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Investors Warm Up to Cold Storage Deals
As online grocery sales continue to proliferate, investors increasingly are warming up to the U.S. cold storage warehousing sector, pushing cap rates for Class A facilities closer to those of traditional high-quality warehouses, CBRE says in a new report. However, cold storage remains a specialized sector with unique challenges.
“Cold storage facilities typically have accounted for a tiny fraction of overall transaction volume in U.S. Industrial & Logistics real estate, but we foresee investor activity accelerating amid heightened interest in this sector,” said Matthew Walaszek, CBRE associate director of industrial & logistics research. “Investors see cold-storage warehouses as less risky than in the past, and they’re willing to accept less of a return premium, which is shown by the shrinking gap between cold storage and dry warehousing cap rates.”
Over the past three years, the cap-rate gap between cold storage and traditional warehouses has narrowed from 200 basis points to 75. CBRE anticipates that the spread could compress to as little as 25 bps.
Transaction volume for U.S. cold storage facilities has increased at an annual rate of 6.2% since 2014, says CBRE. A large share of transaction activity has focused on properties in major markets including Los Angeles, Chicago, Dallas-Fort Worth and South Florida. In addition, investment opportunities can be found in secondary markets including St. Louis, Milwaukee, Tampa, Cleveland, Baltimore and Savannah.
Additional growth in cold storage investment, though, will be constrained by the sector’s challenges. Available properties remain scarce, construction is expensive and the design and operation of these facilities is complex.
These challenges are likely to be addressed gradually by growth in the ranks of specialized developers and builders of cold storage, along with additional capital flowing into the industry, according to CBRE.
“Historically, there have not been many institutional investors interested in the cold-storage sector,” said Jack Fraker, managing director of CBRE industrial & logistics capital markets. “But given the tremendous growth expectations for online food purchases, the sector is experiencing increasing demand from both domestic and global investors.”
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