WRITTEN BY: ROBYN LYNN & BRENTEN BLAKEMAN
Regardless if you love it or hate it, the vaccine is here and it will need to compete for industrial space with a rising demand in several different sectors. As with many things, the virus accelerated trends we were already witnessing. Cold storage has been on the incline for years as consumers have slowly adapted to shopping for groceries online. Now with cold storage needed for the vaccine, it is a more vital part of commercial real estate than ever before.
A quick search on CoStar will show that industrial warehouses in the Chicagoland area that have freezer space account for only approximately 189,426 of available square footage for sale, listed in the last 50 days, as of December 16. What’s the average age of these current availabilities? Glad you asked, it’s 1979. The world was graced with Pink Floyd’s “The Wall” in 1979, but it was definitely not a year to highlight energy efficiency.
According to a recent report by JLL Research, 78% of cold storage buildings in the US are over 20 years old. These buildings lack modern cold storage qualities. Updates to older buildings are expensive, and tenants and buyers need to determine if they should revamp current facilities, convert traditional warehouses, or go all in on new construction. Updating and converting tends to be the preferable choice.
According to Joshua Hearne, SIOR, Principal at Cawley Chicago, “Most developers are still bullish and willing to go after new projects since absorption is outpacing vacancy in most markets.”
In regards to a vaccine, companies are racing to develop them and temperature control is presenting a difficult hurdle. In an article published by the Wall Street Journal, Pharmaceutical executives noted anywhere from between a 5% to 20% spoilage rate during transportation due to poor temperature control. Not only will they need to be temperature controlled for storage, but for transportation as well.
“This is going to be one of the biggest challenges for the transportation industry,” Michael Steen, chief commercial officer at Atlas Air Worldwide Holdings Inc., said.
Atlas is one of the largest cargo airlines, flying freight on behalf of customers including Amazon.com Inc. and DHL.
Even before the pandemic, investors were racing to figure out how to get the tires to hit the road.
“In the last 12-18 months a flurry of private investment groups have begun to chase the trucking sites, which historically was an ignored property sector to most,” Hearne said. “A large chunk of these groups are established organizations that are simply shifting their focus.”
When there is a challenge, there is always a solution, and with private investment groups pooling money together and investing in trucking sites, it is hopeful that companies will keep up with rising demand.