By Joshua Burd
New Jersey remains one of the nation’s most underserved markets for cold storage space, despite its potential to share in the expanding market for fresh food and online grocery delivery.
Those are among the findings of a new report by Avison Young, which found that the Garden State has only 91,237 square feet of available cold storage space. That represents a 0.3 percent vacancy rate, the real estate services firm said, adding that there is currently no cold storage space under construction due to high development costs, land availability and other factors.
Los Angeles and New York face similar challenges, with vacancy rates of 0.6 percent and 3.3 percent, respectively, at the time of a first-quarter survey conducted by Avison Young.
“We continue to see a shortage of efficient and modern cold storage facilities in most markets across the U.S., as the industry tries to catch up to the rapid growth in demand for fresh and organic foods and online grocery delivery,” said Todd Heine, an Avison Young principal and leader of its Chicago-based National Food Services Group. “Cold storage facilities are more costly to build, due to the specialization of the required infrastructure and limited ‘infill’ last mile land scarcity.”
The report noted that food industry tenants often have unique space requirements that might include USDA-certified facilities, cold storage and the need for access to extensive water and utility capacity. Such facilities are often considered “mission critical,” as they are tied to the companies’ overall financial and operational objectives.
As the industry grapples with this shortage, Heine said developers are taking advantage of new technologies in order to build high-capacity and highly efficient cold storage facilities on smaller sites. He cited Whole Foods Market’s new 140,000-square-foot distribution center in Chicago’s Pullman neighborhood, which opened last year as part of a planned 1.2 million-square-foot industrial park by Ryan Cos.
In announcing the new facility, Whole Foods touted environmental improvements and a building that is about 20 percent more electrically efficient than a previous location in Indiana. The property saves more than 1.3 million kilowatts per year and more than $150,000 annually due to measures such as natural refrigerants, occupancy light sensors, high-efficiency interior and exterior lighting and redistribution of refrigeration waste to heat floors.
All told, Avison Young estimated that 4 to 8 percent of the 888.6 million square feet of industrial space built in the U.S. since 2016 supports the food industry with warehouse, distribution, fulfillment and related uses. But the firm also cited the increased demand for cold storage space but continually limited supply as one of its top five trends to watch in the food sector.
Other trends include the growth of processing and distribution for the online grocery industry, which will impact industrial space utilization, AY said. Online grocery and fresh food deliveries will also require so-called last mile locations that are minutes from large population bases, the report found, while companies could expand their use of automation to improve efficiencies and combat labor shortages.
“The food manufacturing and distribution sector is experiencing significant change as it adapts to shifts in consumer shopping and meal preparation, including the growth in fresh and organic foods and last mile delivery,” Heine said. “The purchase of Whole Foods by Amazon.com has changed the game for many food companies and that shift is having a significant effect on how companies utilize industrial space.”