A Blog by Jonathan Low

 

Mar 27, 2021

As Online Food Shopping Growth Continues, Grocery Warehousing Demand Rises

The facilities are designed to address the current trend but can be reoriented to meet more traditional institutional needs if consumer behavior shifts again when pandemic controls ease. JL 

Peter Grant reports in the Wall Street Journal:

A surge in online grocery shopping is intensifying demand for food-storage warehouses, sparking billions of dollars in new real-estate development. Companies are building tens of millions of square feet of temperature-controlled warehouses that can store meat, dairy products, produce and other perishables. Many new facilities are located close to residential neighborhoods and designed to fulfill home orders more efficiently. They also feature advanced robotics and data analytics that will enable the service to pivot quickly if demand shifts among households, restaurants, schools, grocery stores

A surge in online grocery shopping is intensifying demand for food-storage warehouses, sparking billions of dollars in new real-estate development.

Shopping for groceries online was taking off even before the pandemic. Services like Amazon Fresh, FreshDirect and Misfits Market offered a convenient alternative to the supermarket. Demand soared when people started worrying that they could catch Covid-19 on a trip to the store.

Now, companies like Americold Realty Trust and Lineage Logistics LLC are building or preparing to break ground on tens of millions of square feet of temperature-controlled warehouses that can store meat, dairy products, produce and other perishables.


Many of the new facilities are located close to residential neighborhoods and designed to fulfill home orders more efficiently. They also feature advanced robotics and data analytics that will enable the service to pivot quickly if demand shifts among households, restaurants, schools, grocery stores and other final stops on the supply line.

The global cold-storage construction market is expected to swell to $18.6 billion in 2027 compared with $7 billion in 2019, according to Emergen Research, a consulting company. New players in the business “are popping up all over,” said Kristin Gannon, a managing director of real-estate investment bank Eastdil Secured.

In 2019, only about 5% of groceries were purchased online, according to Bain & Co. That figure grew to 10% last year and Bain forecasts it could get as high as 12% by 2025.

Many existing food buildings are old and inefficient and lack the safety features of new development, said Neil Johnson, founder and chief executive of Provender Partners LLC.

His company is planning warehouses where perishable food can be stored, processed and shipped to homes. These buildings can store foods at different temperatures and offer room for food company tenants to cook simple meals and prepare meal and grocery kits for home delivery.

Grocery-store chains also are rethinking supply lines after panic shopping in the pandemic’s early days emptied shelves of meats, dairy products and other perishable items.


The pandemic turned the supply chain “upside down,” said John Carrafiell, a senior managing partner and co-founder of at real-estate investment company BentallGreenOak, which has invested in cold storage. Distributors and warehouse companies, he added, “no longer knew where their orders were going to come from” after restaurants, schools, stadiums and other traditional outlets closed.

Developers say that such shortages should be avoided in the future because modern food-storage facilities can adapt quickly when demand shifts from, say, schools to households.

Americold, a real-estate investment trust, last year developed a record $461 million of cold-storage facilities, more than double the upper end of the guidance it had given investors.

Billions of dollars of investment capital is fueling storage development. Cerberus Capital Management LP late last year agreed to become the primary backer of Provender’s plan to build a multibillion-dollar portfolio of cold storage and processing facilities.

Lineage, the largest refrigerated-storage company in the world by space, recently completed a $1.9 billion funding round whose participants included BentallGreenOak, D1 Capital Partners and Oxford Properties Group. It has 21 new developments and expansions this year, up from 10 in 2020 and 11 in 2019.

But the history of the cold-storage business has a checkered past for investors because of the dangers of oversupply and the high cost of developing storage for frozen and perishable food. Vornado Realty Trust exited the sector about 15 years ago after making an enormous investment that failed to pay off.

Prologis Inc., one of the world’s largest logistics companies also is steering clear of the sector. “That sort of building is not what we want,” Thomas Olinger, the company’s chief financial officer said on an earnings call last year. “There’s a significant investment in equipment…and there’s a large labor component.”

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