Industrial N Illinois It’s a cold hard fact: Development costs are suppressing supply of cold storage As consumers grow more and more comfortable adding food to their online shopping carts, the cold storage warehouse is in ever more demand. Due to the cost and complexity of constructing these facilities, however, there’s a shortage of cold storage space.Earlier this year, CBRE projected that cold storage space—which occupies approximately 2 to 3 percent of overall U.S. industrial real estate—would need to expand by an additional 100 million square feet to keep pace with anticipated growth of online grocery sales through 2022. Now a new report in partnership with CBRE and with Bridge Development Partners outlines the challenges facing any efforts to ramp up cold storage construction.“There is a strong demand for this type of product, but there are a lot of hurdles to overcome,” said Steve Livaditis, senior vice president with CBRE in Chicago. “Most of these users want to be in urban, infill locations where cost is higher and available land is scarce. This has prevented a lot of developers from building speculatively.”Need more insights into the state of the industrial real estate sector? Join us on October 25th for the 16th Annual CIP Transportation & Logistics Conference.This relative dearth of cold storage real estate should make the asset class—which is still is in the early days of a renaissance—even more coveted by both users and investors. In-progress and newly completed construction of cold storage space currently totals just 4.5 million square feet across the country, just 1.5 percent of overall industrial real estate construction at the end of the second quarter.This includes the 183,000-square-foot, 14-story cold storage facility that Griffco Design Build completed this year in Rochelle, Illinois for Americold Logistics. The new facility, co-located with an existing, conventional freezer building, contains a series of temperature-controlled rooms and is serviced by an automated storage and retrieval system. Altogether, the new facility contains 15.5 million cubic feet of automated capacity.As cold storage demand pulls away from supply, however, this project is more the exception than the rule, largely because of the upfront capital required to erect a cold storage warehouse, compared to traditional industrial properties. Americold made use of Enterprise Zone economic development incentive benefits for the new facility which includes both property tax abatement and sales tax abatement on the cost of construction materials.“The food companies typically don’t want to take on this specialized distribution strategy, leaving the market to be dominated by a smaller group of frozen 3PLs,” Livaditis said. “Still, with limited opportunity and end users, smart developers are finding a way to make these deals happen because the yields are very high.”CBRE teamed with Bridge Development Partners to identify primary differences between cold storage facilities and traditional warehouses that developers new to the sector would need to embrace to build more facilities.On average, cold storage construction costs two to three times more than a traditional warehouse. These added costs come in because of the necessary insulated metal paneling, premium concrete slab and subfloor heating, as well as mechanical, refrigeration and rooftop equipment systems that cold storage properties require—and that doesn’t even include the obligatory designs for multiple temperature zones with their own loading docks.Since these facilities are generally maintain a temperature range of between -25 degrees and +55 degrees, depending on the inventory, they require significantly more equipment and higher efficiencies. Whereas typical new-build distribution facilities max out at 34 to 36 feet clear height, cold storage warehouses need as much as 40 to 60 feet ceilings to accommodate more pallet positions and to maximize the use of every cubic foot.And it’s not just materials costs. Construction of cold storage warehouses often can take four to five months longer than for “dry” warehouses.The report identifies three major shifts defining the rise in development and construction of cold storage in coming years. First, developers will need to construct more facilities on spec—a rarity in the cold storage sector. This might require additional developers and specialized contractors to enter the market.Small markets likely will see more cold storage construction. Most construction has taken place in large markets for decades, but rising land and construction costs are likely to push developers and users to smaller, nearby markets.Finally, expect automation to make more headway into cold storage facilities, such as the robotic systems that Americold installed in their Rochelle expansion. This allows big retailers and other users to streamline processes and improve productivity.“Markets adapt to demand, which we anticipate will happen in a big way in cold storage,” said Adam Mullen, CBRE Americas leader of industrial and logistics. “In the meantime, existing, state-of-the-art cold storage warehouses and those newly constructed will attract significant attention from grocers, food producers and investors as grocery delivery gains momentum.”Space is still available for the 16th Annual CIP Transportation & Logistics Conference on October 25th at Hamburger University in Oak Brook, Illinois. Register now!.