Cold Storage New Development Demand by State (2025 Rankings): Cost, IRRs, Cap Rates, and Exit Strategies Explained
- Donald Safranek
- Nov 9
- 5 min read
Introduction: Why Cold Storage Is the Next Big Industrial Asset
The Cold Storage New Development Demand by State landscape is one of the fastest-evolving sectors in U.S. industrial real estate. As of 2025, national cold storage vacancy hovers around 3.4%, compared to 5–7% for conventional warehouses. This tightness, combined with supply-chain resilience goals, has fueled unprecedented investor and developer attention.
Cold storage supports $750+ billion of food, grocery, and pharmaceutical logistics annually. Yet over 60% of existing facilities were built before 1990, creating a massive modernization opportunity. Developers are now racing to build energy-efficient, high-cube, temperature-flexible facilities in major port, border, and population-growth states.
Understanding Cold Storage Facility Types
Type | Temperature Range | Typical Use | Notes |
Refrigerated (Cooler) | 32°F – 50°F | Produce, dairy, floral | Often “zone 2” in multi-temp facilities |
Frozen (Freezer) | -10°F – 0°F | Frozen food, meats, seafood | Requires thicker insulation and higher power demand |
Deep Freeze / Blast Freezer | -40°F | Rapid freezing of perishables | High power cost; used in manufacturing and export hubs |
Pharma/Biotech Cold Chain | 35°F – 46°F or cryogenic | Vaccines, biologics | High margin, but strict compliance |
Urban Micro-Cold / Last-Mile | Multi-temp, smaller footprint | E-commerce grocery | High rent, smaller cubic-foot base |
Demand Drivers and State-Level Market Outlook
Macro Drivers:
E-commerce grocery penetration surged post-2020, requiring last-mile refrigerated nodes.
U.S. population growth in Sunbelt and Mountain states accelerates food distribution demand.
Pharma logistics (biotech, vaccine storage) add specialized cold-chain needs.
Aging inventory: over half of U.S. cold warehouses are over 30 years old.
Top Demand States:
California – Ports (LA/LB/Oakland), dense food import/export.
Texas – Border trade (Laredo, El Paso) and central logistics hubs (Dallas, Houston).
Florida – Perishables import/export via Miami/Jacksonville, strong population growth.
Georgia – Atlanta, Savannah port, regional 3PL growth.
Illinois – Midwest food distribution hub.
Washington – Port of Seattle/Tacoma, seafood logistics.
Pennsylvania – Eastern seaboard food corridor.
Arizona – Southwest distribution link and temperature-controlled logistics.
Colorado – Intermountain cold chain and food manufacturing.
North Carolina – Expanding agri-processing and East Coast access.
Cost Benchmarks: Land, Construction, and Operating
Construction Cost per Square Foot and per Cubic Foot
Specification | Low Range | High Range | 2025 Average |
Basic Cold Storage | $175 psf | $250 psf | $200 psf |
Fully Automated, Multi-temp | $250 psf | $375 psf | $300 psf |
High-Bay (100-ft clear) | $325 psf | $450 psf | $375 psf |
Cost per Cubic Foot | $10 | $20 | $14–$16 per cf |
Note: Cold facilities typically cost 2.5–3x more than standard dry warehouses due to:
Heavy refrigeration (ammonia or CO₂ systems)
Insulated panels, slab heating, vapor barriers
Backup power and energy systems
Land Cost by Region
Region | Land Cost per Acre (2025 Est.) | Notes |
West Coast (CA, WA, OR) | $1.5M–$4M | High demand, limited supply |
Sunbelt (TX, FL, AZ, GA) | $500K–$1.5M | Ample land, zoning advantages |
Midwest (IL, OH, MI, MO) | $300K–$800K | Central distribution corridors |
Mountain (CO, UT, ID) | $400K–$1.2M | Moderate cost, rising interest |
Northeast (PA, NJ, NY) | $1M–$2.5M | Close to ports, regulatory hurdles |
Revenue, EBITDA, and Cap Rate Benchmarks
Per Cubic Foot Revenue & EBITDA
Metric | Low | Average | High |
Annual Revenue / cf | $0.80 | $1.20 | $1.60+ |
Operating Margin (EBITDA) | 45% | 55% | 65% |
EBITDA / cf (annual) | $0.36 | $0.60 | $1.00+ |
Example: A 10M cubic foot facility at $1.20/cf revenue → $12M annual revenue; with 55% EBITDA → $6.6M NOI.
At a 5.75% cap rate → $115M valuation — aligning with ~$11.50 cost basis per cubic foot.
Typical Cap Rates and IRRs by Market Type
Market Type | Cap Rate (2025) | Target IRR (5-Year Hold) | Notes |
Core Gateway (CA, NJ, IL) | 5.0–5.5% | 10–12% | Institutional-grade, low risk |
Growth Markets (TX, FL, GA) | 5.5–6.0% | 13–15% | Balanced cost and demand |
Emerging Secondary (CO, AZ, NC, UT) | 6.0–6.5% | 14–17% | Slightly higher yield, rising demand |
Rural/Agro-Export Hubs (IA, KS, NE) | 6.5–7.5% | 15–18% | Speculative, demand cyclical |
Top 10 States for Cold Storage Development Feasibility
Rank | State | Demand Factors | 5-Year IRR | Feasibility Score (100) |
1 | Texas | Central U.S. location, trade corridors | 15–17% | 92 |
2 | Florida | Import/export hub, population growth | 14–16% | 89 |
3 | California | Ports, e-commerce, dense consumption | 12–14% | 87 |
4 | Georgia | Port of Savannah, Atlanta DC growth | 13–15% | 86 |
5 | Illinois | Midwest hub, intermodal connectivity | 13–14% | 84 |
6 | Arizona | Regional trade and food processing | 13–15% | 83 |
7 | Washington | Seafood exports, port access | 12–14% | 82 |
8 | North Carolina | Manufacturing + agri-logistics | 13–15% | 81 |
9 | Colorado | Intermountain demand, cost moderate | 12–14% | 80 |
10 | Pennsylvania | East Coast access, older stock | 12–13% | 78 |
Mid-Feasibility and Lower-Risk Markets
Tier | States | Return Characteristics |
Tier 2 | TN, OH, MI, IN, MO, WI | 11–14% IRRs; moderate land cost |
Tier 3 | NV, UT, ID, NM, KS | 12–15% IRRs; energy cost risk |
Tier 4 | NJ, NY, CT, MA, OR | 9–11% IRRs; high cost, tight exits |
Project IRR Modeling: 3-, 5-, 7-, and 10-Year Holds
Hold Period | Key Milestones | Target IRR Range | Ideal Strategy |
3-Year | Build → Lease-up → Flip | 18–22% | Merchant build; high risk |
5-Year | Stabilize → Refi/Sell | 14–17% | Standard JV exit |
7-Year | Rent escalation + refi | 12–15% | Core-plus hold |
10-Year | Long-term yield + inflation hedge | 10–13% | Build-to-core or sale-leaseback |
Exit Strategies for Cold Storage Investors
1. Build-to-Sell (Merchant Model)
Develop with pre-leased anchor tenant (3PL or food distributor).
Exit upon stabilization at sub-6% cap rate.
Common in TX, FL, GA, and IL.
2. Hold for Yield (Core-Plus)
Operate stabilized asset for cash flow.
Refinance in year 5 to release equity.
Works well in TX, NC, and CO.
3. Sale-Leaseback
Partner with cold-chain operator needing facility but preferring capital-light model.
Build custom facility, sell at stabilization with 10–15-year lease.
4. Reposition or Retrofit
Acquire aging cold facilities (pre-1990), modernize insulation & automation.
Re-tenant and exit as stabilized ESG-compliant cold storage.
Key Development Risks and How to Mitigate Them
Risk | Mitigation Strategy |
Construction Cost Inflation | Lock GC early; fixed-price EPC contracts |
Power Availability | Confirm utility capacity early; dual-feed redundancy |
Tenant Credit Risk | Prefer national 3PLs or investment-grade food distributors |
Energy Cost Volatility | Use variable-frequency compressors, solar/backup systems |
Exit Liquidity | Focus on Tier 1 logistics metros where institutional buyers are active |
FAQs
Q1: How do cold storage cap rates compare to standard industrial?Typically 30–75 bps higher due to operating complexity, though the spread is narrowing in 2025.
Q2: What’s the typical lease term?10–20 years, often with CPI-linked escalations and tenant responsibility for energy.
Q3: Can you convert a dry warehouse to cold?Possible but costly (~$100–$150 psf retrofitting). New build often yields better IRR.
Q4: What is the break-even occupancy?Most models break even at 65–70% utilization, due to high fixed energy cost.
Q5: What’s the best financing structure?Structured JV with 50–60% LTC senior debt, mezzanine, and sponsor equity; IRR targets 14–16%.
Q6: Are ESG and sustainability factors critical?Yes — modern systems reduce emissions and appeal to institutional capital; ESG compliance can improve exit cap rates.
Conclusion: 2025–2030 Outlook for Cold Storage Investors
Cold storage remains one of the highest-demand yet under-supplied industrial sectors. As food logistics, e-commerce, and pharma distribution evolve, the opportunity lies in modern, energy-efficient, and strategically located facilities.
Over the next 5 years:
Sunbelt states (TX, FL, GA) will dominate new builds due to population growth and trade corridors.
Institutional interest will compress cap rates toward 5%, improving exit valuations.
Developers with strong tenant relationships and efficient build-cost management can expect IRRs between 13–17% with multiple exit options.
Invest early, partner with experienced operators, and choose sites with energy redundancy and logistic proximity — the three pillars of successful cold storage investing.
External Data & Sources
Wert-Berater Feasibility Studies, LLC
1968 South Coast Highway
Suite 2382
Laguna Beach CA 92651
+1 310-857-2443 ext. 800
+1 888-661-4449
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