California Is the Top Market for Cold Storage

Online grocery sales are driving demand for cold storage facilities near population centers. A recent report from CBRE estimates that the US potentially needs an additional 100 million square feet in cold storage to meet demand—and California is leading the nation with the largest supply. The state currently has nearly 400 million cubic feet of cold storage space.

“Demand for cold storage space in Southern California is driven by several factors—a primary one being the shift in consumer demand, especially among Millennials. Consumers’ demand for fresher, healthier and organic food options with rapid delivery solutions will continue to rise,” Art Rasmussen, Jr., SVP at CBRE, tells GlobeSt.com.

While millennials are driving demand for cold storage throughout the US, California’s robust agricultural industry is boosting demand in the state. “This drives infrastructure to ensure a cold chain from the field to the table—precooling from field, transportation of refrigerated storage for further food processing, then either storage or delivery to wholesale or retail outlets,” says Rasmussen.

In response to the growth in online grocery, the Los Angeles and Long Beach ports have doubled their container capacity, which has put more pressure on the industrial market to supply cold storage facilities. This demand is only growing. “California’s population continues to grow in numbers and ethnic diversity, bringing a wide variety of food products and burgeoning demand for fresh, healthy refrigerated and frozen food products,” says Rasmussen. “Variety and ease of access continue to drive consumers to third party food preparation—take out, delivery, in-store prepared foods and increasingly shorter delivery windows.”

Despite the healthy supply, there are only a handful of developers building cold storage facilities, and Rasmussen says that marrying capital sources with experienced cold storage developers has been a challenge. “Otherwise, there is lots of interest from both developers and investors on how to best meet the demand,” he adds.

For California, competition from other industrial uses and a dearth of available land near population centers will be a challenge in bringing more product to market. “Due to very limited infill industrial land sites, especially larger ones that can accommodate last-mile, e-commerce style distribution warehouses, industrial land prices have increased dramatically,” says Rasmussen. “Land constraints along with increasing construction costs have driven rents to historical highs. This combined with historical lows in vacancy, about 1% for class-A product in many markets, the challenge is accommodating growth and how to best address it with limited and expensive warehouse inventory.”