Cold Chain Logistics: Optimizing Your Local Supply Chain with Refrigerated Storage

Published: 03-28-24    Category: General CRE

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.

A cold chain logistics facility loading bay.

Are you a commercial real estate (CRE) property owner who's considering selling a low-performing storage property? While this may be a simple, profitable solution, consider the potential benefits of converting it to a cold storage facility.

Retrofitting this building can be especially profitable if it's located near interstate highways, delivery docks, airports, or cross-country delivery networks.

While converting an existing building to offer refrigerated storage can be expensive, demand for cold storage facilities continues to grow. These are fueled by national consumer trends such as ready-to-cook meal preparation kits that require refrigerated fruits, vegetables, and meats.

In addition, a 2022 investors survey found that nearly 40% of respondents were pursuing cold storage assets, which was nearly double the percentage from the previous year.

Another factor accelerating the need for cold storage is the cost of shipping perishable goods in refrigerated trucks. This has resulted in additional opportunities for owners of cold storage facilities across the country.

Property owners of a cold storage facility may enjoy increased ROI and considerably fewer vacancy times when renting the property. Currently, cold storage vacancy rates are generally lower than other types of storage facilities, with a national average vacancy rate of 4.0% or lower.

Selling the newly renovated property can also be an attractive option, especially in areas with high demand and little inventory.

  • Rental pricing for cold storage warehousing averages three times the rental rates for non-refrigerated or “dry” storage.
  • Selling a just-renovated turnkey facility can also be profitable, even after factoring in the costs of conversion.

By repurposing your property for storing refrigerated or frozen goods, it becomes a valuable asset for businesses that require refrigeration and cold storage solutions for their perishable goods.

Interested in learning more? Here are details of this growing CRE niche market.

Ice, Ice Baby: Current and Future Demand for Cold Storage

Initially fueled by the arrival of the COVID-19 pandemic and the growth of e-commerce, the national demand for cold storage facilities continues to be driven by several factors.

  1. Continued growth of online grocery shopping, especially ready-to-cook meal kits. This section of the e-commerce market is currently expanding by over 6% annually, with a projected market volume of over $7.5 billion by 2029.
  2. Increasing consumer demand for healthy diets. This has increased sales of fresh, perishable foods as consumers buy fewer canned and frozen products.
  3. Expansion of the pharmaceutical and biotech industries, including rising online sales and money-saving prescription shipments by health insurers.
  4. Globalization of perishable supply chains. These may be involved in the sale of products that require protection from excessive heat. Examples include cosmetics, candles, and fragile household items.

By converting a storage property or warehouse to a cold storage facility, you can tap into this steadily growing market while increasing your ROI.

Here is a basic description of how refrigerated and frozen goods require their own type of shipment protocol, and how your facility can become an essential link in the chain.

Understanding Cold Chain Logistics

Cold chain logistics refers to the temperature-controlled supply chain that ensures the quality and safety of perishable goods or “cool cargo” from the point of origin to the final destination.

This process involves refrigerated transportation, warehousing, and distribution facilities to maintain optimal temperatures throughout the supply chain.

For businesses dealing with perishable goods, such as food, pharmaceuticals, and chemicals, a reliable cold chain is essential for:

  1. Maintaining product quality and freshness;
  2. Preventing damage or spoilage;
  3. Compliance with federal and other food safety regulations; and
  4. Extending products' shelf life.

Like other types of commercial real estate, cold storage facilities need to be in a location that easily incorporates them into the area's logistic process.

Strategic Locations for Cold Storage Facilities

When CRE property owners invest in refrigeration and cold storage solutions, these facilities enable wholesale and retail businesses to optimize their supply chain and ensure the quality and on-time delivery of their products.

A cold storage facility operating in a prime location will provide the following to its tenants or new owner:

  1. Proximity to transportation hubs and major markets
  2. Flexibility to handle a wide range of temperature requirements
  3. Ability to provide value-added services, such as packaging and labeling
  4. Enhanced security and monitoring systems to protect valuable inventory

If you've identified one of your existing properties as a suitable candidate for repurposing to cold storage, your business plan will require certain steps.

Conversion to a Cold Storage Facility

To successfully convert an aging, empty, or under-utilized storage or warehouse property to a cold storage facility, consider the following steps:

  1. Assess the feasibility of the retrofit conversion. In addition to construction expenses, you'll need to research zoning regulations and market demand.
  2. Inspect the property carefully, or hire an independent inspector to help ensure that the renovation project won't run into hidden structural or foundation problems before completion.
  3. Work with experienced engineers and refrigeration specialists when preparing a blueprint of the necessary modifications.
  4. Decide what type of refrigeration is required by your potential tenants before finalizing your renovation budget. For example, will most of your tenants require refrigeration, below-zero storage, or both?
  5. Study your building's available options. One popular, fast conversion method is “box in a box,” which is the installation of insulated metal panels inside existing walls.
  6. Invest in state-of-the-art refrigeration systems, insulation, and monitoring technology to ensure optimal temperature control and energy efficiency.

Develop a marketing strategy to highlight the unique features and benefits of your cold storage facility to potential tenants.

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