Report: Strong demand for cold storage poses challenges for developers

Brian Pedersen//October 7, 2019

Report: Strong demand for cold storage poses challenges for developers

Brian Pedersen//October 7, 2019

As grocery delivery gains popularity, so too does the need for facilities to store these items.

In the valley, these facilities do exist. However, there’s not enough to meet the demand.

United States Cold Storage recently opened a freezer warehouse built by Primus Builders in Richland Township near Quakertown. (Submitted) –

A new report by real estate firm CBRE said developers and investors are grappling with the specialized requirements needed to build new cold storage warehouses.

“It’s tough to build in the valley close to interstates,” said William Wolf, executive vice president of CBRE at its Upper Macungie Township office. “It’s just a general condition to what’s happening in the valley.”

Developers can build them from the ground up, but they are costly. The other alternative is to take an existing warehouse and convert it to cold storage or create a hybrid part dry/part cold storage warehouse, he added.

As home delivery grows for groceries, prepared meals and pharmaceutical/medical products, Wolf said he sees the risk of the shortage of temperature-controlled space to meet the growing demands of an emerging market.

“They are just going to look at other locations,” Wolf said. “As home delivery starts to grow, you aren’t going to be able to handle it out of the back of supermarkets.”

However, this will create opportunities for developers willing to address the looming necessity, he added.

Cold storage facilities do exist in Bethlehem, Fogelsville and other areas of the valley, but what makes them difficult to build is the higher construction cost, longer completion times, and specialized equipment needed for temperature control.

The report said these storage facilities cost on average two to three times as much as traditional dry warehouses, partly because of the need for insulated metal paneling, mechanical equipment, refrigeration equipment, and rooftop equipment, subfloor heating and other elements.

First, construction of these cold storage warehouses can often take four to five months longer than traditional warehouses.

Second, cold storage warehouses need much taller ceilings, often 40 to 60 feet, as compared to the 34 to 36 feet required for traditional warehouses.

Third, these facilities need to maintain specific temperatures depending on the inventory, which is why they need significantly more equipment.

The higher ceiling heights these facilities require could pose ordinance issues with municipalities, Wolf added.

However, by going up as opposed to out, these facilities can store more products in a smaller footprint.

According to the report, CBRE sees three major shifts defining the rise in development and construction of cold storage facilities in the coming years.

First, developers will need to construct more facilities on speculation, or build facilities without tenants signed up. Spec building is a rarity in cold storage and boosting it might require additional developers and specialized contractors to enter the market, the report said.

Second, small markets will likely see more cold storage construction. Most construction has taken place in large markets for decades, but rising land and construction costs are likely to push developers and end users to smaller nearby markets.

Third, the report said automation would become more common, which would allow big retailers and other users to streamline processes and improve productivity.

Wolf said the facilities would still need many workers who are skilled in mechanical labor to make sure all the equipment is operating properly.

“The industry has to change to adapt to it,” Wolf said.

A number of developers will take on these facilities, Wolf said, noting that they generate higher rents. Furthermore, more investors will invest in cold storage.

“Right now it’s very difficult to find space for cold storage in the valley and it has been for the past few years,” Wolf said. “Traditionally, it’s been build-to-suit. But now I think you have some developers who will build these on spec but it would be interesting to see what will happen. I think we are in the early stages of this demand cycle for cold storage.”