Report: Strong demand for cold storage poses challenges for developers

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.”








Developer buys land for new industrial property off I-78

Nevada-based Dermody Properties said it is developing nearly 30 acres in Berks County, which will be home to LogistiCenter at Midway South, a new industrial property at Exit 16 off Interstate 78.

Dermody Properties is developing this industrial property off Interstate 78 in Bethel Township, Berks County. (Submitted) –

The private equity real estate investment, development and management company bought 9024 Old Route 22 in Bethel Township from The Bethel Group for $946,141, according to Berks County property records.

Construction is underway on the 304,000-square-foot facility, which will have connections to Interstate-81, Interstate-476 and The Pennsylvania Turnpike.

Gene Preston, partner of Dermody Properties in Morristown, N.J., said construction should finish by the end of the year.

Blue Rock Construction of Upper Macungie Township is the general contractor building the site. Preston said he does not have any tenants yet and it’s being built on spec. The property is suited for manufacturing, warehouse/distribution and ecommerce companies.

He declined to disclose the estimated construction cost.

The company also developed the nearby LogistiCenter at Midway in Bethel Township, a more than 1 million square-foot-warehouse at Exit 16.

“We do not have any more land that we own out there,” Preston said.

Overall, he sees opportunities for industrial land getting scarcer.

“Land is getting tighter,” Preston said. “There’s still some land as you go west. In Lehigh Valley proper, there’s certainly not a lot of land zoned for industrial.”

In addition, the Midway South property has proximity to a four-way interchange along I-78, he said.

Representing the project for leasing are Gerry Blinebury, executive managing director, Adam Campbell, executive managing director, and Jeff Williams, senior director, all of Cushman & Wakefield.

Berks Park 78 is another industrial complex nearby that includes corporate tenants Samsung, Dollar General and PetSmart.




The changing world of warehousing, distribution and fulfillment

Today’s facilities related to e-commerce activities are striving to accommodate the increased demands of one-day delivery expectations. These demands mean warehouse, distribution and fulfillment center facilities need modifications, additions or upgrades of some form – now.

Consumer expectations are causing disruptions throughout the supply chain. These disruptions impact warehouses, distribution facilities and fulfillment centers. These facilities must adapt to the demands of e-commerce fulfillment, smaller orders, decreasing delivery time frames and a chronic labor shortage.

These challenges call for solutions that streamline operations, improve efficiencies and lower costs. Customization is moving from manufacturing into these facilities. Modern warehouses must achieve operational success by enhancing the customer experience, implementing smart integrations across systems, and utilizing advanced planning tools to support sustainability.

Modern warehouses, distribution and fulfillment centers also are incorporating physical changes. Front and center are automation and technology. There are disruptive technologies such as drones, augmented reality, artificial intelligence and robotics devices that require software, hardware, material handling and other systems. Successful integration of these disruptors with seamless interfaces and the communication of data between systems is critical to improved productivity and performance.
However, automated technology creates more heat. As a result, climate control has become more complex. Facility conveyers require increased power and the increased power brings more heat, so air conditioning becomes more important as more equipment is added.

Another physical major change is to clear height – the height to which product can be safely stored. Facilities are being built or renovated with much higher clear heights due to increasing demand for volume. Clear heights that were satisfactory in the past are no longer adequate; new facilities are reaching 40 feet and higher.

Higher clear heights increase construction costs because of required fire protection design and roof slopes and drainage design. Increased automation also has increased the demand for mezzanines.

Lighting also is being altered. New facilities are being built with more skylights and existing spaces are being retrofitted with LED lighting to reduce energy costs.

Location is of paramount importance, too. The right location must meet growing demands for quicker deliveries, especially of food products, which require that the freshest items reach the consumer ASAP.

Facilities need to be positioned closer to urban areas to meet the needs for immediate last-mile (now also being referred to as “last-touch”) delivery and e-commerce order fulfillment. Although fulfillment centers, distribution centers and warehouses can range in size from several hundred thousand square feet to over one million square feet, the supply chain industry is experiencing a demand for much smaller facilities.

Facilities ranging from 50,000 to 200,000 square feet are being located in infill locations to support e-commerce.  Smaller distribution centers can be used to service manufacturers so that they can drop ship for their retail customers or for larger customers that need closer proximity to customers in urban areas. This model of increasing the number of small facilities used to distribute goods is part of Amazon’s model to cut delivery times.

There is a real need to reassess how the space is being used in existing warehouses, distribution facilities and fulfillment centers. That reassessment creates opportunity to modify existing facilities.

One opportunity is the development of niche warehouses with cold storage or tightly controlled climate storage in a given space. Locating temperature-controlled warehouses near customers helps cut shipping costs while increasing the value of the facility due to higher profits from cold-storage goods.

The availability of land for industrial development for warehouses, distribution facilities and fulfillment centers is decreasing and that means increasing opportunities for existing facilities in the right location to be renovated, rehabilitated and modified.
There is no doubt that Amazon is the driving force in e-commerce, as its founder has declared: “Amazon.com strives to be the e-commerce destination where consumers can find and discover anything they want to buy online,” according to Jeff Bezos, founder, chairman, CEO and president of Amazon.

Today’s consumer continues to drive the need for more warehouses, distribution facilities and fulfillment centers. And that means more changes in those facilities will be coming.

Glenn Ebersole, is a professional engineer and business development manager at CVM Professional and CVMNEXT Construction in King of Prussia. He can be reached at [email protected] or 610-964-2800, ext. 155.

Demand for cold storage space to continue to rise, report says

A new report from CBRE Inc. said the growth of online grocery sales could create demand in the U.S. for up to 100 million square feet of cold storage space over the next

five years.

With 213.5 million square feet of inventory, Pennsylvania ranks sixth in the U.S. for amount of cold-storage space.

Some of it is in the Lehigh Valley. Cold-storage companies with sites in the region include U.S. Cold Storage in Milford Township, Americold Logistics in Upper Macungie Township and Lineage Logistics, which has a few locations.

However, land is in short supply for more.

“Land is scarce in the Lehigh Valley for building any type of warehouses,” said William Wolf, executive vice president of CBRE, based in Upper Macungie Township. “This fits

that same category. It’s a growing industry and I think it’s going to keep growing.”

That is because consumers are expected to order more and more groceries online.

A recent report from the Food Marketing Institute and Neilsen projects that groceries ordered online will account for 13 percent of total grocery sales by 2022, up from 3 percent in 2018. That would translate into an additional $100 billion per year.

For now, grocers such as Wegmans and Weis are making home deliveries out of grocery stores and supermarkets, Wolf said. But as the home-delivery segment grows, existing brick-and-mortar stores may not be able to support the increased volume.

“They will have to come up with other means to distribute the volume of goods,” Wolf said.

The construction costs for dedicated cold-storage facilities, however, are much higher than they are for traditional warehouses. Among other features, they require a variety of temperature control systems in order to function.

“There are a lot more costs and also the buildings rent for a much higher lease rate than a normal warehouse would,” Wolf said.