Cold facts point to job growth in food storage

With consumer habits changing, demand is growing for cold-storage facilities in the Chicago market.

SHARE Cold facts point to job growth in food storage
A 42,000-square-foot freezer building at 5115 S. Millard Ave. recently sold for $7.5 million.

A 42,000-square-foot freezer building at 5115 S. Millard Ave. recently sold for $7.5 million.

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It’s a trend that was going on before COVID-19 but got a substantial assist from it: Where we get our food is changing.

There are fewer restaurant visits. More meals at home mean more trips to the grocery store and greater use of online shopping. Maybe we’re ordering healthy, prepackaged meals to fend off those extra pounds from working at home. Or maybe we’re hooked on the convenience of having our whole grocery list packed up and delivered to our door.

Some of us, rightly or wrongly, have gotten past the idea that we need to see the tomatoes before buying them.

It’s a change that has set up a flurry of activity in industrial real estate. There’s new pressure to bring perishable products closer to the consumer and to be better prepared for variations in demand. Today’s food sellers and third-party shippers have to know how to get everything, the fast and slow sellers, onto that truck for “last mile” deliveries.

The result, real-estate experts say, is a hot market for cold storage facilities, especially at sites convenient to the heart of Chicago and other cities. It also means job growth in food production, always a big part of Chicago’s economy.

Many users of cold-storage space, whether it’s for refrigeration or freezer space, are expanding here. Investors have taken note of the activity and are making deals in cold storage because rents are high enough that they can get better returns than from standard warehouses.

Chicago Enterprise bug

“It’s a recession-resistant product,” said Brian Niven, chief investment and development officer of Karis Cold Storage, a relatively new firm based in Chicago that he said intends to accumulate at least $1 billion in such assets nationally over the next five years. Its first deal here was its $7.5 million purchase of a 42,000-square-foot freezer building at 5115 S. Millard Ave. near Midway Airport. It is leased to Moesle Meat.

“There are more parties getting into this space, but it can be very difficult if you don’t understand the product,” Niven said.

He grew familiar with cold storage during prior work with Bridge Development Partners, an early player in the field here. Bridge became the landlord for the old Fulton Market Cold Storage operation when it left its 10-story building west of downtown in 2012 to move to Lyons. The old building was thawed out and gutted for Google offices.

In August, Bridge signed an expanded lease at another cold storage facility in Northlake. Imperfect Foods, the seller of what it calls “ugly” but edible produce, took an added 45,000 square feet, bringing its operation there to 106,000 square feet.

John Basile, senior vice president at NAI Hiffman, represented Karis in its deal on Millard. He’s been involved in two other cold-storage deals this spring near that building and said the pace of inquiries has picked up since the pandemic started. In 2019, Basile represented Amigos Foods when it leased 110,000 square feet at 3540 W. 51st St.

In the Chicago area, the cold-storage market totals 11.4 million square feet and just 2.5% of it was vacant in the second quarter of 2020, compared with 7% for the same period last year, according to data from CoStar Group provided by NAI Hiffman.

Basile said there’s a squeeze going on in the market; not only is the demand for temperature-controlled space rising, but the available space is sometimes declining because older buildings often are considered unsuitable. Tenants and investors want buildings with the best mechanics and layouts that allow for the greatest efficiency, he said.

“This presents a development opportunity near the city center,” Basile said. “These companies want to be close to the population and to the worker base.” He said sites near the airports are popular, but there’s also major interest in property near the Stockyards Industrial Park in New City and the Chicago International Produce Market at 2404 S. Wolcott Ave.

Depending on a facility’s exact needs, a large cold-storage operation might have 50 to 100 jobs attached to it, ranging from drivers and warehouse workers to possibly sales staff and food preparers, Basile said.

One unknown is the eventual impact of Amazon in this space. Its Whole Foods grocery chain has a distribution center in Pullman, but the company is known to be scouting cold-storage properties for its Amazon Fresh food deliveries. Brokers, not wanting to offend a secretive company, decline to discuss Amazon’s interest in specific sites, and the company had no comment.

Steve Livaditis, senior vice president at the firm CBRE, would only say, “Some of the national grocers and larger logistics companies are looking at this market.” He said retailers are looking at whether to add cold-storage space to serve a greater volume of customer pickups.

For now, Amazon Fresh sightings are a real estate version of Bigfoot.

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