Speculative cold storage construction slowing. Eventual building rebound could take some time.
The post-pandemic boom of speculative cold storage facilities is slowing to a crawl but don’t expect the market to stay down.
The overall growth of the cold chain will bring investors back, but it could take a couple of years, said Craig Hurvitz, Director, National Industrial Research at Colliers, in a recent interview with the American Journal of Transportation.
In developed countries across the globe, cold storage growth exploded over the past decade. The surge has been fueled by demand for modern, efficient spaces coupled with low interest rates. Colliers reported the average age of cold storage buildings in the nation’s top markets is 31 years old.
Just like the standard industrial/warehouse market, when things get hot so do speculative builds.
Recent Market Analysis
In a recent market analysis by Colliers, Hurvitz and colleague Justin Smutko, a Colliers Executive Vice President, said while 19 speculative cold storage (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. This remains a small fraction of the national industrial pipeline. At the end of 2024, 295 million square feet of industrial construction was underway.
Colliers said key players 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.
According to Grand View Research, despite a slowdown due to rising interest rates and economic uncertainty, global cold storage - valued at $160 billion currently – is projected to increase at a CAGR of 18.1% from 2025 to 2030 driven, in part, to growing organized retail sectors in developing countries.
“Moreover, rising automation in refrigerated warehouses is projected to boost demand further. Warehouse automation includes cloud technology, conveyor belts, robots, energy management, and truck-loading automation. Refrigerated storage has become integral to supply chains when storing and transporting temperature-sensitive products. In addition, the growing perishable product trade is also expected to boost the demand for refrigerated storage solutions over the next few years,” Grand View stated.
Macroeconomic Factors
Hurvitz said macroeconomic factors such as tariffs, labor, taxes, and infrastructure spending will continue to shape SCS development. And despite the fact many cold storage facilities are highly unique and capital-intensive, Hurvitz said he believes speculative cold storage can attract a wider investor class beyond the risk tolerant.
“But it will depend on typical factors, and the more specialized it is, the more important the credit profile, securitization, macro/micro market dynamics, WALT, etc., become in the underwriting,” he said.
Hurvitz said over the past decade, investors, lenders and contractors have learned a lot about the complexity of putting a spec cold storage project together.
“No user is the same, and thus, maintaining as much flexibility as possible is key while being costly. Anyone venturing into this type of project really needs to have a strong understanding of the demand in the given market, hard/soft costs, entitlement risk, etc. The need for modern freezer/cooler space represents only a small portion of overall user demand,” he said.
Energy efficiency, refrigeration systems, sprinklers, automation and robotics “are all very important. I would consider control systems a subset of automation, but they’re certainly a critical part of facility management. I think a lot of it also involves all the upfront market due diligence before you even put a shovel in the ground, looking at where the food manufacturing companies are located, the site selection process, zoning requirements, regulations, and labor analytics.”
No Time Like the Present… or is There?
And whether a cold user goes with a spec building or build to suit comes down to timing.
“I believe it’s more a matter of timing,” Hurvitz said. “The advantage of going and finishing a speculative build is you now have something in the market that ideally doesn’t exist. Most of the time it will be a 3PL provider with a customer contract in place (or one they are competing for), and they need the space to fulfil the contract. Whereas a build-to-suit will take 18-24+ months. The larger outfits (Lineage, Americold, Emergent) can plan in certain markets where they believe there is a shortfall in space and plan for the future, but most 3PL’s and food service companies are looking to solve for customer needs with existing options because they can’t wait that long.”
Demand for SCS should become more prevalent at cargo and port hubs as well as intermodal ports such as the state-of-the-art Cold Summit II project in Dallas, TX, Hurvitz said.
“It makes logistical sense for the cold chain to have more of this product close to coastal ports and/or intermodal hubs due to transportation efficiencies and less time in transit for perishables,” he said. “One of the challenges is that the cost of industrial/logistics land adjacent to or close to ports/intermodals is much higher than further outward in the market. This adds additional costs to what will be a much more expensive project than a traditional warehouse. We may see more developments with a lower land basis or more creative JV structures with landowners (port authorities, municipalities, etc.) that aren’t looking for a one-time significant financial event.”
Building Innovation
Of course, demand is advancing innovation. Hurvitz said builders are maximizing space in premium markets by constructing cold storage vertically with super high bays in European markets.
“I believe this is still more conceptual in the U.S., but I’d expect it to gain traction over time. I would expect to eventually see this in high-density urban markets where land is at a major premium,” he said.
Despite short-term challenges, the long-term outlook for cold storage remains strong.
“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,” reported Hurvitz and Smutko in the Colliers online analysis.
“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.”
