Industrial real estate developers have ramped up construction of cold storage facilities across the United States with no tenants lining up for space, betting that pandemic-induced changes in the way consumers buy groceries and meals are here to help. stay.

Nearly 3.3 million square feet of refrigerated storage space was under construction in the second quarter of this year nationwide with no companies scheduled in advance to occupy the sites, approximately 1000% more than in 2019, according to a report from real estate services firm CBRE published on Wednesday.

The growth of what in real estate is known as speculative construction follows a shake-up in consumer buying habits during the Covid-19 pandemic as Americans rushed to buy groceries online and have stocked up on more frozen foods while supermarket chains and food suppliers are reshaping their supply chains to meet demand.

Consumer spending has shifted again more recently as shoppers return to stores, reducing e-commerce sales and rising inflation weighs on broader retail demand.

Every day, millions of seafarers, truckers, stevedores, warehouse workers and delivery drivers haul mountains of goods to stores and homes to meet growing consumer expectations for convenience. But this complex movement of goods that underpins the global economy is far more vulnerable than many imagined. Photo illustration: Adele Morgan

“We are watching retail sales closely,” said Matthew Walaszek, director of research at CBRE and one of the report’s authors. “If that breaks down it will impact the market and there will be a pullback in an expansion, but we don’t see that right now.”

The cold storage market is largely immune to an economic downturn as people need to keep eating, whether they’re buying food at a grocery store or sitting down at a restaurant, said Mr Walaszek.

Grocers including Walmart Inc.

and Kroger Co.

has rolled out a series of new logistics operations to meet online demand during the pandemic, and many continue to invest in areas such as door-to-door delivery and curbside pickup. Kroger is working with UK-based automated food distribution specialist Ocado Group PLC to build a series of robotic distribution centers in the United States to reach e-commerce customers.

There are signs that demand for chilled products may be weakening. Refrigerated truck spot rates were down nearly 10% in May from March, according to online freight marketplace DAT Solutions LLC.

Developers, brokers and other industry experts say there is room in the market for more space, especially in areas with rapidly growing populations, including Texas, Arizona and Florida.

So far, about a third of the 3.3 million square feet under development has been leased, Walaszek said, which is typical in the broader industrial market for speculative projects.

Marc Duval, managing director of capital markets at real estate investment services company JLL,

said much of U.S. cold storage is “inefficient and outdated,” which will also drive demand for new sites that can operate more efficiently.

The interior of Win Chill, a cold storage facility in Sioux Falls, SD


Loren Townsley/Associated Press

New developers are entering the sector, which is considered a kind of niche in the industrial real estate market due to the special requirements of cold storage. A CBRE survey in April found around 40% of real estate investors were interested in cold storage, up from 7% in 2019.

Thomas Eldridge, director of RL Cold, an Atlanta-based company RealtyLink, entered the field in 2020. “There’s so much demand, and it’s critical,” he said. “It’s vital for our economy… Everyone has to eat. We have not experienced any slowdown. If anything, it’s picked up.

RL Cold has three refrigerated buildings of approximately 300,000 square feet each under construction in Charleston, SC, Baytown, TX and Wilmington, NC The projects were launched with no tenants lined up and have all been leased since construction began.

Mr Eldridge said RL Cold is expected to close three more cold storage sites over the next 90 days, a sign of continued confidence in the industry.

Yet new projects are facing the headwinds that are disrupting much of the construction industry, including rising costs for labor and materials such as steel.

In Charleston, “what we thought was a $60 million project turned out to be a $100 million project,” Eldridge said.

Write to Liz Young at [email protected]

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