As families hunkered down at home throughout 2020, food processing and food distribution companies stepped up their game to stock grocery store shelves and meet the demand for online delivery services. Cold storage facilities and food storage warehouses, in particular, jumped in popularity.
“We’ve seen more activity in the last few months than we ever had in the past,” says Turner Wisehart (BBA ’08), vice president and principal of Colliers International’s Atlanta office.
Colliers International is a global real estate company with operations in 68 countries. Wisehart is a member of the company’s Food Advisory Services practice group, part of the company’s larger Industrial Services team. He specializes in helping companies find, purchase and sell industrial food facilities that require precise specifications to manufacture, process and store food.
“The industrial real estate sector is one of the few asset classes performing well right now,” he says. “Beyond that, the specific subspecialty of food is the clear winner.”
The first quarter of 2020 was busy in itself, particularly with increasing consumer interest in e-grocery and e-commerce foods in recent years. Even before the pandemic, people were ordering more food online, either through delivery from restaurants, pickup from grocery stores, online-only options that come from warehouses such as Amazon Fresh, or luxury cook-at-home meal plans such as Blue Apron and Hello Fresh.
During that time Wisehart and colleagues spoke with companies about properties, showcasing locations during in-person meetings, and coordinating with local offices in different states to arrange and close listings. Wisehart enjoys seeing the food manufacturing process and stepping into all types of facilities — cookie and cake bakeries, poultry processing plants, juice manufacturing sites, potato chip packaging companies and huge cold storage freezers that stretch 50 feet high and contain an enormous half-million square feet of space.
“It’s a behind-the-scenes business,” Wisehart says. “Every piece of food comes through the supply chain and warehouses across the country, and I get to meet the people who do that.”
But then a nationwide lockdown prompted people to work and cook at home, stock up their pantries and prepare for a new reality. Grocers and supermarkets needed more room to ramp up their supply, and online delivery services needed cold storage and warehouse space to hold perishable foods for quick fulfillment. When people order groceries online and expect them to arrive at their door within a few hours, especially in large cities, that food must come from a nearby location. Wisehart signed several leases related to e-grocery businesses during the summer months.
“E-grocery services fast-forwarded about seven years in maturation,” Wisehart says. “People who would have adopted it at some point did so much sooner, and even people who never would have done it are now ordering groceries online and picking them up or having them delivered.”
Real estate investors have taken notice of the surge in demand. As industrial real estate becomes extremely competitive and expensive in core metropolitan markets such as Atlanta, Dallas and Los Angeles, traditional investors are turning to new options such as food-related buildings. They’re now buying cold storage buildings at a surprising rate, even if they didn’t invest in cold storage before. Investor interest in cold storage was on the rise before 2020, but the onset of the pandemic escalated the demand further.
The explosion in investor interest extends to the speculative development of food-related building as well. Although these types of developments can be common for certain industrial spaces, cold storage isn’t usually built on spec due to the high expense and risk of investment. However, there are now as many as three spec deals in Dallas and Wisehart is involved in speculative projects in Atlanta, Houston and New Jersey.
“There’s now all this buzz in the real estate world about cold storage, which is becoming its own asset class,” Wisehart says. “This interest had been building for years, but the pandemic threw gasoline on the fire and accelerated the trend by about five to 10 years.”
At the same time, the pandemic shuttered restaurants, school systems, hotels, arenas and event venues earlier this year, which put a hold on that end of the food service supply chain for several months. Food distributors that deliver to those venues don’t often serve grocers, so food service companies struggled throughout the spring to figure out what to do next.
Restaurant and venue restrictions still vary across states and communities, and many are operating with limited indoor and outdoor capacity. The cold winter months could make outdoor seating difficult, and restaurants may need to shift their operations again to handle a surge in virus cases in the area. Ultimately, some companies will come out better than before and others will suffer.
“It’s still too early to see the full effects,” Wisehart says. “I don’t think the trends will go away or slow down throughout the fall or winter, but I do think we’ll see some fallout on the food service side.”
Most likely, he said, some businesses will close permanently, and growing food service companies may acquire others that are still struggling. From a broader view, e-commerce and grocery-related manufacturers and producers will continue to expand their real estate footprint and improve their logistics for shipping and delivery. That focus will shift the industrial real estate market, too.
“This is going to create a ton of opportunities, including unique ones that never would have happened without the pandemic,” Wisehart says. “If companies are smart about it, they will be able to take advantage of this unique situation and come out of it ahead of where they were before.”