Cold Storage Emerges as a New Asset Class
With cold storage now representing a $98.1-billion market globally and compound annual growth of 12.1% projected through 2025, it’s safe to say this specialized subset of industrial has made its way into the spotlight. It’s also valid to ask whether a new real estate asset class is forming. A new report from Savills says this is a strong possibility.
As investors warm to cold storage real estate, they’re finding that pricing for assets is on the rise, due to undersupply. That undersupply in the face of rising demand is related to the complexities of building in this space.
“Proper planning is required for facilities to be flexible enough for dry, temperature-regulated and frozen storage operating environments,” according to the Savills report from Adam Petrillo, who heads the firm’s industrial services group.
“Compounding the issue are ever-evolving regulatory requirements which vary on an industry-by-industry basis (e.g., food manufacturing and pharmaceuticals),” Petrillo adds. “Lastly, multi-temperature and cold storage facilities have more complex power, water, wastewater and other utility and infrastructure requirements relative to traditional ambient warehousing and distribution.”
Despite these development complexities, third-party logistics (3PL) providers in particular are embracing cold-storage product, and are being rewarded for it. Petrillo notes that six of the top 10 3PL providers by revenue include cold-storage in their portfolios, and those six have outperformed in stock pricing.
“Value remains 6% higher, on average, through April 15, 2020, even amid market turmoil,” he writes.
Another draw from an investment standpoint is the resilience of supermarkets—obviously one of the strongest customer bases for cold storage. “At a time when nearly all sectors are taking a hit as the country remains in lockdown, grocery chains are thriving,” writes Petrillo.
Among some of the largest publicly traded grocers, including Amazon and Walmart, stock prices increased by an average of 12% from the end of 2019 through April 15 of this year, a month after nationwide shutdowns began, “at a time when stock prices across other industries plummeted.” As a primary consumer of cold-storage space, Petrillo says, the grocery sector provides investors with “increasing comfort that demand will hold stable or increase, even in challenging times.”
For comments, questions or concerns, please contact Paul Bubny
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