Investors are warming up tocold storage asset investment, and as a result, cap rates arepushing closer to that of high-quality warehouses, according to areport from CBRE. Los Angeles is one of the topmarkets for cold storage, with a 4% vacancy rate, among the lowestin the country. As a result of the opportunities in the market,cold storage has seen an influx of new capital and investors.

|

"The draw of strong demographics driving food sales, food safetydemands putting additional focus on the cold chain and scarcity ofavailable cold storage inventory due to the lack of speculativedevelopment has made investors more comfortable with cold storageinvestment," Art Rasmussen, SVP at CBRE, tellsGlobeSt.com. "Wall Street is warming up to investment in the foodsector, reducing the perceived risk premium and tightening of caprates."

|

The low availability of cold storage in Los Angeles is notsurprising, considering that there is a lack of supply in mostindustrial categories in the market. "Due to the overall high costof construction and lack of speculative building, there are veryfew alternative in the market for new or growing food companies,"says Rasmussen. "Until recently, buildings were developed mainlyfor owner users, and now, with e-commerce in play there is a muchhigher demand from emerging food users as well as prepared foodsbrands -more than ever before."

|

Cold storage has been the perfection solution for investors thatare in search of yield or looking for opportunities to placecapital. "Investors in search of alternative opportunities arebeginning to recognize the stability of the food industry isfundamentally attractive," says Rasmussen. "The higher cap ratereturn associated with cold storage is increasingly perceived asless risky and the additional demand is beginning to drive cap ratecompression."

|

However, that is likely to change in Los Angeles as a result ofthe increased investor interest. This year, more cold storageproduct will break ground. "We are already engaged with coldstorage speculative development projects," says Rasmussen."Properly designed, located and constructed, there will becontinued focus and development supporting the food safety andlogistical demands of the cold chain."

|

While more investors are coming to cold storage, they also needto understand the challenges of the asset class. "The challenges ofcold storage include associated high operating costs, continuedcapital expenditures, and the knowledge required to construct andoperate cold storage facilities," explains Rasmussen.

|

 

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Kelsi Maree Borland

Kelsi Maree Borland is a freelance journalist and magazine writer based in Los Angeles, California. For more than 5 years, she has extensively reported on the commercial real estate industry, covering major deals across all commercial asset classes, investment strategy and capital markets trends, market commentary, economic trends and new technologies disrupting and revolutionizing the industry. Her work appears daily on GlobeSt.com and regularly in Real Estate Forum Magazine. As a magazine writer, she covers lifestyle and travel trends. Her work has appeared in Angeleno, Los Angeles Magazine, Travel and Leisure and more.