Surging online grocery sales turns cold storage into hot asset class
- December 1, 2020: Vol. 7, Number 11

Surging online grocery sales turns cold storage into hot asset class

by Mike Consol

Investors have fixed a cold eye upon a niche segment of the warehousing sector. Specifically, cold storage, where demand has been increasing as online grocery sales have been booming in the throes of the coronavirus pandemic.

Here’s the good news: This chilly wind blowing through investor portfolios is expected to be an abiding one, as the industrial cold-storage sector will see sustained demand for the warehousing and distribution of refrigerated and frozen food from major grocery retailers. The pandemic that forced people to shelter in place has accelerated people to do more online shopping, and many of those buyers have been part of a group of Americans who have been reticent to join the ecommerce movement, either because they were uncomfortable with technology or feared sharing credit and debit card information with systems in cyberspace. Having experienced the convenience and simplicity of online shopping, many of these newly minted shoppers are expect to continue their virtual spending ways.

Consider that online grocery sales represented just 3.9 percent of all grocery dollars spent at the end of 2019. By May 2020 that figure had increased significantly, though no specific figure is yet available. But CBRE estimated in 2019 the number of consumers buying food via the internet would rise from 50 percent of the population to 70 percent, requiring the construction of an additional 75 million to 100 million square feet of cold-
storage space during the ensuing five years — though those figures did not include the need to replace obsolete cold storage facilities, which average 42 years of age. Some 78 percent of the nation’s current inventory of chill warehouses was built before 2000.

Then came the pandemic and the surge in online grocery sales, boosting the need for new and replaced cold-storage facilities further still.

With so much demand, developers are reportedly building spec projects in anticipation of rising need. In addition to big, traditional distribution centers, smaller last-mile-style distribution facilities will also be needed for individualized food orders for delivery to consumers living in close proximity.

Given the situation, investment is flooding the sector. Two of the biggest U.S. cold-storage players, Lineage and Americold, are moving quickly to capitalize. Lineage, which owns about 32 percent of the country’s total cold-storage inventory, and Americold, which controls about 29 percent, are fast acquiring new cold-storage portfolios as well as building new facilities. Then again, cold-storage rents are significantly higher than rents at standard warehouses.

Lineage Logistics recently raised $1.6 billion in new equity to drive growth and support future investment in tech and automation for its properties, according to reports from National Real Estate Investor and SupplyChainDive. The firm also recently completed 10 acquisitions totaling 153 million cubic square feet of cold storage in 24 locations throughout North America, including acquisition of assets owned by Southern Cold Storage, Allied Cold Storage and Western Distribution Services. Americold, the world’s largest REIT focused on cold storage, has invested nearly $2 billion in cold-storage acquisitions during the past two quarters.

The arms buildup is an expensive proposition. The cost to build a cold-storage facility is about double that of conventional warehouse space, costing between $130 and $180 per square foot compared with $70 to $90 per square foot for traditional warehouses, says a recent cold-storage report produced by JLL. That research report also noted that, with nearly 400 potential COVID-19 vaccines in development, the race is on to secure temperature-controlled spaces required for storage and distribution. The same giant cold-storage facilities, or “freezer farms,” used to temporarily hold groceries and other perishable goods, will be called upon to securely store millions of vials of a COVID-19 vaccine.

Logistics company UPS announced in August that it was building two freezer farms — one in Louisville and one in the Netherlands — to rapidly aid vaccine distribution around the world.


Mike Consol ( is editor of Real Assets Adviser. Follow him on Twitter @mikeconsol to read his latest postings.

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