilities.

After you review the initial lease provided by your landlord, you may want to discuss negotiating more favorable terms, especially if you're aware of higher-than-average vacancy rates in your area.

Before you begin negotiations, conduct thorough due diligence if possible. This should include an inspection of the entire facility, including the refrigeration system or systems.

Tips and Strategies for Getting What You Want

Start your search early to allow ample time for research and at least two rounds of negotiations before finalizing your lease.

Work with a broker who specializes in cold storage properties and is familiar with the nuances of this market and vacancy rates in your preferred area.

Be prepared to compromise on certain aspects of the lease. This may encourage your landlord to be more flexible if and when you ask for improvements, such as lower costs.

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