Craig Hurvitz
Justin Smutko
The cold storage industry is at a pivotal moment. With facilities averaging nearly 40 years old and demand for modern, efficient spaces surging, developers and investors are reassessing their strategies. Rising food safety regulations, energy efficiency concerns, and advancements in automation are driving the need for modern cold storage solutions. But after the rapid expansion fueled by the pandemic, what does the future hold for speculative cold storage (SCS) development?
Speculative Cold Construction: What’s Next?
Looking ahead, will SCS development return to the levels seen during the pandemic-driven boom? Between 2020 and 2023, 5.8 million square feet was delivered, fueled by historically low interest rates, strong rent and cap rates, and surging consumer demand. However, beginning in mid-2023 the industrial sector contracted largely due to an inflationary environment and rising interest rates – jumping from near 0% to 5.5% within that same time period. The result was declining net absorption, rising vacancy rates, and slowing rent growth. The cold storage sector has not been immune to these broader economic pressures.
Key players such as Saxum, RL Cold, Karis Cold, BGO, and Cold Summit, along with public refrigerated warehouse (PRW) giants Americold and Lineage, have led cold storage development nationwide in recent years, with most facilities ranging between 200,000 and 350,000 square feet. Hunt Southwest kicked things off and developed the first SCS facility during the recent boom, delivering a 300,000-square-foot convertible facility in South Fort Worth, Texas, ultimately leased to Emergent Cold. Karis has developed speculative buildings in Nashville, Charlotte, and Denver, while Saxum built spec facilities in Atlanta (leased to Marzetti), and Burleson, Texas. Saxum initially planned additional spec projects but shifted to a spec-to-suit model for Arcadia Cold Storage, a cold chain logistics provider.
The majority of tenants leasing these facilities are third-party logistics (3PL) providers, including pandemic-era startups FlexCold and TriTemp. While 19 SCS projects totaling 5.2 million square feet were built in 2022 and 2023 combined, only five were completed in 2024, totaling 1.1 million square feet. Another 2.2 million square feet of SCS space is expected to be completed in 2025, ranging from Chill’s 392,000-square-foot facility in Plainfield, Illinois, to BGO’s 137,000-square-foot project in Long Island, New York. This remains a small fraction of the national industrial pipeline. At the end of 2024, 295 million square feet of industrial construction was underway.
Shifting Markets and Emerging Opportunities
Historically, SCS development has been concentrated in markets with fewer barriers to entry, such as lower land costs, fewer zoning restrictions and access to sufficient power. However, demand is rising for modern facilities near major population centers, larger labor pools, and cargo and port hubs. These areas face challenges like higher land costs and lengthy entitlement processes, pushing developers toward tertiary markets with business-friendly environments and easier approvals, or intermodal ports like Cold Summit II in Lancaster, Texas.
Another strategy is maximizing space in premium markets by building vertically. Multi-level warehouse and distribution facilities are already in use, and super-high-bay cold storage – sometimes up to 50 meters high – is becoming a reality in places like Lincolnshire, U.K. Time will tell if this approach will expand into the U.S.
Macroeconomic factors will continue to shape SCS development. Policies on tariffs, labor, taxes, and infrastructure spending will be key. Higher tariffs could trigger retaliatory measures, dampening exports and demand, while infrastructure investments, though beneficial for jobs, could drive up construction costs.
As Colliers’ Brad Whittell, Vice President, Mortgage Brokerage notes, “If inflation surges again and government spending remains high, interest rates won’t be coming down anytime soon.” Expectations were for the Federal Reserve to cut rates twice in 2025, but with inflation remaining above the target range, those cuts will depend on new data and will only occur if necessary.
The Future of Cold Storage: Navigating Uncertainty and Opportunity
Despite short-term challenges, the long-term outlook for cold storage remains strong. The global market, valued at $159.7 billion in 2024, is projected to grow at an 18.1% CAGR, reaching $427 billion by 2030. In the U.S., it is expected to approach $97 billion. Key industry trends include:
- Modern Health: Health-conscious consumers are driving demand for frozen foods with gut-friendly ingredients, such as probiotics, which have seen 33% growth over the past three years.
- Dining at Home: With more people seeking premium, restaurant-quality meals at home, frozen food options are catering to this trend by offering chef-inspired, time-saving products.
- Global Cuisine: The popularity of global flavors continues to rise, with Indian, Japanese, and Cajun cuisines showing significant growth. Additionally, the global street food market – including items like bao buns, tacos, and empanadas – has grown 26% in the past two years.
While the future of SCS development is relatively uncertain, the cold storage sector in general continues to evolve, from energy efficient and environmentally friendly refrigeration systems to advances in automation and robotics to combat labor issues. While supply currently outpaces demand, build-to-suit opportunities will drive most cold storage construction projects in the near term. However, SCS development is expected to rebound as existing inventory is leased and the demand grows for modern convertible and multi-zoned temperature facilities.
Cold storage development is a highly specialized and capital-intensive endeavor, making it a daunting sector for newcomers, especially concerning speculative builds. Nonetheless, investors and developers who possess the expertise and financial capability to navigate these complexities will find a wealth of opportunities ahead.
Aaron Jodka
