Dive Brief:

• The U.S. supply of cold storage facilities is outdated, and construction of modern facilities lags demand, according to a report from JLL Research.
• More than 78% of cold storage buildings in the U.S. were built before 2000, according to JLL, which means they often lack the qualities of modern cold operations. Forty- to 50-foot high ceilings and wide spaces between columns are in demand to stage pallets and racks efficiently and garner the most profit per pallet.
• "Historically, we’ve seen limited new construction for cold storage only buildings, but demand has consistently been increasing over the year. This has added more pressure on the existing available inventory," Mehtab Randhawa, director of Americas industrial research at JLL, said in an email.

Dive Insight:

Demand for cold storage has been on the incline for years as consumers have slowly adapted to shopping for groceries online, but the coronavirus shot that curve up sharply. However, not all facilities are created equal.

Converting traditional warehouses to cold storage facilities often diminishes the clearance. Modern building standards include more advanced materials and tailored trailer parking and staging areas that often don't come with older facilities and can't be retrofitted, Randhawa said. Plus, the older buildings that make up the majority of the existing market are less energy-efficient.

So, even within a generally hot market, the supply side for highly desirable cold storage facilities, according to JLL, is much smaller than the total count shows, and new construction is often preferable to obtaining an older cold storage facility or retrofitting a traditional warehouse.

Americold, the No. 2 player in U.S. cold chain logistics, announced such a new construction in May. The firm will build a $325 million automated facility custom-built for customer Ahold Delhaize.

New construction may be preferable for many cold chain operators, but demand is here now and construction takes time — Ahold's facilities won't open until 2022. So, operators are buying up old buildings, too, because new construction is often more expensive (nearly twice the price of traditional warehouse space. according to JLL). And it takes time. Demand for facilities near population centers to facilitate last-mile deliveries is also driving up prices.

"Owners have to weigh if the long-term efficiency and cost-cutting are worth the high upfront price tag," reads the report. The main metric at the heart of these decisions is cost per pallet, according to JLL. Cost per pallet for operations is generally lower at newer facilities, as they require fewer repairs and replacements. A good deal on an older facility, however, could make up for those advantages, Randhawa said.

"Revamped older facilities provide a lower price point on both purchase and lease basis, however, if there is no availability in a market new construction is required to meet the demand," she said.

JLL sees top U.S. cold chain operator Lineage Logistics' recent slew of acquisitions, 10 in the 18 months ending in August, as an effort to get more storage space on the market in the near-term while construction can progress. Lineage, the largest cold chain logistics provider in the U.S., announced a $1.6 billion equity raise last week to finance further expansion and investment in technology.

JLL said that investors new to the cold storage space but versed in supply chain asset investments are beginning to show interest in the sector, as industrial warehousing construction has slowed somewhat due to the pandemic. Speculative construction is occurring and more supply is headed for the market.