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Law of Supply and Demand Kicks Cold Storage Rents Higher

March 25, 2021
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The intensity of the need for cold storage in the United States has triggered the laws of supply and demand, sending rents higher.

Cold storage has been on an upward trajectory for much of the past five years, pushing rent growth ahead of the overall industrial sector since 2017, according to CoStar research.

There was a period last year, ahead of the pandemic and the rapid shift to online shopping, when rent growth for the overall industrial sector was pacing ahead of cold storage.

That took a dramatic turn as hordes of shoppers stockpiled food — fresh, frozen and otherwise — when stay-at-home mandates were put in place and the need for food service providers, grocers and restaurants to meet the demand escalated appreciably.

Cold storage rent growth has been rising since. Problem is, there’s not enough of it. Of the more than 11 billion square feet of industrial space in the United States, only 214 million square feet, or more than 3.6 billion cubic feet, is in cold storage.

What’s more, only about 81% of the cold storage industrial space is actually usable refrigerated space, with the rest allocated to docks, equipment, offices and such that don’t need to be chilled, according to Juan Arias, a senior consultant with CoStar Advisory Services in Boston.

That’s pushed cold storage rent growth up by 29% cumulatively since 2017, notably ahead of the 21% surge in industrial rents overall. Rent for cold storage space averages about $10 for each square foot but could vault to as much as $30 per square foot, Arias said.

“Even though there’s been a rise in some speculative supply with players who are not in the cold storage sector of the industry, the supply isn’t close enough to cause a rise in vacancies and to slow down rent growth,” he said.

“There’s just not enough supply relative to the demand that’s coming,” Arias added. And in the law of supply and demand, when demand outstrips supply, prices go up.

By Jennifer Waters and Rohit Diwadkar
CoStar News

CoStar News – Law of Supply and Demand Kicks Cold Storage Rents Higher