The Emergence of Cold Storage

by | 15 April 2021

  • Cold storage is quickly becoming an institutionalized asset class. What used to be a pool of only three to five investment groups has soared to more than 100.
  • Record sales volume in 2020 bodes well for liquidity. Cold storage sales increased 22.9% last year, per Real Capital Analytics.
  • Discerning investors have an opportunity to acquire better assets — whether because of location or lease structure — as current pricing congregates all cold storage together.
  • Significant new investment interest in the “last mile of food” will create opportunities in the years ahead as the supply chain rapidly evolves.

It is no secret that industrial has had a record-breaking year, but have you considered its refrigerated subtype, cold storage? Based on volume in 2020, many investors have. While sales volumes of most asset types declined year-over-year, cold storage sales grew 22.9%, per Real Capital Analytics. In fact, last year’s total sales volume of $3.3 billion was the highest on record. Fourth quarter volume alone also set a record, coming in at $1.8 billion. Why is that? For some of the same reasons industrial is booming: shifting consumer habits.

Historically, cold storage has been a niche asset class, but investment has grown dramatically from just a handful of potential buyers a decade or so ago. In fact, Colliers’ Food Advisory Services is tracking more than 100 investors aware of the pent-up demand from smaller tenants who need space and want to get out from under the traditional 3PLs.

Americold and Lineage are two of the logistics companies that have helped institutionalize this asset class over the past decade, and infrastructure funds have also made major investments. As a result, pricing on new modern cold storage buildings is pretty close to par with that of modern dry buildings, assuming similar credit and term. “Cold storage is quickly becoming a new asset class for institutional investors.  As infrastructure funds continue to pour in, the institutionalizing and maturation of this sector will continue to compress cap rates for investors,” adds Chris Cummings, Colliers’ national director of Food Advisory Services.

Interest in second- and third-generation space has also compressed cap rates, according to Colliers’ Food Advisory Services, by 150 basis points over the past 18 months. The significant increase in construction costs and barriers to entry for this product further support increased investment in cold storage.

Capital will become more discerning over time, with differentiated cap rates for assets based on location, layout and technology/infrastructure. The current demand for cold storage diminishes such differences in quality, however, and could allow astute investors to acquire better assets at a similar price. And current owners could sell inferior assets without a price discount.

As the food supply chain rapidly evolves and modernizes, investing in the “last mile of food” is the next frontier. Suppliers are still in the early innings of moving product from bulk cold assets to last mile — and ultimately, the consumer’s home.