Growth In Online Grocery Shopping Drives Demand For Industrial Cold Storage

Growth In Online Grocery Shopping Drives Demand For Industrial Cold Storage

Commercial News » Dallas Edition | By Michael Gerrity | July 5, 2022 8:25 AM ET

According to a new report from CBRE, growth in online grocery shopping in the U.S. has triggered demand for new U.S. cold storage space, spurring 3.3 million square feet of speculative development, up from just 300,000 square feet in 2019.

"Many of our pandemic-era shopping practices have become normalized," said John Morris, CBRE President of Industrial & Logistics in the Americas. "Just as e-commerce spending has driven a need for warehouses, increased online grocery shopping has increased the need for more cold storage space."

In October of 2021, refrigerated and frozen foods accounted for 9 percent and 13 percent of online grocery purchases, respectively. This has more than doubled and tripled from just 4 percent for both categories in early 2020, according to data provider IRI.

Overall, online penetration of total grocery sales reached almost 13 percent in 2021, up from just 3 percent in 2019.

This surging activity has driven demand for new cold storage space. CBRE estimates the U.S. cold storage footprint to be approximately 225 million sq. ft., with a vacancy rate that mirrors the overall industrial sector at a historically tight 3.1 percent.

"In the past, the construction cost premium for cold storage space was a major barrier to entry, typically at triple the cost to construct compared to a dry warehouse," Mr. Morris said. "However, with heightened interest from institutional investors and a lack of supply, many developers are more confident in launching speculative projects."

That said, new entrants are faced with a challenging market to navigate not only because of high construction and operating costs, but also complex user requirements increasing the risk of not securing a tenant before completion. Among the additional costs entailed in cold-storage construction: insulated metal panel installation, refrigeration equipment, blast freezing and fumigation, and installation of premium concrete slabs and under-floor heating.

Cold storage development and site selection takes several variables into account, including population density, proximity to food producers, and infrastructure for transportation and distribution. To that end, the most populous U.S. states also have some of the largest cold-storage industries.

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