Pandemic Creates Surging Demand for Chilly Storage Industrial

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Pandemic Creates Surging Demand for Cold Storage Industrial

Once again, the industrial sector appears to be the biggest beneficiary of the pandemic.

While e-commerce businesses have generally seen spikes in demand and consumer traffic since the pandemic began, food and beverage products are high on the list of online sales, according to JLL. For example, grocery delivery service Instacart saw customer volume grow by 500% in May, and Ryder System Inc.. has expanded its real estate space to meet the new demand for consumer goods and food and beverages.

Overall, online sales of food and beverages increased by 84.9% compared to the previous year. Sales of household care products, the category with the second largest increase, grew 65.2% year over year and sales of pet care products increased 45.6%. Food and Beverage are by far leading the Online Shopping Growth of the Year.

For the real estate market, increased sales of grocery deliveries will boost demand for cold stores, fulfillment rooms, and freight and third-party logistics companies. In particular, grocery suppliers are looking for facilities close to major population centers to meet flat delivery times.

Meanwhile, in order to find enough space in markets where demand is increasing, grocery suppliers are restructuring their supply chain, turning some brick and mortar stores into dark online malls, or partnering with existing brick and mortar stores to help them fulfill orders.

US cold stores were already in short supply. Nationwide, the industrial segment has a historically low vacancy rate of 10%. Adding more supply isn't as easy as developing storage space. This is a specialty that costs twice as much to develop as the warehouse space. It costs $ 130 to $ 180 per square foot to develop a refrigerator or freezer, while developing a traditional warehouse space costs only $ 70 to $ 90 per square foot. These costs are highest in the western region and the northeast region, where there are denser population centers. Cold store construction in the southwest, on the other hand, is the cheapest in the country.

In general, cold store users want new builds rather than warehouse remodeling projects. Temperature controlled properties require pallet capacity that maximizes vertical shelf. When an existing warehouse is converted into a cold store, the ceiling height is lost, limiting vertical shelf space and making these properties less efficient. With the increasing demand for fresh produce and organic ingredients, food delivery services and efficient spaces with the capacity to serve large population centers.

While speculative construction has been a challenge in the past, the increased demand for these spaces has made cold storage possible. Currently, more than 78% of the current cold store inventory was built before 2000, and much of it is considered obsolete or inefficient. Today's cold store tenants require ceiling heights of 40 to 50 feet and maximum space to stack and place products. These functions are generally associated with new development features.

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