Insights Aug 10, 2020 Elion Partners

Supply Chain Resiliency and Accelerated Demand for Cold Storage Bolstering Need for Infill Logistics Space

The global pandemic has accelerated the urgency to build out resilient supply chains and increased demand for cold storage space, bolstering the need for infill locations among an already active logistics real estate market.


U.S. logistics real estate fundamentals were strong heading into the crisis, with high occupancy levels and widespread e-commerce adaptation driving demand for infill locations. Following the onset of the global pandemic, the shift toward e-commerce surged in response to stay-at-home orders, creating a new group of online shoppers. In many ways, Elion views the pandemic as an accelerator of trends that were well in motion before the crisis took place. The shift in consumer behavior toward e-commerce is expected to continue to advance in a post-pandemic world, making the current environment a secular trend instead of a real estate cycle. This “new normal” has accelerated the urgency to build out resilient supply chains and increased demand for cold storage space through the surge in online grocery shoppers, bolstering the need for infill locations among an already active logistics real estate market.

The Need for Supply Chain Resiliency

Over the past few years, supply chains have evolved to be more diversified and regionalized to strategically service a shifting economy in response to e-commerce adaptation, trade and geopolitical tensions, technological advancements, and rising transportation costs. The onset of the pandemic combined with worldwide shutdowns fast-tracked the need to build out resilient supply chains, exposing inventory-control failures that didn’t exist pre-pandemic. E-commerce sales were up 104% in June 20201, generating $73.2 billion in online spending2, compared to June 2019. This spending is tracking above more than half of the usual holiday (Nov-Dec) levels. Unable to meet the surge in demand, supply chains have been forced to accelerate their diversification strategies to mitigate future shock and volatility risk as well as increase inventory carry.

U.S. 2020 Online Retail Spend, Actual vs. Expected

Source: Adobe Digital Economy Index. Adobe Analytics. June 2020.

New inventory controls are calling for larger and more diverse product supply in closer proximity to end-users, according to CBRE’s Global Trade Report. By increasing a company’s “buffer stock” to quickly meet surges in demand, the need for logistics space will increase. A recent report by JLL cited the increased demand for logistics real estate could reach an additional 1 billion square feet by 2025.

It is not only infill urban areas for regionalized distribution that are garnering the most attention from occupiers and investors. Building greater supply chain resilience requires mitigating risk along the first, middle, and last mile of the distribution journey.

Supply chain models should be refocused to include:3

  • Supplier diversification and multimodal transportation options

To avoid overreliance on any one country or company as a supply source, companies should look to reduce supply chain dependency through onshoring and nearshoring.

Companies should consider port diversification strategies to avoid reliance on a single port in one region as well as multimodal transportation options close to parcel hubs to mitigate risks associated with trucking capacity constraints and increased freight costs.

  • Increase local inventory

The pandemic highlighted the downside of just-in-time lean inventory principles evidenced by the rapid depletion of necessity inventories leaving supermarket shelves empty. Maintaining higher stock levels will generate more warehousing demand closer to consumption points and service locations, especially among companies engaged in the production and distribution of necessities.

  • Adaptation to the new retail landscape

Supply chains, particularly those linked to the food and beverage industry, may seek to leverage existing retail infrastructure to coordinate delivery and collection of goods near and around city centers.

  • Automation investment

Not only have inventory constraints contributed to e-commerce platforms unable to satisfy demand spikes but also labor shortages over the fear of the virus have compounded the issue. Flexible automation and robotics solutions can yield significant benefits to mitigating labor risks as well as enhance a company’s adherence to hygiene protocol.

Refocusing the traditional supply chain model to address these vulnerabilities has led to massive increases in infrastructure spending and modernization of existing logistics hubs, according to a report issued by CBRE. Within the U.S., emerging logistics real estate hubs in the Southeast should garner the most attention from occupiers and investors while the West Coast is projected to remain a major player.4

The Case for Cold Storage

The pandemic has significantly disrupted the food industry, increasing online grocery sales by more than 100% at the onset of the quarantine.5 According to research released by Brick Meets Click, online grocery sales have climbed month-over-month since March. As the world slowly began to reopen, consumers have not shown any interest in returning to the store.  June grocery sales were up 9% to a record $7.2 billion, compared to May’s $6.6 billion.6  This includes both groceries delivered directly to consumer homes (D2C) as well as those buying online and picking up in-store (BOPIS).

U.S. Online Grocery Delivery & Pickup*

*Excludes online orders shipped to home via common or contract parcel carriers.
Source: Brick Meets Click/Mercatus Grocery Survey. March – June 2020, and August 2019.

With online grocery and delivery services becoming an integral part of how consumers shop, cold storage in and near large population centers is projected to generate the highest demand for logistics real estate space, according to CBRE. To meet the demand for D2C and BOPIS, an additional 75 to 100 million square feet of cold storage space will be needed over the next five years.7 To put it into perspective, the U.S. Department of Agriculture (USDA) estimates that there are only 214 million square feet of industrial food commodity cold storage space in the U.S. The relatively small number of operators and specialized nature of the industry—barriers to entry such as high construction costs and restrictive government regulations regarding food-grade storage—have prevented overbuilding and limited new construction.

Looking Forward

Though some level of pause took place among stakeholders at the onset of the crisis, Elion has continued to see demand for logistics real estate space both from e-commerce and non-e-commerce tenants. Benefitting from the secular tailwinds of the crisis, we project we’ll continue to see demand from investors for logistics real estate well into the future. Based on the latest CBRE estimates, annual net absorption for logistics real estate will total more than 333 million square feet by 2022, leading to annual rent growth of 5.7%.8

Industrial Rent Forecast

Source: CBRE Research, Q1 2020

Tenants in the logistics real estate space occupy a wide variety of tenant types, from retailers and wholesalers to service providers. As the adoption of e-commerce continues to accelerate, we anticipate vacancy rates will continue to tighten in supply-constrained markets as tenants compete to locate near large population centers further applying upward pressure on rents. Therefore, given the current environment, we have not seen and do not project to see much in terms of distress among logistics real estate pricing across these markets. Valuations should remain strong with increased rents justifying the cap rates.

Opportunities for transactions may exist with private owners seeking liquidity due to other financial stressors, resulting in, for example, sale-leaseback scenarios. Though price discounting is not anticipated in these scenarios, there would still be room for upside through value creation opportunities.


1 – According to Signifyd Inc’s E-commerce Pulse data.
2 – Adobe Digital Economy Index. Adobe Analytics. June 2020.
3 –  Refocusing Supply Chains in the COVID-19 Era. CBRE. May 2020.
4 – The Changing Flow of International Trade. CBRE. July 9, 2020
5 –  Growth from March 13 – 15 compared to the baseline period of March 1 – 11, 2020. Adobe Analytics Digital Economy Index 2020.
6 – June 2020 Online Grocery Scorecard: Growth in sales & HH penetration continues. Brick Meets Click. July 6, 2020.
7 –  2019 U.S. Food on Demand Series: Cold Storage Logistics Unpacked. CBRE Research.
8 – U.S. MarketFlash: Annual Industrial Demand to Hit 333 Million Sq. Ft. by 2022. CBRE. June 25, 2020

Important Notice
Neither Elion nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained above and nothing contained herein may be relied upon as a promise or representation whether as to the past or future performance. No representations are made as to the accuracy of any targets, estimates, approximates or projections or that such targets, estimates, approximates or projections will be realized. Forward-looking statements are based upon certain assumptions and information available on the date hereof.  Actual events are difficult to predict.


About Elion Partners
Elion Partners is a real estate investment firm and minority-owned registered investment adviser. As a vertically integrated platform, Elion is both a fiduciary and operator, managing more than $1.5 billion in real estate assets through closed-end funds and permanent capital investment vehicles. As long-term stewards of capital, principals of Elion invest personally in each of the firm’s funds to ensure alignment of interests and transparency with its capital partners. Elion is a minority-owned firm.