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As Demand For Organic Grows, Race For Cold Storage Heats Up

Out of a 30K SF warehouse in Vernon, California workers moved hundreds of pallets stacked high with frozen and chilled products and beverages to the inside of refrigerated truck trailers.

Recently, the Boa Logistics team loaded 1.2 million pounds of frozen and chilled products and beverages into 27 53-foot trailers before setting it out for delivery to the company’s clients, which include Trader Joe’s, Costco, Kroger, Publix and other grocery stores nationwide.

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Demand For Cold Storage Space To Grow By 100M SF In 5 Years, But Small Users May Be Frozen Out

Once a niche play in the industrial sector, cold-storage warehouse space is on a growth track.

The habits of U.S. consumers, who will order more food online in the coming years, is spurring the growth. A recent report by CBRE estimates there will be demand for as much as 100M SF of new cold-storage space over the next five years. That is a nearly 50% increase over its current market size of about 214M SF, since much of the food ordered online needs refrigeration at some point in the delivery cycle.

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Damn The Speculative Industrial Supply – More Demand Lies Ahead!

The first half of the nine-year bull market in U.S. logistics warehousing was marked by a dearth of “speculative development,” in which buildings go up based on faith in market demand and not on commitments from specific customers.

Spec activity froze up during the Great Recession, and didn’t pick up even after the smoke initially cleared. This would spawn the start of a powerful rise in asking rents, a trend that accelerated after 2012 once it became clear e-commerce demand was not cyclical.

The latter half of the bull story, by contrast, has been punctuated by a surge in development, which doesn’t appear close to cresting. Still, asking rents continue to climb, approaching $6 a square foot across the nation, and higher than that in the sizzling markets of the East and West Coasts, Atlanta and central Pennsylvania. In fact, the need for space to meet e-fulfillment needs is so strong that demand may blow  by even the large volume of supply entering the market.

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