Orange County Partnership - News

E-Commerce, Big Pharma Prevent Cold Storage from the Deep Freeze

If there has been one industry investors have turned to during the COVID-19 pandemic it has been the cold storage sector.


Fueled by consumer demand for online grocery services during the stay-at-home directives, as well as the continued need to increase pharmaceutical capabilities, including research and distribution in the United States, the cold storage sector is seeing very strong demand in spite and in some ways as a direct result of the pandemic.


The cold storage industry, an area of the industrial warehouse market, had been poised for growth prior to the coronavirus pandemic. However, online shopping and big pharma have fueled this sector’s popularity with investors and end users, according to a story published on LoopNet.


The article authored by Liz Froment notes that more consumers are utilizing online groceries and other retailers as part of their daily lives rather than venture out to the grocery stores and the few retail establishments currently open for business.


"The tendency in a pandemic is to overreact and predict radical new market forces, market trends, or new behavior trends, but this is one where I think most analysts are pretty comfortable," explains John Boyd, principal of The Boyd Company, a New Jersey-based corporate site-selection consultancy. "Just as online buying has become a norm for virtually all parts of consumer spending, it's likely to be an enduring trend in the food and beverage industry."


Albert Goldson, executive director of New York City-based think-tank and advisory service Indo-Brazilian Associates, LLC, adds, “In a post-pandemic world, cold storage will probably be deemed an essential service for food security—the equivalent to an agricultural version of our strategic petroleum reserve."


Another significant factor in cold storage’s boom involves pharmaceutical firms’ need for space in order to test medicines and later conduct trials for various products, including what everyone hopes will be a vaccine for COVID-19.


Biologics, drugs and medicines developed from living organisms, including vaccines, blood and viruses, have been part of this trend, the LoopNet report notes.


"Beyond COVID-19 disruptions, a driving force in new demand for cold storage space in the U.S. is the increasing use of biologics and biosimilar pharmaceutical products within the medical community," Boyd adds.


Another significant trend in the cold warehouse sector is for the development of more automated facilities that can house such cutting-edge technology as robotics and artificial intelligence (AI).


The future for the cold storage sector appears to be bright as market forces now fueling the market are expected to continue for the foreseeable future.


 "I expect to see keen investor interest in the construction of new cold storage facilities as well as upgrades for the current ones," says Goldson.


In a report on the cold storage sector entitled: “Cold Storage Comes to the Forefront with COVID Shifts,” Alex Langerman, COO of Cold Summit Development noted that a recent LandVision survey found that 46% of respondents will continue to purchase goods online even after the COVID-19 pandemic subsides. CBRE estimates that an additional 75 million to 100 million square feet in freezer/cooler space will be needed to meet changing consumer e-commerce demand.


Cold storage has proven resilient in times of recession: in 2009, with revenues for the third-party logistics/3PL sector down nearly 7% in aggregate, food & beverage/F&B 3PL revenues fell by just one-tenth of 1%, according to Cold Summit. Furthermore, through the past two recessions, F&B was the third-best performing retail sector, experiencing a 3.7% month-over-month growth rate against a decline of 6.1% for total retail sales, according to the report.


F&B sales through the COVID crisis posted 25.6% growth for March 2020, compared to an 8.7% decline for retail as a whole. Cold storage has consistently performed during times of economic distress, in line with expectations for an infrastructure asset class.


“Beyond sector performance figures, the COVID experience has brought into clear focus the need for resilient food supply chains in the face of pandemic risk,” says Langerman. “Through the COVID experience, cold storage has been shown to be more critical than most previously appreciated, and the sector will be profoundly shaped by trends emerging from the pandemic. The reversal of just-in-time inventories to more resilient supply chains requires a behavioral change by many uncoordinated actors in the economy and is thus the most precarious trend of those discussed. The duration of the COVID experience and the severity of its impacts will determine its stickiness.”


Langerman adds, “Cold storage has emerged as the most dynamic component of the real estate and infrastructure asset class. If the 2008 financial crisis and Great Recession saw the arrival of the industry as an established investment sector, the COVID crisis and the resulting drive for resilient food supply chains is proving to be the inflection point for accelerated growth and rapidly ramping demand. In the dark of the COVID experience, cold storage is shining bright.”