October 12, 2018

Insatiable demand for fresh food, along with a helping of recent political upheaval, have made industrial-strength refrigeration in the U.S. a hot commodity.

Cold storage – vast temperature-controlled spaces where companies warehouse perishable goods – has become an increasingly important part of supplying hungry Americans with fresh food anytime, whether in restaurants or at home.

This summer, demand for cold storage got a boost. New tariffs from China on U.S. meat has resulted in a record-breaking 2.5 billion pounds of chicken, turkey, pork and beef clogging up the nation’s refrigerated larders, according to the USDA, putting the current 3.6 billion cubic feet of cold storage space to the test.

Even before the tariffs, available cold storage space was dwindling, according to Aaron Ahlburn, Industrial and Logistics Research at JLL, who says a variety of factors, including the rise of grocery delivery services, have increased demand in the sector.

“The trade tensions have just pushed that demand over the edge,” Ahlburn says.

The space constraints stemming from the meat surplus may be short-lived, but demand in the sector is not, Ahlburn says.

“Cold storage has continued attracting investment across the United States,” he says.

Investors take note
Temperature-controlled service provider Lineage Logistics LLC, which oversees US$4 billion in real estate globally, recently sold a minority stake worth US$700 million. Shares in cold storage and warehousing firm Americold Realty Trust are up around a third in value since going public in January.

For real estate investors, the move into cold storage comes amid a broader push into alternative assets, which tend to offer higher returns. Plus, “the market for fresh food is relatively recession-proof. After all, people still have to eat, regardless of economic cycles,” Ahlburn says.

Trade wars and changing appetites fuel demand
U.S. sanctions on imports from China prompted responsive tariffs on U.S. pork. Domestic cold storage facilities provide a temporary home for these and other perishable products that have been ear-marked for export, but must now be rerouted.

The international market for meat supply and demand will likely even out over time, but uncertainty in other commodities point to continued need for ample refrigerated space.

Cold storage space is also being squeezed by growing consumer demand. In as few as five years, it is expected that 70 percent of U.S. consumers will be buying groceries online.

“A lot of companies are looking for ways to meet the demand for fresh food faster and more efficiently,” says Ahlburn. “Having more efficient cold storage real estate closer to consumers is helping with that. E-commerce, grocery delivery, subscription services—they all play into the need for cold storage as well.”

Additionally, senior population growth is driving the need for more cold storage for medicine like insulin, which needs to be refrigerated.

How can investors get involved?
Operating profits in existing cold storage facilities have shot up 83 percent over the last 5 years, according to MetLife research.

Cold storage may represent an opportunity to investors, but the market requires navigating complex hurdles such as property location and facility specifications.

“Take time to understand the market,” says Peter Kroner, U.S. Capital Markets Investor Research at JLL.

Kroner points to regional differences that shape demand for cold storage in different markets, such as the influx of young families in the Southeast who are boosting demand for perishable good deliveries.

“Gen X and millennial parents were the first to buy into e-commerce delivery of things like diapers, and now they’re the first adopters of subscription-based meal services,” he says.

In addition to identifying optimal locations, cold storage buildings need to be able to meet the highly specialized requirements of the end user. Consider, for instance, the fact that meat needs to be kept somewhere around 38 degrees Fahrenheit, but fish needs to be kept icy at -10 degrees.

“It’s not one-size fits-all like many industrial buildings,” says Kroner. “We’re talking about a highly oiled machine that has to fit exact specifications and that functions very differently from big box warehouses. Those complexities can also contribute to more complicated capital requirements.”

Click to read about whether U.S. industry will benefit from the ‘new’ NAFTA. 


Aaron Ahlburn

Director, JLL Industrial Research

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