Cold Storage, the Next Hot Sector in Commercial Real Estate? 

A surprising contender is emerging as a promising commercial real estate investment: cold storage facilities. Related, an investment firm with a legacy in high-profile developments, is channeling $1 billion into this once-overlooked niche through its new venture, RealCold. With consumer habits shifting towards online grocery shopping and a preference for local and unique food products, cold storage warehouses are poised to become critical infrastructure. 

RealCold is set to break ground on its first state-of-the-art facilities in Texas and Florida. These warehouses will not only be vast but also versatile, designed to maintain a range of temperatures suitable for an assortment of goods from frozen desserts to fresh vegetables. This move by Related reflects a growing investor interest in the cold storage sector—a segment of the $20 trillion commercial real estate market that has remained relatively under the radar until recently. 

Read more: Ambitious REIT Launch Targets $1 Billion Raise for Struggling Office Sector

The demand for cold storage has been further fueled by technological advancements that are transforming supply chains and consumer behaviors. The diversification of American diets away from mainstream brands towards newer, innovative options requires more adaptable logistics solutions that can handle smaller, more frequent shipments. 

The pandemic put additional spotlight on this industry when labor shortages disrupted traditional supply chains and highlighted the importance of efficient cold storage solutions. Though there was a temporary dip in inventory levels during this period, the recovery was swift thanks to increasing online demand which sparked growth in development projects within the sector. 

Investing in cold storage does come with higher upfront costs compared to standard warehousing due to the complexity of maintaining different temperature zones. Yet Related’s commitment—estimated at $150 million per facility—demonstrates confidence in their expansion strategy which includes plans for over ten facilities across six markets by 2025. 

Read more: Is the Surge in Commercial Property Insurance Rates Losing Steam?

In contrast to other areas of commercial real estate that have been rattled by e-commerce and remote work trends, experts at Related maintain that cold storage facilities are largely insulated from such disruptions since physical spaces are indispensable for food preservation—an element yet untouched by digital innovation. 

All signs indicate that cold storage could indeed be heating up as the next hot sector in commercial real estate. With its significant growth potential driven by changes in consumer preferences and supply chain logistics coupled with improved market conditions post-pandemic, investors like Related are making calculated bets on what may be one of the most stable and lucrative frontiers in property investment today. 

Reporting based on this article from the Wall Street Journal. 

January 30, 2024