CBRE research examines the expected need for additional cold storage space, due to COVID-19

Demand for United States-based industrial cold storage space is on the rise, due to coronavirus, or COVID-19 as it creates “massive disruption in the food industry,” according to research issued this week by Los Angeles-based industrial real estate firm CBRE.

The main thesis of the research, entitled “COVID-19 Impact on the Food Industry & Implications for Industrial Real Estate,” underscores how the food industry is undergoing a significant disruption from COVID-19, as U.S. consumers increasingly have groceries delivered to their homes (D2C) or are buying online and picking up in store (BOPIS).  This was made clear in data CBRE cited from Adobe’s Digital Index, which pointed to the U.S. grocery sector seeing a 100% increase in daily online sales between March 13-15, in comparison to a baseline period of March 1-11. And it also cited a Brick Meets Click/Shopper Kit Survey, which saw 46% of respondents indicating they will continue to purchase goods online after the COVID-19 pandemic subsides.

CBRE also referred back to its May 2019 “Food on Demand Series: Cold Storage Logistics Unpacked,” which examined the relationship between e-commerce grocery growth and cold storage, and suggested that an additional 75 million-to-100 million square-feet of industrial freezer/cooler space will be needed to meet the demand generated by online grocery sales over the next five years.

What’s more, the report pointed to what CBRE called long-term impacts for the industrial cold storage sector, due to COVID-19, including:

• E-commerce grocery will become more widely adopted as consumer comfort grows with the practice. This will trigger the aforementioned heightened demand for cold storage capacity;
• Public refrigerated warehouse companies will likely consolidate to gain more control of the cold storage footprint;
• Since e-commerce is typically fulfilled by local grocery stores, retail footprints will include more storage and fulfillment space, including a greater need for infill temperature-controlled facilities in proximity to consumers;
• Restaurants may see a significant shift in dining formats with less dine-in options and more delivery or take-out that would require cold storage capacity. Foodservice companies that supply restaurants may look to second-generation cold storage space as a cost advantage in a limited dining environment; and
• Automation will increase, prompting higher-density, greater-height and smaller-footprint buildouts that will be required for around-the-clock operations

Matt Walaszek, CBRE Associate Director, Industrial & Logistics Research, explained that there are various challenges related to meeting the demand for an additional $75 million-to-$100 million square-feet of industrial freezer/cooler space in the coming years.

“The cost of building new cold storage is a huge barrier given that construction costs are two-to-three times higher than that of ambient (dry) warehouses,” he said. “Along these lines, finding skilled subcontractors can be challenging and securing the necessary building materials is difficult – and this was in a pre-COVID-19 world. These properties must adhere to strict thermal integrity, therefore storing and distributing perishable items with different shelf lives means that different climates must be controlled while workers move the product in and out. Operating these facilities may become even more challenging with stricter guidelines implemented and adhering to health and safety.”     

When asked whom the target tenants for these new build outs are, Walaszek pointed to 3PLs and public refrigerated warehousing companies, as well as potentially foodservice companies and some large grocers. Other tenants may include the likes of food companies supplying meal kits (although to a lesser extent), he noted.

The report also highlighted that because restaurants are down to 10%-to-20% of capacity and are only fulfilling delivery orders, there has been a shift to grocery that has forced distributors to adjust supply chains, with Walaszek observing that has been done in a few different ways.

“Some firms have ramped up their truck drivers and warehouse workers to meet the unprecedented demand,” he said. “Some have responded by increasing worker wages. Some food companies are also adding workers and working with retailers and supplier partners to help fill gaps that other distributors are simply too overwhelmed to handle. Connectivity between manufacturers, wholesalers and distributors has been greatly improved due to the crises, and what we’ve heard from CEOs of large grocery chains is that this will lead to greater efficiencies going forward, going a long way in improving overall supply chain, pricing, packaging, buying, etc.”