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Why COVID-19 Vaccines Are Giving The UK Cold Store Sector A Shot In The Arm

Brexit stockpiling, the surge in online grocery purchases and the need to keep the Pfizer-BioNTech COVID-19 vaccine frozen at negative 70 degrees Celsius has pushed the forgotten world of cold storage onto front pages.

Suddenly cold stores are hot. Can the arrival of U.S. private equity thaw a notoriously frozen sector of the property market?


For decades the UK’s modest cold storage sector has been about fish fingers and seasonal surges: The Lincolnshire vegetable harvest and trawlers from Grimsby have been the sector’s mainstay.

Today it feels very different. The cold-chain distribution of the Pfizer-BioNTech COVID-19 vaccine has drawn attention to a sector that was already on the turn thanks to Brexit stockpiling and the relentless growth of online grocery shopping. Longer-term changes in sustainability and energy efficiency rules and the abolition of the R22 refrigerant (chlorodifluoromethane)  mean many existing cold stores are no longer viable.

Yet despite a surge in demand that everyone agrees is real (but nobody can accurately measure), the property industry generally prefers to leave well alone. Data from Savills and the Cold Storage Federation said the total UK stock is 134M SF, comprising 673 units over 50K SF. Around another 16.7M SF is under construction, three-quarters for occupation by the big supermarkets. Design-and-build is the principal route for delivery, and a very large proportion of the market is owner occupied. 

The explanation for this chilly reception isn’t hard to find. Expensive to build (a premium of 50% to 200% on normal warehousing), with a handful of potential occupiers, and (until now) a peculiar geography weighted heavily to Yorkshire and Lincolnshire, cold stores haven’t fitted well into the traditional hands-off property model. 

But under pressure from U.S. private equity, this notoriously frozen market sector could be about to thaw.

Bridge Development Partners is one of those hoping the ice will melt. The private equity-backed business operates in the core U.S. industrial markets of Chicago, New York, LA, Miami and Seattle and, since October 2020, has an office in London. The partnership segued into cold storage in 2015 and has built around 2M SF in the U.S.

Bridge Vice President Chris Doloughty said the “immense growth” of online grocery offers it scope in the UK that barely exists in the U.S.

“There’s an explosion in the need for cold store space in an online grocery sector which is mature here, but still in its infancy in North America,” Doloughty told Bisnow. “There’s an abundance of capital that understands the story and wants to invest in cold store space, but how do we do it?”

Doloughty agreed (as does everyone else Bisnow talked to) that demand from occupiers is substantial and growing, whilst admitting it's all but impossible to measure by how much. A handful of off-market transactions make for thin statistics. Development may require a leap of faith.

“We’ve confidence," he said. "We broke ground on a speculative cold store unit in Miami and we think there is strong demand, particularly for build to suit. In the U.S. we have operators who provide a one-stop cold store shop for users and that could be a route, because the UK [and its last-mile logistics sector] lends itself to people leasing a room in a cold store, or an entire facility.”

Doloughty said if demand from cold store users is maintained, such multi-user units will get built. “But for now everyone is standing around looking at each other — the developers watching the occupiers, the occupiers watching the developers — and capital it watching them both and saying this market is ready to explode, but there are natural barriers to entry that are unavoidable.”

Private Equity Is Circling

A refrigerated vehicle makes it way down the M42 from Birmingham.

The first step in unfreezing the UK cold store market would be to make it look like most parts of the property industry, e.g. with landlords and tenants. Today ownership of cold stores is heavily fragmented — almost nobody owns more than a few, and there are hundreds of owners, most of them also occupiers. In some ways this resembles the hotel sector in the 1980s in the days before Travelodge and Premier Inn; and the analogy is a helpful one, said Cushman & Wakefield logistics partner Tim Crighton, who is already talking to several U.S. private equity houses.

“We’re already seeing some aggregation and consolidation of independent operators, and I expect that to continue in the next 24 months,” Crighton said, pointing to June 2020's Dart Group sale of Lincolnshire-based chilled and ambient food logistics operator Fowler Welch to Culina Group for £98M, the most prominent of a series of consolidations.

“The upper tier of U.S. private equity is looking at this now, looking at how they can create an international cold store platform. We’ve also got developers like GLP, Goodman and Prologis who will want to capture a piece of that pie, maybe by getting into the multi-let cold storage business, which is something we haven’t yet seen much of in the UK.”

Private-equity owned and operated platforms, run across Europe to ensure the necessary economies of scale, could be a real winner, according to Crighton. There are already examples like New Cold, a Dutch cold-store operator backed by U.S. private equity. An injection of capital — and private equity currently has plenty of that — could kick it into the next level.

The idea of multi-let cold stores, as hinted by Crighton, finds favour with some of those watching the market. Here, too, there are already examples such as CMA CGM’s 107K SF facility opened in 2019 at DP World’s London Gateway container terminal.

Alongside chilled and frozen chambers to handle a large variety of temperature-controlled products, there is access to a wide range of added-value services, such as product quality control, packing, sorting, labelling, palletisation and bagging. It also offers customs clearance, shunting (transfer from the quay to the warehouse) and delivery transportation (last-mile delivery). Surely this is a model the private equity investors could follow?

Will Anyone Risk A Cold Shower?

Fitting cold stores into ambient spaces: CRS Cold Storage have a solution

Kevin Mofid is head of industrial and logistics research for Savills and the author, alongside the Cold Chain Federation, of a recent analysis of the sector. He thinks operators like New Cold, and the kind of private-equity backed platform it heralds, could be the answer, because a traditional leasehold market will  (probably) never be viable thanks to the high costs of fit-out.

“The cold store market in North America is more mature in some ways, and specialist landlords have emerged creating a cold store product to a specialist market," Mofid said. "The private equity that is backing that could replicate this in Europe. We’re not there yet but there are a lot of people circling. We’re getting a lot more interest from developers and investors asking if this is a market we can enter."

Leasing out pallet spaces in a multi-occupied cold store could provide a financially appealing answer. “We could be looking at somebody effectively becoming the Eddie Stobbart of cold storage units,” Mofid said. 

However, not everyone is expecting this market to heat up rapidly.

Chris Evans is the international shipping, logistics & supply chain specialist at Colliers International. “I wouldn’t say it was foolish to get involved in cold store development, but it would take a lot of in-depth research, particularly into the grocers’ plans,” he said.

Evans expects a shallow growth curve. “There is scope for creating owner-operator platforms, the sector is very fragmented, and we’re already seeing more merger and acquisition activity and consolidation among cold store operators. If we see a platform emerging it might be through this route, as someone buys up other operators.”

Evans points to UK cold store giant Yearsley’s 2018 acquisition by U.S. group Lineage as an indication that this trend is already growing. But M&A takes time, and market consolidation is not easy, so he does not expect a rapid change in the cold store scene. 

Does that mean 2021 will be the year of the cold store? Or the year the ice did not break? If private finance and commercial operating acumen can be combined with property know-how, this is a market that could dramatically unfreeze.