Post-Pandemic Shift: The Deceleration of Cold Storage Development

Teh cold storage sector is experiencing a significant shift, as highlighted in a recent Colliers report. Many facilities across the U.S. are aging—some nearly four decades old—and there’s an increasing demand for modern, efficient structures. Factors like stricter food safety regulations, energy efficiency concerns, and advancements in warehouse automation are prompting developers to rethink their strategies for construction. However, after a boom in speculative cold storage (SCS) projects during the pandemic, growth has hit a snag and uncertainty looms.

From 2020 to 2023, developers rolled out about 5.8 million square feet of speculative cold storage space fueled by low interest rates and robust demand. Yet by mid-2023, rising interest rates and inflation began to take their toll on the industrial sector; vacancy rates climbed while net absorption fell—cold storage was not immune to these pressures.

Key players like Saxum, RL Cold, Karis Cold Storage, BGO, and Cold Summit were at the forefront during this expansion phase alongside giants like Americold and Lineage Logistics. As an example, Hunt Southwest launched its first spec facility in Fort Worth that’s now occupied by Emergent Cold Storage. Meanwhile, Karis made strides with developments in Nashville and Charlotte while Saxum concentrated efforts around Atlanta and Burleson but has since pivoted towards custom build projects such as one for Arcadia Cold Storage.

Most occupants of these facilities are third-party logistics providers (3PLs) that gained traction during the pandemic—think companies like FlexCold or TriTemp stepping into this evolving landscape. After delivering over 5 million square feet between 2022-2023 alone, projections show onyl about 1.1 million square feet will come online in 2024 with an anticipated increase to around 2.2 million square feet by 2025 from areas including Illinois and Long Island—a drop in the bucket compared to the overall industrial construction boom of approximately 295 million square feet nationwide.

Traditionally focused on regions with lower land costs or fewer zoning restrictions for development purposes; today’s market is gravitating toward urban centers or ports where labor availability is high—even if it means navigating higher land prices or longer permitting processes—which sometimes leads developers toward secondary markets or intermodal hubs such as Lancaster in Texas.

Some innovators are even considering vertical solutions: multi-story cold storage units reaching heights of up to 50 meters have been successfully implemented abroad and may soon make their debut stateside.

Factors such as tariffs on imports or government spending policies will continue influencing how companies plan their cold storage ventures moving forward.“If inflation spikes again alongside sustained government expenditure levels,” noted Brad Whittell from Colliers’ Mortgage Brokerage division “we might not see any relief from high-interest rates.” While potential rate cuts could occur around 2025 depending on economic indicators—it remains uncertain.Despite current challenges facing this industry segment right now—the long-term outlook remains promising! The global market is expected to soar from $159 billion next year all the way up past $427 billion by decade’s end—with U.S.-specific projections nearing $97 billion! Several trends driving this growth include:

– A surge in health-conscious frozen foods featuring probiotics which have seen a remarkable rise of over thirty percent within three years.
– Gourmet meal kits designed for home preparation that mimic restaurant-quality dishes.
– An increasing appetite for diverse international cuisines ranging from Indian curries through Japanese sushi rolls down into Cajun specialties.
– A notable uptick (26%) globally regarding street food options including bao buns along with empanadas!

As we navigate through these transitional times within our industry—developers seem more inclined towards tailored build-to-suit projects until existing spaces find tenants—but don’t count out speculative developments just yet! Flexible buildings equipped with various temperature zones could very well be back on track sooner than we think!