The growing number of consumers who purchase their groceries online has led to higher demand for warehouses and distribution centers with cold storage facilities, according to a report by CNBC.
Companies such as AmazonFresh, Peapod by Giant and Blue Apron are said to be driving up the prices of cold storage units across the U.S. as they buy more facilities in anticipation of rapid growth in the e-commerce food delivery sector.
“About 2% or 3% of all goods on groceries are bought online, and we expect the space could explode to 13% over the next 5 years because of the penetration of the internet,” Spencer Levy, senior economic advisor for CBRE research, told CNBC.
The trend requires more cold storage facilities because many consumers are also demanding more organic foods, which means food companies are using fewer preservatives than before.
“Consumers want to eat more fruits and vegetables and less processed food, so when you have fruits and vegetables that need to be flash frozen and then transported across the country to the user, that is definitely taking an uptick in demand for this space,” Michael Carroll, an analyst with RBC Capital Markets, told CNBC.
The Food Marketing Institute and Nielsen predict that online grocery sales in the U.S. will grow by $100 billion annually by 2020.
As such, cold storage units are now in short supply, which makes existing facilities increasingly valuable. At 3.6 billion cubic feet, cold storage facilities make up a relatively small portion of overall industrial and logistics real estate landscapes, CNBC said.
“I think you’re riding a crest of a wave that’s only going to get better,” Levy added.
The cold storage sector’s initial growth is likely to be centered mostly in gateway markets, such as Los Angeles and New York City’s metro areas, along with high food producing states like Texas, Washington, Florida, and Wisconsin.