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Cold storage facilities, a specialized niche in the industrial market, is in high demand in the Chicago market, but because of high barriers to entry for its development, such space is in short supply. That has made cold storage rents much higher than other industrial space locally, according to a new report by the Chicago office of Newmark Knight Frank.
Cold storage takes up 7.3M SF in the Windy City, less than 1% of the entire Chicago-area industrial universe. Yet demand is strong and getting stronger because the space is a critical part of the transportation and delivery of perishable items. (Demand is strong among investors as well.)
According to NKF, demand for cold storage is strong now because demand for nondiscretionary food items is up in the current healthy economy, pharmaceuticals are more temperature-sensitive than they used to be, meal delivery services are more popular and major retailers are bypassing wholesalers more often to acquire perishable goods directly from manufacturers.
Despite the demand, development of cold storage in metro Chicago has been sluggish.
"Due to the high cost of development, we are not seeing spec cold storage buildings being built," NKF Senior Managing Director Corey Chase said. "So there will be a persistent shortage of cold storage space."
Build-out prices for cold storage can be up to four times higher than for standard industrial space, the NKF report said. On average, cold storage construction costs are $150/SF to $200/SF, compared to $40/SF to $50/SF for conventional industrial.
Unless a developer has a committed tenant, it risks getting stuck with a very expensive property if it doesn't lease right away.
There are also many different specifications for the types of products that require freezer/cooler space, making it extremely challenging for developers to build spec properties, the report said.
Thus for existing cold storage, rents are high. On average, a Chicago-area tenant can expect to pay $9.75/SF, with top-tier cold storage space running as much as $12/SF, according to NKF data. The average asking rent for standard industrial space in metro Chicago is $5.38/SF.
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