The cold storage facility reflects the growing demand for temperature-controlled warehousing in New York.
The cold storage sector is experiencing significant growth in New York, driven by the surge in e-commerce grocery and pharmaceutical distribution. As demand for temperature-controlled warehousing escalates, U.S. cold storage construction is projected to reach $18.6 billion by 2027, with an annual growth rate of nearly 14%. Investors are increasingly targeting cold storage assets, highlighting its importance in the real estate market. While challenges exist, including design complexity and zoning issues, the potential for long-term leases and sustainable technologies points towards a promising future for cold storage development.
The cold storage sector is currently one of the most sought-after opportunities in the commercial real estate market, driven by remarkable growth in e-commerce grocery, pharmaceutical distribution, and fresh food logistics. As demand for temperature-controlled warehousing continues to escalate, U.S. cold storage construction is projected to reach $18.6 billion by 2027, with an impressive annual growth rate of nearly 14%.
In recent years, the online grocery shopping trend has significantly increased, with projections indicating that it will account for 21.5% of U.S. grocery sales by 2025, a notable increase from 13% in 2021. Furthermore, e-commerce sales in refrigerated and frozen food categories soared by 58% year-over-year in 2021, solidifying the demand for cold storage solutions.
Currently, the U.S. cold storage real estate market comprises over 214 million square feet of space, boasting vacancy rates below 4%. A recent survey revealed that 40% of investors are now targeting cold storage assets, highlighting an increase from just 7% in 2019.
Cold storage developers are focusing on sites near population centers and logistics corridors for optimal growth potential. Areas such as Long Island, Westchester County, and the Hudson Valley are emerging as prime targets due to their proximity to dense urban markets, ports, and increasing residential populations. There are over 18 million square feet of warehouse space proposed in Long Island, with 7 million square feet planned for Brookhaven alone.
Despite its robust growth, cold storage development faces challenges. Developers must contend with complex design, construction, and operation requirements. Facilities typically need high clear heights (often exceeding 50 feet), reinforced slabs, automation infrastructure, backup power, and specialized climate control systems. These specifications can elevate construction costs ranging from $175 to $300 per square foot, depending on the cooling or freezing needs.
Cold storage leases generally span long terms of 15–30 years, which are stable across economic cycles. Moreover, these leases tend to yield higher returns compared to conventional warehouses. It is worth noting, though, that nearly 80% of existing U.S. cold storage was built before 2000, often lacking modern features such as adequate ceiling heights and energy efficiency.
Energy consumption is another critical concern for cold storage facilities, as they can account for 25% or more of operating expenses. However, advancements in technologies like transcritical CO2 refrigeration, solar panels, and efficient envelope assemblies can help reduce these costs.
Pre-leasing is essential for financing cold storage projects, as lenders remain hesitant to finance developments without committed tenants. In addition, developers often encounter zoning challenges, especially in Westchester and the Hudson Valley, where areas may lack necessary classifications for distribution centers.
Community engagement plays a vital role in the success of cold storage developments, as negotiations are often needed for approvals due to local zoning codes. With towns like Brookhaven and Riverhead enacting moratoriums on warehouse projects exceeding 100,000 square feet due to concerns regarding overdevelopment, developers must navigate these challenges effectively.
Cold storage is primarily tenant-driven, offering tax benefits that can help reduce vacancies in the market. Despite inherent challenges, the future of cold storage development in New York is promising. The combination of growing demand, investor interest, and crucial community engagement, along with a tailored legal strategy, will be pivotal for developers aiming to thrive in this competitive landscape.
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