Demand For Cold Storage Space Heating Up

Floral Logistics of Miami Inc. occupies one of Miami-Dade County’s largest cold storage facilities with more than 250,000 square feet under refrigeration in a 350,000-square-foot building.

Yet, company executives including sales and marketing director Linda Nunez are pondering how to increase the volume of flowers and produce Floral can store at the 3400 NW 74th Ave. building about a mile west of Miami International Airport.

Floral, which picks up imported products from the airport before cooling and distributing the goods, has enough room in its facility to avoid taking on another lease.

“We definitely have to maximize the number of pallets we have and also utilize existing space,” Nunez said.

But other cold storage users who want to expand face significant challenges.

The county’s shining tourism and trade industries, growing population and resurgent economy are generating heavier demand for perishable goods. That puts pressure on companies that store and ship the products to expand their businesses.

Cold storage represents 5 percent to 8 percent of Miami-Dade’s industrial inventory, according to Sperry Van Ness LLC managing director Matthew Rotolante. That range is likely to increase as more perishables are imported into the county, which already has the nation’s largest floral import business with more than 90 percent of U.S. flowers passing through the airport.

“What we see is a lot of demand from hotels and cruise ships” for refrigerated and frozen goods,” Rotolante said.

Nunez notes the volume of produce handled by Floral has significantly increased to account for about 45 percent of the company’s inventory. She cited a boost in tropical food items like yucca that are sold in South Florida supermarkets throughout the year.

No Spec Market

Cold storage supply space is limited, and vacancies are rare in the sector. Real estate firm Transwestern reports a vacancy rate of less than 5 percent for Miami-Dade’s 8 million square feet of refrigerated and freezer space.

“The market is very tight,” Transwestern managing director Ben Eisenberg said. “Our team represents a company looking for space, and we can’t place them right now.”

Earlier this month, Eisenberg and Transwestern brokers Thomas Kresse, Walter Byrd and Carlos Gaviria represented RREEF in a 40,000-square-foot long-term lease with seafood producer and distributor Marine Harvest USA LLC at Beacon Centre-Building 22 in Doral. Marine Harvest had been subleasing the facility. But when the previous tenant’s lease expired, the company moved quickly to sign a direct deal with the owner of the 8500-8550 NW 17th St. building.

“Obviously that was a great benefit to the landlord with no downtime” between leases, Eisenberg said.

Supply is also being constrained by a lack of new construction. Cold storage facilities are too expensive for a landlord to build speculatively. Converting traditional warehouses to refrigerated or freezer facilities is also costly.

“It’s still four to six times more expensive than building regular industrial space,” said Zac Gruber, senior vice president at Miami-based Easton Lynd Management LLC.

“That limits the market too much for industrial landlords,” Gruber said. “If you see anything built on spec, it would be for an existing user, a build-to-suit.”

Jones Lang LaSalle Inc. managing director Steve Medwin estimates a cost increase of $30 to $100 per square foot to build out cold storage facilities. That doesn’t mean industrial landlords should ignore the niche, however.

“There is demand,” he said. “If someone made an investment in that, they may be rewarded. But meeting the exact needs, trying to anticipate that, would be difficult.”

Rent Premium

The long-term rental returns for industrial landlords could still outweigh the additional construction expenses.

Gruber estimates an owner could receive a $2-to-$3 per square foot premium on rents for refrigerated space.

“That depends on the quality of the cooler, sophistication of the landlord and how much work is done in there,” he said.

Potential rent appreciation was the driving force behind a California investor’s $8.75 million acquisition of a three-property freezer facility in northwest Miami-Dade in May. Rotolante represented the buyer, Miami Business Park LLC, in the purchase of 6960 and 6831 NW 36th Ave. and 7007-7025 NW 37th Ave.

The facility was more than 40 percent vacant when Miami Business went under contract, Rotolante said. Before closing, the company received lease offers from several large national tenants willing to pay substantially higher rents than existing tenants.

“That shows the demand for this product is popping right now,” he said.

For Floral Logistics, the solution to its growing space needs could be racking.

Nunez said the company plans to have racks installed at its facility by December. The building has numerous temperature “zones” and 38-foot tall ceilings, which is well above the norm for South Florida industrial facilities.

“We can have a pallet on the floor and triple our space by racking,” she said.

In rare instances, users like Preferred Freezer Services LLC opt to build their own cold storage facilities. Preferred began construction this month on a 118,000-square-foot facility in Hialeah Gardens. Once completed in March, the facility will be the company’s third in Miami-Dade.

Preferred and other companies have to take such measures because institutional landlords are “more conservative and not comfortable spending money on these improvements” despite the potential rental revenue, Eisenberg said.

Source:  DBR