CIRE : DID YOU FIND THAT THE BOOM IN E-COMMERCE GROCERY SALES OFFSET THE DIP IN RESTAURANT SALES ?
O ’ ROURKE : It definitely did . The latest numbers I ’ ve seen for online grocery sales were up six-fold since 2019 . That ’ s a huge increase . And that was part of the cold storage solution we were trying to find over the last nine months . The other issue is the consumption patterns that were changing . Technically , we weren ’ t eating and drinking more — it was just where we were consuming the product that changed .
CIRE : HAS COLD STORAGE PLAYED A ROLE IN THE ROLLOUT OF THE VARIOUS COVID-19 VACCINES ?
O ’ ROURKE : The vaccines have had a minimal impact on the cold storage supply chain , mainly because of temperature requirements . The Pfizer vaccine , I believe , needs to be kept at -80 degrees Fahrenheit . The Moderna vaccine needs to be at -20 degrees Fahrenheit . Typically for cold storage facilities , the coldest temperatures are -20 degrees for ice cream . In these sites , you can have blast freezing , but that wouldn ’ t be appropriate to store pharmaceuticals . What we ’ re seeing with the vaccines are mobile freezer units . This system is separate from the existing stock of 250 million square feet .
One instance that was highly publicized a few months ago was in Louisville , Ky ., where UPS took a 4,000-sf warehouse to install mobile freezer units . That single building is capable of holding 14 million vials of the vaccine . That ’ s a ton of storage when you can hold 1,000 vials in something the size of a suitcase . Right now , it ’ s really an issue of distributing the vaccine and administering it .
CIRE : FOR COMMERCIAL REAL ESTATE PROFESSIONALS , WHAT DO THEY NEED TO KNOW ABOUT THIS SECTOR COMPARED TO DRY WAREHOUSING ? COLD STORAGE CAN COST NEARLY TWICE AS MUCH , AND CAP RATES HAVE BEEN COMPRESSING . WHAT OTHER CHALLENGES AND OPPORTUNITIES EXIST IN THIS MARKET ?
O ’ ROURKE : The real challenge is that it ’ s not one-size-fits-all when talking about cold storage . Like I mentioned before , you ’ re talking about -20 degrees for certain ice creams and -10 degrees for others . Proteins are 0 to 10 degrees , and then you get into some liquids that need to be 36 to 45 degrees . There are a lot of temperature ranges , so it ’ s really all about flexibility .
One of the biggest opportunities we ’ re seeing is in spec storage projects — right now , we ’ re tracking 28 projects totaling 6.3 msf . All the spec we ’ re seeing is in centers where population growth is the strongest , like in Arizona , Texas , and the Southeast [ U . S .].
CIRE : ARE YOU FINDING OPPORTUNTIES OUTSIDE THE PRIMARY URBAN MAR- KETS ? IS DEMAND GROWING IN SECOND- ARY AND TERTIARY MARKETS ?
O ’ ROURKE : Demand is growing in those markets , but the biggest consideration is transportation because that ’ s the largest cost bucket when looking at these facilities . Many of these sites are located where transportation costs for the client are minimized — whether that ’ s a producer , a grocery chain , or a wholesale distributor . If we look at the supply and demand , there ’ s overall about 250 msf of cold storage in the U . S ., with 78 percent of that cold storage built before 2000 , with an average age of 42 years old . Looking at that , there ’ s definitely opportunities to tear down and improve locations that can produce significant savings in energy .
CIRE : IN DEVELOPING NEW COLD STORAGE FACILITES , WHAT TECHNOLOGICAL ADVANCES ARE YOU SEEING IN THE INDUSTRY ?
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O ’ ROURKE : There ’ s definitely an emphasis on automation . When you talk about the workforce , automation , of course , reduces the need for hundreds of bodies in a facility , which helps keep down costs . The upfront investment is higher — an automated freezer building could be eight or nine times the cost of a dry building . But if one of your larger cost buckets is labor , you can save in the long term .
You can also improve efficiency in cooling systems , including low-charge ammonia systems and CO2 cascade systems that use different refrigerants . We ’ ve moved away from the freon systems for the most part , which tend to be less efficient . Ammonia systems are also better environmentally , although they are poisonous to humans so there ’ s always a concern for safety in handling .
CIRE : SPEAKING OF ENVIRONMENTAL CONCERNS , WHAT OTHER IMPROVE- MENTS CAN BE MADE IN THE SECTOR ? WHAT INVESTMENT OPPORTUNTIES ARE OUT THERE IN THE COMING MONTHS ?
O ’ ROURKE : All the new projects will be better for the environment than old , out-of-date systems . They will reduce energy consumption . As we are retiring some of the older facilities in the U . S ., with some more than 50 years old , these sites will be much better in terms of the impact that they have on the environment . New construction is going to address a lot of the environmental issues going forward .
If you ’ re in Los Angeles , Atlanta , Dallas , or Chicago , these older freezer buildings lend themselves to being upgraded , both in terms of energy consumption and from an operational standpoint . A lot of these facilities may not be great for storing product in the long term , but there may be opportunities for short-term storage and delivery of product to large population bases .
Tim O ’ Rourke
We ’ ve seen over the past nine months or so that there ’ s a ton of capital looking at this sector right now — and for good reason — and it ’ s not going away . Since the pandemic began , we ’ ve really discovered the resilience of the industrial sector , so there ’ s strong investment interest going forward .
Nicholas Leider
Senior content editor of Commercial Investment Real Estate Contact him at nleider @ ccim . com .
Editor ’ s note :
This article is an adapted excerpt from a fulllength Commercial Investment Real Estate podcast . To listen to the full episode , head to SoundCloud , iTunes , Spotify , or wherever you listen to your favorite podcasts . Don ’ t forget to subscribe , rate , and review .
CIREMAGAZINE . COM COMMERCIAL INVESTMENT REAL ESTATE MAGAZINE 7