Online Grocery Sales Spurring Investment in Cold Storage Space in New Jersey
Investors increasingly are warming up to the U.S. cold storage warehousing sector, pushing cap rates for class A facilities closer to those of traditional high-quality warehouses.In New Jersey, online grocery sales continue to spur the need for construction and investment in cold storage facilities. However, cold storage presents its own unique challenges, according to a new report from CBRE.
CBRE’s report, the third and final installment in its Food on Demand series about cold storage, outlines how trends such as the anticipated growth of online grocery sales have narrowed the gap in cap rates between cold storage warehouses and dry-storage facilities to 75 basis points (bps) from 200 bps in the past three years.
Cap rates, formally called capitalization rates, measure a property’s annual income as a percentage of its price. A lower cap rate indicates a higher price. CBRE forecasts that the cap-rate spread between U.S. cold storage real estate and dry storage could narrow further to 25 bps, on par with the spread in leading Asia Pacific markets, as cold-storage cap rates go lower.
“The increased demand by consumers for online beverage and groceries has been the impetus for more cooler/food storage space in New Jersey, one of the most well-located gateway markets serving millions of shoppers in the U.S.,” said Steven Beyda, Senior Vice President with CBRE Advisory & Transaction Services. “The trend of online ordering, as well as the investment in new delivery strategies and technologies, will continue to drive demand for cold storage space well into 2020 and beyond.”
However, challenges stemming from the specialized nature of the sector will continue to restrain additional growth in transaction volume. CBRE’s report points out that available properties are scarce, construction is expensive, and the design and operation of these facilities is complex. These challenges are likely to be addressed gradually by growth in the ranks of specialized developers and builders of cold storage as well as additional capital flowing into the industry.
To download the report, click here.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2018 revenue). The company has more than 90,000 employees (excluding affiliates) and serves real estate investors and occupiers through more than 480 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.
