Cold Storage Boom: Why Demand Is Skyrocketing

Well in rents on cold storage space, there's a lot more infrastructure. Developers and owners are putting a lot more money into these buildings, but rents are more than double what you would get in a normal, you know, just regular industrial building if you're going on the cold storage side. That's right.

Welcome to our Industrial Advisors podcast. You have Bill Conden and Matt McGregor. We're doing a five minute Friday today on the cold storage boom.

It's not a topic that a lot of people talk about right now, but there's a lot of demand and the vacancy is almost zero 0%. Well zero here. Yeah. Yeah. Zero here.

And there's national brokers that are just cold source guys. Yeah. Right. That that was a discipline that. I don't think existed 10 years ago, or there was a guy or two doing it. Yeah. But it wasn't. Now every company has a cold storage team. Yeah. Food group. And then within that cold storage's, a cold storage team. Storage. Yes. Yeah. Yeah. And then now there's funds specifically for cold storage. Mm-hmm. Right. Just to place in that. Yeah.

Yeah. But let's talk about the local requirement, because the reason why we're doing this podcast is we just had a requirement. That we couldn't land. Yep. Right? Yep. It was tough. So there was no real existing options that are out there. No speculative, empty cult storage, to your 0.0% vacancy. Yeah. Yeah. And so oftentimes I think these owners, these developers that are in this space, they have their list of tenants that they usually work with.

Yes. And they would love to structure a build a suit, you know? Absolutely. Anybody will do that long term, build a suit, they build it out, they got their plan, they go, but the question is.

Should landlord, given where the market is and the demand for cold storage, should developers be building that on a spec basis because there is risk there. There's certainly risk, but when you say, when we faced and we had kind of a dual requirement, a 200 and a 400,000 square foot cold storage requirement, there's only one building being spec. REA and Jeff and team have it out in, in Emerson Lake. Yep. Couple hundred thousand feet, uh, that they're gonna build spec.

That was really the only one. That you could even bid on, or you had to go to the direct with the cold storage companies for more full service. That's right. Where you're saying, Hey, we'll lease 200,000 feet with you. By the way, it didn't exist. Right. Yeah. So to the point, even in those, there was no capacity to take this business on none. Yeah. I called everybody. Right? Lineage, vertical, everybody. Yeah. Nobody had capacity to take this business on.

Well, in rents, on cold storage space, there's a lot more infrastructure. Developers and owners are putting a lot more money into these buildings, but rents are more than double what you would get. In a normal, you know, just regular industrial building if you're going on the cold storage side. That's right. Well, what we saw out there was if you took a, took a building that we looked at for cold storage, it was say 2 75 a foot for that building On a monthly basis. Yeah. On a monthly basis.

Versus that building in today's market might get 95 cents a buck maybe. Yeah. So, uh, if it was just shell, so. Depending on what that infrastructure costs, I would say yes, build that

spec. What do you think about, like what are the, what's driving the cold storage demand? I. Certainly a change in consumer demand related with fresh foods. Mm-hmm. And e-commerce related with fresh foods and unfortunately massive pharmaceuticals. Right, right. So those are the two major drivers that continue. You're seeing more and more pharmaceuticals, some good, some bad, right. But you're seeing a higher, higher demand for that, and that needs to be temperature controlled.

And you're seeing a massive change in fresh foods that are flash, frozen, fresh foods. I mean, certainly if you look at our careers over the last 20 years, right, like you've seen that cold storage demand just continue to increase. Increase. And I would say really over the last like five to seven years, there's specialized food groups, like you mentioned. There's more demand from tenants, there's more investors that are playing in the space.

And so I think we are gonna start seeing more spec development. In the cold storage space, we have to, right. I mean, when's the last time we saw spec? And we've seen several torn down now because those facilities were built in the thirties, forties, and fifties, and are no longer efficient. So they're just tearing them down and they're very expensive to replace. Right. Yeah. So we saw one developed in that CTAC market six, seven years ago. Right? Yeah. That was the last.

Spec one that I recall seeing. And then you've had a couple of build the suits for company Versatile. Did one in Tacoma, tri and Seafood did their own. Yeah. Right. But you haven't had a spec one go up in eight or 10 years. Well, and, and you know as well as I do, if you bring out a building that has any sort of cooler freezer component to it, you hear from all the same groups, all the food groups that have a need for it. Yes, yes.

And then more often than not that that specific unit build out doesn't work for. The new requirement, and those are usually because they're a small freezer. Yeah. Set to a specific need. It's just the rare occasion. This is a true cold storage. Correct. Where everything's insulated. Yeah. Yeah. But just to illustrate the demand, you send anything out with a frozen cooler aspect, then you're gonna hear from those groups hoping that it would Yes.

I think if somebody built out, call it a two 50, 300,000 foot cold storage building. Almost anywhere in our market because I think it's, it's a little less location driven. Yeah. Than other buildings. Right. That I think you would not have a problem leasing that based on what we saw. Well, and the other part of that is you may I agree with you. You, you probably wouldn't, but even if you put in some extra downtime. The upside that you get from the increased rents. That's right.

And knowing how to do it. And the stickiness of that tenant, they're there forever. It's not like they're jumping chip to the next desperate landlord. Yeah. Right. Yeah. Yeah. So maybe we should do that. Maybe we should build a spec 300. Let's go.

Yeah. So we'll continue to keep an eye on the, the cold storage boom, and expect that certainly to continue. Happy Friday.