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Cold Storage, Hot Market
While demand for modern cold storage facilities is growing, existing supply is limited.
Cold storage, a niche but rapidly growing segment of industrial real estate, is attracting attention from institutional investors, REITs and private equity firms. The demand for temperature-controlled space is due to several factors: the rise of grocery delivery services and prepackaged meals, an expanding preference for fresh produce, and the need to store temperature-sensitive pharmaceuticals.
These reasons, combined with the traditional demands of the cold supply chain, have put pressure on existing infrastructure. Aging cold storage facilities struggle to meet modern needs, lacking the efficiency, capacity and technology required for today’s complex supply chains. This gap presents an opportunity for developers to deliver modern solutions, creating significant value for investors seeking long-term returns. However, the high cost of building, managing and maintaining these facilities has been a barrier to entry for most property owners and their investors. Cold storage facilities can cost four times as much per square foot as a traditional warehouse.
Westmount Realty Capital, a private Dallas-based owner, developer and manager of commercial real estate, has spent over 40 years identifying high-potential opportunities in the market. This experience has led the company to focus on cold storage — a sector brimming with potential for growth and value creation.
Westmount’s track record includes two cold storage warehouses totaling over 2.2 million square feet with national tenants: Garland Logistics Park, located in one of Dallas-Fort Worth’s largest industrial submarkets, and Logistic Pointe in Charlotte, North Carolina.
Key Drivers of Investment Opportunities
Even during economic downturns, demand for cold storage has remained steady. This resilience highlights its unique appeal as an investment option with the potential for healthy returns. Cold storage represents stability and reliability — a combination increasingly valued in today’s uncertain markets. In Westmount’s experience, operations in cold storage facilities are uniquely dependent on the building’s performance to support current and future product demands. The modern class of cold storage facilities are far denser than the legacy buildings that offer less product load per square foot, and they are flexible enough to support varied environments.
Key trends driving the cold storage sector include:
Technological advancements: Advancements in building envelope components and design are allowing for more efficient refrigeration systems by stabilizing and decreasing load. Working in concert, the envelope and modern refrigeration systems support building temperatures reliably by using traditional ammonia or with advanced systems that use carbon dioxide or artificial refrigerants. Tenants value these efficiencies because they improve product stability and lower utility expenses. That is increasingly important as prices for logistics operations continue to climb.
Efficiency: Safely storing perishable goods requires highly specialized equipment and skilled workers on-site to ensure the warehouse stays at an optimal temperature 24/7. Given the high energy demands of cold storage, investors are incorporating renewable energy solutions such as solar panels and geothermal systems. Facilities should be close to the supporting workforce and the product destination, thus decreasing the miles tenants need to drive in their operations.
Increased capacity: To meet supply chain demands, modern cold storage facilities are designed with higher ceilings and optimized layouts to maximize storage. The preferred ceiling height on new cold storage facilities is 50 feet, while the average height of Class B industrial storage space is around 20 to 24 feet. At the Garland Logistics Center, Westmount raised the property’s roof by 15 feet to maximize cold storage space and added 90,000 square feet of freezer/cooler space. These renovations allowed a high-profile tenant, Kraft Heinz Company, to quickly transport cold goods to more retail clients and consumers, resulting in the signing of a new 121-month lease that commenced in September 2017.
Delivering Modern Solutions for a Long-term Strategy
As food production and distribution become more globalized, the need for advanced cold storage facilities near ports, intermodal hubs and transportation corridors, as well as to service infill locations, has surged. In Westmount’s experience, there is consistent demand for well-located, efficiently designed cold storage space because these facilities help maintain the quality of perishable goods to the last mile of delivery.
Even so, the existing supply of cold storage is limited. According to Cushman & Wakefield data on food logistics, demand for cold storage has significantly outpaced the modest 3.73 billion cubic feet of existing supply, much of which is dated product built nearly 40 years ago. This shortage of modern cold storage facilities offers investors an opportunity to capitalize on new developments, which must prioritize strategic location, functional design and high-quality construction.
Investors should consider the following factors when evaluating cold storage opportunities:
Strategic location: The success of cold storage facilities relies not only on their proximity to transportation hubs, but also on workforce and demand centers with favorable regulatory and business environments.
Tenant diversification: A diverse tenant base representing various industries can provide stability. Preference should be given to tenants with strong credit profiles and long-term lease agreements to mitigate risk.
Risk mitigation: Conducting comprehensive due diligence is essential, including knowledge of the market demand, construction costs and operational expenses. Investors should choose partners with disciplined development strategies to prevent overbuilding and ensure projects remain financially viable.
Peering Into the Future
Cold storage is positioned to become a cornerstone of industrial real estate’s future. The sector presents a lucrative opportunity for real estate investors and developers, but it requires careful consideration of market dynamics, tenant needs and operational costs.
Investors aiming to capitalize on this market must balance high up-front costs with long-term income potential. The focus should first be placed on mapping out strategic locations, paired with investing in innovative technology and establishing partnerships with strong tenants. With careful planning, cold storage offers a differentiated opportunity within the evolving industrial real estate landscape that doesn’t show signs of cooling down anytime soon.
Cliff Booth is the founder and chairman of Westmount Realty Capital.
