Real estate money manager interest in cold storage warehouses is heating up.
Amazon.com Inc.'s announcement in October that it is now delivering groceries for free for Amazon Prime members in certain areas is a boon for cold storage investors and will further cement the trend of online grocery shopping, industry insiders say.
Already growing demand for cold storage space is expected to boom from Amazon as well as other food retailers and drug manufacturers moving to make delivery easier. But there is a hitch. Demand for the warehouses outstrip supply, making it more difficult for managers to invest in the growing subsector.
"There is still a lot of speculation on what the impact of Amazon's acquisition of Whole Foods would be within the cold storage space," said Graydon Bouchillon, Dallas-based managing director and head of U.S. industrial sector at Nuveen Real Estate.
Amazon Prime's offer of free groceries "is a validation of a secular trend in our minds," Mr. Bouchillon said. "Amazon making free grocery delivery available to its existing customer base bodes well for cold storage, particularly in urban locations."
Among the managers that are investing or seeking to invest in cold storage to take advantage of the move to sell food online as well as increasing home deliveries of medications include Blackstone Group Inc., PGIM Real Estate, Nuveen LLC, LaSalle Investment Management and CBRE Global Investors.
The U.S. industrial cold storage business is likely to add up to 100 million square feet of additional space over the next five years, a 47% increase, to keep up with the growth of anticipated online grocery sales, according to a report by commercial real estate firm CBRE Group Inc., parent of CBRE Global Investors. The growth of online grocery sales will cause grocers and other fresh food purveyors to move their cold storage operations to industrial cold storage facilities from stores to make delivery easier, the report said.
CBRE's projection is based on a Food Marketing Institute and The Nielsen Co. (US) LLC forecast that groceries ordered online will make up 13% of total grocery sales by 2022, up from 3% in 2018, the report said.