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Cold Storage Boom: Why Demand Is Skyrocketing · Industrial Advisors

• 0:00
  Well in rents on cold storage space, there's a lot more infrastructure.
• 0:04
  Developers and owners are putting a lot more money into these buildings,
• 0:07
  but rents are more than double what you would get in a normal, you know,
• 0:11
  just regular industrial building if you're going on the cold storage side.
• 0:14
  That's right.
• 0:29
  Welcome to our Industrial Advisors podcast.
• 0:32
  You have Bill Conden and Matt McGregor.
• 0:34
  We're doing a five minute Friday today on the cold storage boom.
• 0:38
  It's not a topic that a lot of people talk about right now, but there's a lot of
• 0:42
  demand and the vacancy is almost zero 0%.
• 0:46
  Well zero here.
• 0:47
  Yeah.
• 0:47
  Yeah.
• 0:47
  Zero here.
• 0:48
  And there's national brokers that are just cold source guys.
• 0:51
  Yeah.
• 0:52
  Right.
• 0:52
  That that was a discipline that.
• 0:54
  I don't think existed 10 years ago, or there was a guy or two doing it.
• 0:57
  Yeah.
• 0:57
  But it wasn't.
• 0:58
  Now every company has a cold storage team.
• 1:00
  Yeah.
• 1:00
  Food group.
• 1:01
  And then within that cold storage's, a cold storage team.
• 1:03
  Storage.
• 1:03
  Yes.
• 1:03
  Yeah.
• 1:03
  Yeah.
• 1:03
  And then now there's funds specifically for cold storage.
• 1:07
  Mm-hmm.
• 1:07
  Right.
• 1:07
  Just to place in that.
• 1:08
  Yeah.
• 1:09
  Yeah.
• 1:09
  But let's talk about the local requirement, because the reason
• 1:12
  why we're doing this podcast is we just had a requirement.
• 1:14
  That we couldn't land.
• 1:16
  Yep.
• 1:16
  Right?
• 1:16
  Yep.
• 1:17
  It was tough.
• 1:17
  So there was no real existing options that are out there.
• 1:20
  No speculative, empty cult storage, to your 0.0% vacancy.
• 1:24
  Yeah.
• 1:24
  Yeah.
• 1:25
  And so oftentimes I think these owners, these developers that are in
• 1:29
  this space, they have their list of tenants that they usually work with.
• 1:32
  Yes.
• 1:32
  And they would love to structure a build a suit, you know?
• 1:35
  Absolutely.
• 1:35
  Anybody will do that long term, build a suit, they build it out, they got their
• 1:38
  plan, they go, but the question is.
• 1:41
  Should landlord, given where the market is and the demand for cold storage,
• 1:45
  should developers be building that on a spec basis because there is risk there.
• 1:50
  There's certainly risk, but when you say, when we faced and we had kind of
• 1:54
  a dual requirement, a 200 and a 400,000 square foot cold storage requirement,
• 1:59
  there's only one building being spec.
• 2:01
  REA and Jeff and team have it out in, in Emerson Lake.
• 2:05
  Yep.
• 2:05
  Couple hundred thousand feet, uh, that they're gonna build spec.
• 2:08
  That was really the only one.
• 2:10
  That you could even bid on, or you had to go to the direct with the cold
• 2:15
  storage companies for more full service.
• 2:18
  That's right.
• 2:18
  Where you're saying, Hey, we'll lease 200,000 feet with you.
• 2:21
  By the way, it didn't exist.
• 2:22
  Right.
• 2:23
  Yeah.
• 2:23
  So to the point, even in those, there was no capacity to take this business on none.
• 2:28
  Yeah.
• 2:28
  I called everybody.
• 2:29
  Right?
• 2:29
  Lineage, vertical, everybody.
• 2:31
  Yeah.
• 2:31
  Nobody had capacity to take this business on.
• 2:34
  Well, in rents, on cold storage space, there's a lot more infrastructure.
• 2:38
  Developers and owners are putting a lot more money into these buildings, but rents
• 2:42
  are more than double what you would get.
• 2:43
  In a normal, you know, just regular industrial building if you're
• 2:47
  going on the cold storage side.
• 2:48
  That's right.
• 2:49
  Well, what we saw out there was if you took a, took a building that we looked at
• 2:53
  for cold storage, it was say 2 75 a foot for that building On a monthly basis.
• 2:57
  Yeah.
• 2:57
  On a monthly basis.
• 2:58
  Versus that building in today's market might get 95 cents a buck maybe.
• 3:03
  Yeah.
• 3:03
  So, uh, if it was just shell, so.
• 3:05
  Depending on what that infrastructure costs, I would say yes, build that
• 3:10
  spec.
• 3:10
  What do you think about, like what are the, what's driving
• 3:14
  the cold storage demand?
• 3:16
  I.
• 3:17
  Certainly a change in consumer demand related with fresh foods.
• 3:20
  Mm-hmm.
• 3:21
  And e-commerce related with fresh foods and unfortunately massive pharmaceuticals.
• 3:25
  Right,
• 3:25
  right.
• 3:26
  So those are the two major drivers that continue.
• 3:29
  You're seeing more and more pharmaceuticals, some
• 3:32
  good, some bad, right.
• 3:33
  But you're seeing a higher, higher demand for that, and that needs
• 3:35
  to be temperature controlled.
• 3:37
  And you're seeing a massive change in fresh foods that are
• 3:40
  flash, frozen, fresh foods.
• 3:42
  I mean, certainly if you look at our careers over the last 20 years, right,
• 3:47
  like you've seen that cold storage demand just continue to increase.
• 3:51
  Increase.
• 3:51
  And I would say really over the last like five to seven years, there's specialized
• 3:55
  food groups, like you mentioned.
• 3:56
  There's more demand from tenants, there's more investors
• 3:59
  that are playing in the space.
• 4:00
  And so I think we are gonna start seeing more spec development.
• 4:04
  In the cold storage space,
• 4:05
  we have to, right.
• 4:06
  I mean, when's the last time we saw spec?
• 4:08
  And we've seen several torn down now because those facilities were
• 4:13
  built in the thirties, forties, and fifties, and are no longer efficient.
• 4:17
  So they're just tearing them down and they're very expensive to replace.
• 4:21
  Right.
• 4:21
  Yeah.
• 4:21
  So we saw one developed in that CTAC market six, seven years ago.
• 4:26
  Right?
• 4:27
  Yeah.
• 4:27
  That was the last.
• 4:29
  Spec one that I recall seeing.
• 4:31
  And then you've had a couple of build the suits for company Versatile.
• 4:34
  Did one in Tacoma, tri and Seafood did their own.
• 4:37
  Yeah.
• 4:37
  Right.
• 4:37
  But you haven't had a spec one go up in eight or 10 years.
• 4:41
  Well, and, and you know as well as I do, if you bring out a building that has any
• 4:45
  sort of cooler freezer component to it, you hear from all the same groups, all
• 4:49
  the food groups that have a need for it.
• 4:51
  Yes, yes.
• 4:51
  And then more often than not that that specific unit build out doesn't work for.
• 4:57
  The new requirement,
• 4:57
  and those are usually because they're a small freezer.
• 5:01
  Yeah.
• 5:01
  Set to a specific need.
• 5:02
  It's just the rare occasion.
• 5:03
  This is a true cold storage.
• 5:04
  Correct.
• 5:04
  Where everything's insulated.
• 5:06
  Yeah.
• 5:06
  Yeah.
• 5:06
  But just to
• 5:07
  illustrate the demand, you send anything out with a frozen cooler
• 5:11
  aspect, then you're gonna hear from those groups hoping that it would Yes.
• 5:15
  I think if somebody built out, call it a two 50, 300,000
• 5:19
  foot cold storage building.
• 5:21
  Almost anywhere in our market because I think it's, it's a
• 5:24
  little less location driven.
• 5:26
  Yeah.
• 5:26
  Than other buildings.
• 5:27
  Right.
• 5:27
  That I think you would not have a problem leasing that based on what we saw.
• 5:31
  Well, and the other part of that is you may I agree with you.
• 5:34
  You, you probably wouldn't, but even if you put in some extra downtime.
• 5:37
  The upside that you get from the increased rents.
• 5:39
  That's right.
• 5:40
  And knowing how to do it.
• 5:41
  And the stickiness of that tenant, they're there forever.
• 5:43
  It's not like they're jumping chip
• 5:44
  to the next desperate landlord.
• 5:45
  Yeah.
• 5:46
  Right.
• 5:46
  Yeah.
• 5:46
  Yeah.
• 5:46
  So maybe we should do that.
• 5:47
  Maybe we should build a spec 300.
• 5:48
  Let's go.
• 5:49
  Yeah.
• 5:49
  So we'll continue to keep an eye on the, the cold storage boom, and
• 5:53
  expect that certainly to continue.
• 5:55
  Happy Friday.