As global consumption patterns shift and the demand for perishable goods increases, the role of cold storage in industrial real estate has never been more critical. Cold storage facilities are essential for maintaining the integrity of food, pharmaceuticals, and other temperature-sensitive products. However, this growing importance is accompanied by unique challenges that stakeholders must navigate.
The Rising Demand
Market Growth
The cold storage market is experiencing robust growth, driven by the increasing demand for fresh food and pharmaceuticals. According to a report by Mordor Intelligence, the global cold storage market is expected to grow at a compound annual growth rate (CAGR) of 10.9% between 2021 and 2026. This surge is attributed to several factors, including the rise of e-commerce, changing consumer preferences for fresh and organic products, and the expansion of global trade.
E-commerce and Consumer Trends
The COVID-19 pandemic accelerated the adoption of e-commerce, particularly in the grocery sector. A report from McKinsey & Company notes that e-commerce penetration in grocery shopping increased by nearly 10% during the pandemic. This shift has led to an increased need for cold storage facilities that can support last-mile delivery of perishable goods. Retailers are investing in cold storage capabilities to ensure that they can meet consumer demand for fresh products delivered directly to their homes.
Pharmaceuticals and Biotech
In addition to food, the pharmaceutical and biotech industries are driving demand for cold storage. The World Health Organization emphasizes the importance of temperature control for vaccines and other medical supplies, particularly in light of the COVID-19 vaccine rollout. As more biotech products enter the market, the need for specialized cold storage solutions will continue to grow.
Key Challenges
High Building and Operational Costs
Despite the growing demand, operating cold storage facilities comes with significant challenges. The value metric of cold storage warehouses is pallet positions per cubic foot. Many new facilities will be constructed with clear heights far exceeding dry warehouse buildings, with construction costs reaching up to $350 per square foot, according to JLL. Reports suggest that energy expenses can account for up to 60% of a cold storage facility’s operational costs. This is primarily due to the energy-intensive nature of refrigeration systems. As energy prices rise, it is critical that operators maximize efficiency and continually work toward alternative energy sources.
Infrastructure and Technology
The need for advanced technology and infrastructure is another challenge. Many existing facilities were not designed with modern standards in mind, leading to inefficiencies and higher operating costs. DHPH has been in the vanguard advancing updated refrigeration technology and automation systems to improve efficiency and reduce energy consumption in relevant projects.
Real Estate Constraints
Finding suitable locations for cold storage facilities can also be a challenge. Facilities near primal coastal markets and near large population centers are the most desired by investors. The availability of land for new construction in major MSAs is becoming increasingly limited. Additionally, cold storage facilities often require specialized zoning and permits, which can further complicate the development process. These factors have led to increasing investor interest in emerging secondary markets.
Labor Shortages
Labor shortages are another pressing issue in the cold storage sector. According to a survey conducted by Warehousing and Logistics International, 45% of warehouse operators reported difficulty finding skilled labor. Cold storage facilities, which often require specific training for handling temperature-sensitive goods, face an even steeper challenge. As the industry continues to grow, attracting and retaining talent will be crucial for operational success.
Innovations and Solutions
Energy Efficiency Initiatives
To address high operational costs, many cold storage facilities are turning to energy-efficient technologies. According to the U.S. Department of Energy, upgrading insulation, installing energy-efficient lighting and using advanced refrigeration systems can significantly reduce energy consumption. Additionally, incorporating renewable energy sources, such as solar panels, can help mitigate rising energy costs while contributing to sustainability goals.
Automation and Robotics
Automation and robotics are transforming the cold storage landscape. A report by Frost & Sullivan highlights how automated storage and retrieval systems (AS/RS) can optimize space and improve efficiency in cold storage operations. By reducing the need for manual labor, these technologies can also help mitigate labor shortages and enhance overall productivity. Voice recognition and radio frequency identification (RFID) have made major inroads in the field.
Strategic Partnerships
Forming strategic partnerships can also help address some of the challenges in the cold storage sector. Collaborating with logistics providers, technology companies, and even local governments can facilitate access to resources, funding, and expertise. According to Deloitte, such partnerships can enhance operational efficiency and enable companies to adapt more quickly to changing market conditions.
Adaptive Reuse
Finally, redeveloping existing locations and sites for cold storage can be a sustainable solution to the real estate constraints facing the sector. Many urban areas have warehouses and distribution centers that can be updated for cold storage use.
The importance of cold storage in industrial real estate is on the rise, fueled by growing consumer demand for perishable goods and the need for temperature-controlled pharmaceuticals.
By investing in energy-efficient technologies, automation, strategic partnerships, and adaptive development, stakeholders can navigate these challenges while capitalizing on the growing demand for cold storage. As the industry evolves, finding innovative solutions will be key to ensuring that cold storage facilities can meet the needs of an increasingly complex supply chain.