One of the most thriving trades in the New Jersey-New York Metropolitan area is the food industry. The area is home to over 20.3 million people, nearly 7 million more than the second place Los Angeles metropolitan area in the United States. It has a GDP of over $1.735 trillion, $73,133 GDP per capita and an area of over 13,318 square miles. That is a lot of mouths to feed each day. Due to such density, there is an incredible demand for space to store the food.
Having spoken to some of the largest public North Jersey refrigerated warehousing and distribution service providers in recent months, the consensus is that demand continues to grow while available space remains sparse. Preferred Freezer, Garden State Cold Storage, and, most recently, Seafrigo have added to their footprint here in the Northern NJ market. Most recently in 2013, Seafrigo leased 175,000 SF at 735 Dowd Avenue in Elizabeth, NJ, and then increased that footprint again by 130,000 SF three years later at 900 Fairmount Avenue in Elizabeth, NJ with plans to continue growing. Online food companies such as Hello Fresh, Blue Apron, Fresh Direct, Green Chef, Plated, Purple Carrot, Peach Dish etc. are trying to get their “slice of the pie” in the ever growing direct to home food deliveries. Densely populated areas will see more of these companies looking for distribution centers. This is creating an opportunity for developers to build state of the art cooler distribution centers priced at a premium.
One of the most prohibitive issues to the demand is the available amount of space and land to develop on. Reasons why developers are not as aggressive in building cold storage vs. dry storage is the cost vs. risk analysis. The construction cost for building cold storage facility can be 50-100% greater than that of a dry storage facility. Cold storage buildings are generally not as versatile as a simple dry warehouse, leading them to take a bit longer to lease when vacant. In an effort to offset these risks, developers and investors alike will look for longer term leases and greater returns when dealing with cold storage and build to suits. An investor can expect twice as much term and nearly two basis points greater return. One benefit, however, is that cold storage tenants tend to stay in a building throughout the useful life of the equipment.
The current velocity we are seeing in this market still has legs. There is currently more tenant demand than available space with no indicators suggesting a turn in the opposite direction. Expect to continue to see additional third party cold storage facilities start construction in the immediate future.