Article | Intelligent Investment
Cold storage market shifts to development phase
April 23, 2025 5 Minute Read
Cold storage plays a vital role in the global supply chain of food for manufacturers, wholesalers, and retailers alike. A large proportion of cold storage is operated by third-party logistics (3PL) firms due to the economies of scale offered. CBRE estimates the UK 3PL cold storage market has a total supply of 3.4 million pallets.
The UK market is the largest in Europe in terms of capacity, but despite its scale, it is estimated that demand continues to exceed supply. This is mainly due to a significant proportion of existing stock being outdated and no longer fit for purpose. Obsolescence factors include recent refrigerant regulations, combined with upgrade costs remaining prohibitive for smaller sites. The sector is at an inflection point and there is an opportunity for developers to proactively acquire new sites to address stock shortages.
Challenges facing the sector
Strong Demand
Demand for cold storage facilities has increased since the COVID-19 pandemic. Consistent growth in the frozen food market has played a contributing factor and was initially driven by stockpiling of food and panic buying. However, the market has continued to grow since; in the year up to March 2024, retail sales in the frozen food market reached £8.5 billion, almost a 12% increase from the prior year. Potential drivers of this trend include the cost of living crisis, as well as growing food waste consciousness, attracting consumers to the longer shelf life offered by frozen food.
Outdated Supply
From our extensive database of UK 3PL cold storage facilities, we estimate that around 40% of stock is aged between 20-30 years, with a further 30%, 30 years or older.
Aging stock has become increasingly topical in recent years given changes in refrigerant regulations. The Ozone Depleting Substances Regulations (EC 2037/2000 & 1005/2009) initiated the phase-out of HCFCs, including R22 which has been prohibited for maintenance and repair since 2015. Further, as of Q1 2025, the UK Government started to phase out certain F-gases with a high Global Warming Potential. However, transitioning from F-gases to ammonia comes with its own complexities given its flammability, with significant costs associated.
Many of the larger operators such as Lineage and Constellation Cold Logistics have already been future-proofing their portfolios for a number of years, undertaking CapEx works to modernise their facilities. One example of this is Constellation Cold Logistics, who are expanding their facility in Grimsby by 37,000 pallets, while at the same time increasing their energy efficiency through installing solar PV on the roofs of both their existing and new facilities. This forms part of the company’s efforts to reach net zero by 2050.
Smaller operators may struggle with the new regulations due to limited scale to absorb high costs. Stock over 30 years in age is smaller scale in terms of capacity (up to 20,000 pallets), whereas newer stock is typically larger in scale (50,000 pallets), enabling operators to scale up operations and implement multi-customer models. We therefore identify facilities of over 30 years in age to be at greatest risk of obsolescence and cessation of business.
Figure 1: Percentage of UK 3PL Stock
Solutions
Existing Stock
Given the challenges associated with smaller operators upgrading their existing stock as part of a broader trend of consolidation, acquisitions in the industry have become more common. For example, Constellation Cold Logistics acquired operators HSH and ACS&T, both offering CapEx capabilities to help upgrade older facilities. For those larger cold storage sites which have greater capability to upgrade and retrofit, private equity is increasingly becoming part of the solution.
New Stock
Increasing development activity is also seen as part of the solution. We have identified just under 92,000 new pallets currently set to be delivered in 2025/26, and a further 457,700 pallets are at pre-planning stage. These schemes are largely comprised of build-to-suit units, rather than being speculative. However, Figure 2 demonstrates that despite this pipeline of new stock, if all properties aged 30 years or more become obsolete, undersupply issues in the market will remain persistent.
Figure 2: UK 3PL Stock (Pallets)
While operational efficiencies are improving with new stock delivery, the cold storage market still lags behind in automation. Only 5% of 3PL facilities in the market are automated, due to older facilities and high costs. However, 91% of the current stock under development will be automated, enabling operators to run facilities at scale, increase storage volumes, and reduce labour and energy costs. This will all improve profitability margins. For example, Magnavale’s recent Phase II development at its Easton site will provide a new fully automated facility of 101,000 pallets, running entirely on renewable energy and increasing operational efficiencies.
While automation has become increasingly attractive, it is worth acknowledging that this type of technology is less suitable to smaller facilities. To become economically viable, sites with automation need to be 50,000 pallets or greater due to the high build costs, approximately 2.5 to 3 times that of a standard industrial development.
It is evident that there is a significant proportion of existing cold storage 3PL stock that is under increasing pressure of becoming obsolete. At the same time, consumer demand for frozen products has grown, creating a greater need in the market. While retrofitting of some sites is possible, there is clear requirement in the market for new developments which meet updated regulations and increase operational efficiencies. To find out more about the opportunities in this evolving market, contact us today.
Contacts
Gemma Parfitt
Senior Research Analyst
Charles McCloy MRICS
Associate Director, Corporate Valuation Services
