For many years, cold storage real estate was considered to be a less valuable asset than standard dry storage warehouses. While the cold chain has always been critical for the safe and efficient storage of food and pharmaceuticals, the heavy specialization and niche use cases for these properties has ultimately led to underdevelopment in the sector. More recently, demand for cold storage assets has spiked considerably as a result of the COVID-19 pandemic. There are multiple factors playing into this demand, ensuring that cold chain investments will continue to increase in value.

The Unexpected Online Grocery Boom

Steady growth in online grocery sales has garnered renewed interest in the sector in recent years, but the sector experienced an unprecedented growth spike as consumers have increasingly bought groceries online as a result of COVID-19. During the pandemic, nearly 80 percent of U.S. consumers turned to the internet for some portion of their grocery needs, up almost 40 percent from pre-pandemic levels.

This unexpected explosion in online grocery purchases has caused significant strain on U.S. cold storage infrastructure. Since many e-commerce grocery orders are fulfilled at retail locations, brick-and-mortar grocery stores will need to incorporate better cold storage capabilities into their retail locations to support online order fulfillment. This blend of commercial and industrial space will most impact commercial real estate in years to come as grocery e-commerce becomes further normalized.

Is There a Vaccine Yet?

From governments to businesses to individuals, everyone is clamoring for a COVID-19 vaccine that can help return society to some semblance of normal. Achieving acceptable levels of herd immunity will require vaccinating about 5.6 billion people, potentially with multiple vaccines. Producing, storing, transporting, and distributing that many vaccines places a substantial burden on the global cold chain.

Vaccine storage requires lower temperatures than many other pharmaceuticals or food products, which may prove challenging once the pharma sector begins distributing billions of doses. This may drive a need for more cryogenic storage facilities and storage depots to ensure vaccines maintain their efficacy as they move through the pharma cold chain. Many major third-party logistics (3PL) providers and pharmaceutical stakeholders are already moving to secure the assets they will need to successfully support the distribution of a COVID-19 vaccine.

Vintage Isn’t Always Better

The average age of a U.S. cold storage facility is 34 years, according to recent research from CBRE, which has contributed to the sector’s struggles to adapt to shifting supply chain needs. To accommodate e-commerce trends and pharmaceutical needs, the U.S. cold chain will need to update its storage facility footprint. The cold storage sector will need to build new facilities near major population centers to facilitate easier distribution and update existing facilities with better technology to meet higher volume demands.

New and existing facilities alike will need to explore technology options to combat an ongoing logistics labor shortage. Attracting warehouse workers away from dry storage and distribution centers to work in cryogenic temperatures has always been challenging, to say the least. New structures and remodeled facilities alike should plan to incorporate automation solutions that can help to ease the labor challenges facing the cold storage sector.

About Phoenix Investors

Founded in 1994 by Frank P Crivello, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations, and public stakeholders, Phoenix has developed a proven track record of generating superior risk-adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost-efficient solutions, and a reputation for success.