Changing shopping habits means demand for cold storage is outpacing capacity

Ceva Logistics last week opened its Chill Hub (pictured above) at London Gateway, an integrated, multi-temperature cold chain facility.

It has a footprint of 10,000 sq metres and space to store up to 10,000 pallets in seven chambers providing temperature levels ranging from -25°C to +16°C.

Such facilities are in hot demand, as the need for cold storage continues to rise. Reefer logistics provider Americold estimates that growth in the US market between 2014 and 2019 has averaged 3.4% a year.

According to Americold, the demand curve is driven by the rise of online grocery shopping and a change in shopping habits.

The company sees a trend towards more fresh and chilled products being purchased in smaller quantities at higher frequencies, and at the same time, shoppers are asking for a wider selection of items. For providers this translates into more new products, more frequent product changes and packaging updates.

Real estate services and investment firm CBRE is gung-ho on this trend and published the Cold Storage Development Opportunities Heat Up report, which suggests that, to keep pace with projected growth in on-line grocery sales through to 2022, an additional 100m sq ft of cold storage space will be required.

However, facility development is well off that pace. This year, about 4.5m sq ft of cold storage capacity has been added, CBRE estimates. This translates into about 1.5% of industrial real estate construction this year, below the sector’s 2-3% share of the overall US industrial real estate market.

A lot of developers prefer simpler warehouse projects. According to CBRE, the investment in a cold storage facility can be two to three times that of an ordinary warehouse of similar size.

This means it is crucial to maximise a facility’s utilisation – with a broader array of produce required and more frequent replenishment, this is more challenging to manage than a smaller number of commodities arriving and leaving by the truckload.

Moreover, building a cold storage facility takes about four or five months longer. Facility design is changing towards higher buildings with clearances of 40-60ft rather than the traditional 30ft, adding cost and complexity.

On the bright side, cold storage facilities command higher rents and contracts tend to be longer-term, which gives greater planning security.

However, CBRE’s analysts are confident that activity will pick up, claiming demand is going to prompt more speculative development, as well as more developments in smaller markets and a greater degree of automation.

ButAmericold estimates that the number of new facilities will grow just 1% a year between now and 2024, against projected volume growth of 3.4%. And the cold storage capacity crunch is even worse in China: in June, Bloomberg reported that capacity there was severely stretched as a result of large imports of pork in response to the African swine fever epidemic devastating domestic Chinese pork stocks.

By mid-June, chilled storage at China’s ports was almost full, limiting opportunities for global suppliers eager to take advantage of the shortfall of pork.

However, some operators are pouring money into facility development. Walmart, which has a vast network of supermarkets in the country and opened a $105m perishable food distribution centre in March to serve over 100 outlets in Guangdong and Guangxi provinces, announced in July it intended to spend $1.2bn on upgrading or building more than 10 distribution centres over the next 10-20 years.