The U.S. cold storage market may be nearing the end of a downturn, triggered by a record surge in new facility construction and slowing consumer spending. As a result, vacancy rates have climbed to a 20-year high, with approximately 3.5 million square feet of positive absorption recorded in 2025. This signals that underlying demand is still present, according to a recent market report.
The Thursday market report noted several headwinds shaping the near-term outlook, including persistently high food prices and inventory carrying costs. These factors continue to strain consumer budgets, slowing consumption growth and making it challenging for retailers to maintain profit margins.
However, despite these challenges, the supply-demand gap is expected to narrow this year as the development pipeline moderates. The U.S. cold storage pipeline has dropped from record highs to roughly 5.9 million square feet, its lowest level since 2020.
Despite this decrease, supply will likely continue to outpace absorption in the immediate future as projects currently under construction are completed. This could lead to further vacancies and increased competition for available space.
A 'flight to quality' is creating a bifurcated market between new and old assets. Occupants are increasingly prioritizing automation, energy efficiency, and high-throughput capabilities, leading to an exodus out of older facilities facing functional obsolescence.
Legacy locations carried a 7.6% vacancy rate, while modern sites that went into service prior to the pandemic sat only 2.7% vacant in the fourth quarter. This trend suggests that consumers are willing to pay premium prices for modern and efficient storage solutions.
Beyond the cyclical reset, several favorable catalysts support the sector's long-term health. Population growth, expansion of domestic food production and North American agricultural trade, and the rise of online grocery sales are all driving demand for cold storage capacity.
The report noted that e-grocery sales were up 32% year over year in the fourth quarter, with these networks requiring more extensive footprints to meet tight customer delivery windows. This shift towards delivery and ship-to-home is creating a higher demand for specialized temperature-controlled storage space.
In addition, the rise of GLP-1 drugs and other biologics is expanding the need for specialized temperature-controlled storage space. As order mix continues to shift toward delivery and ship-to-home, retailers are scaling capacity by leveraging existing stores, partnering with 3PLs, and selectively developing dedicated fulfillment nodes to meet rising expectations for speed and flexibility.
Furthermore, population growth in large metro areas like Dallas-Fort Worth and Houston is projected to create demand for millions of additional square feet of capacity over the next decade. This trend suggests that the cold storage market will continue to experience growth and investment in the years to come.
Despite persistent headwinds, the market's underlying demand remains solid, driven by factors such as population growth and the rise of e-grocery sales.
