In North Texas, the demand for refrigerated and freezer warehouse space is rising right along with the population growth in the region. According to the North Texas Commission, the Dallas-Fort Worth region is growing at a rate of 1.37 people every five minutes and the expected continued population growth is subsequently causing an increase in the demand for refrigerated and freezer storage for items ranging from prescriptions and flowers to fresh food and ice cream.
With a demand for cold storage exceeding the supply by more than one million square feet, Westmount is tapping into its experience in converting dry warehouse space into cold storage. Westmount is currently renovating a portion of a dry industrial warehouse into refrigerated (34 degrees Fahrenheit) storage in the Garland-area for a client. This 90,000-square-foot in-fill cold storage facility will allow the tenant to quickly transport cold goods to retail and/or consumers.
Creating an operational cold storage facility is much more intensive than simply installing insulated panels in an industrial building. These facilities require taller ceilings, more government regulations (due to the presence of ammonia used as a coolant), and more costly equipment than dry warehouses. A high cost of managing and maintaining these facilities can be a barrier to entry for most property owners and their investors. However, I’ve found that turning a dry industrial warehouse space into cold storage can be much more cost-efficient than new development of cold storage space for our tenants in that the higher costs are offset by the higher rents that such space commands, making a solid investment for Westmount and its investors.
If an existing industrial warehouse has a suitable infrastructure, improvements to the space can be made at around 50 percent of the cost for a new development. Structural modifications to be made include raising the roof to maximize vertical space and storage. The preferred ceiling height on new cold storage facilities is about 32 feet, while the average height of Class B industrial storage space is around 20 to 24 feet. In addition, installation of four-inch thick prefabricated, insulated metal panels along the walls is required to keep the temperature regulated. Coolers need to be kept at 34 degrees and freezers should be kept between 20 to 25 degrees below zero, which makes insulation a key component for keeping food, flowers, and medication at a safe temperature.
Frozen warehouse spaces also need a heated floor to prevent condensation from freezing, which could lead to hazardous conditions for those working in the space. Another change to the space includes upgrading the sprinkler system to a dry system, minimizing possible damage in the event that a water-filled pipe freezes.
Keeping a space cold enough to safely store perishable goods also requires highly specialized equipment and skilled workers on-site to ensure the warehouse stays at an optimal temperature. Everything from the way the product is handled to the safety of the ammonia used in refrigeration is meticulously regulated, which means that getting permits can be more challenging and site inspections more common than in dry warehouse spaces.
For Westmount, converting suitable existing warehouse space into a cold storage facility takes approximately six months from the time the lease is signed, which is much quicker than finding and purchasing land and then building a new facility on it. An additional benefit to converting a current space is that existing warehouse space may be closer to the retail space and/or consumers than a new build facility would be due to land availability. Proximity to end users is important as it reduces the amount of time perishable items need to be in-route, thereby decreasing transportation and handling costs.
Typical lease terms for cold storage spaces are at least 10 years, which gives investors time to recoup their investment and realize substantial returns. In a low-interest rate environment, investments in cold space storage can be very appealing, but potential tenants/users should understand the added complexity of these types of facilities and work with an established company that has experience in the space. Cold and freezer warehouses can pose a unique set of challenges, but we find these types of highly specialized spaces to be a very valuable investment for all parties.
Cliff Booth is president and CEO of Westmount Realty Capital LLC.