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The Growing Real Estate Potential for Urban Farms

With freight costs surging across the country, urban farms offer fresh food, lower transportation costs, and shorter transit distances for companies looking to gain an edge on their competition.

urban farms

The insights on building conversions in this post were developed in collaboration with Chris Conway, Project Manager at Alston Construction.

What do empty malls and stores, outdated warehouses, and class C office buildings have in common? Many things, for sure. But consider this: they are all viable locations to grow food. There is an incredibly high demand for locally-sourced and sustainably-grown produce, and in urban areas, this poses both a challenge and an opportunity.

With freight costs surging across the country, urban farms offer fresh food, lower transportation costs, and shorter transit distances for companies looking to gain an edge on their competition. As consumer preferences, technology, and government regulations shift, an urban agricultural site may just be the future for modern-day growers.

Urban Farms in Action

The idea is innovative and potentially rewarding, but it requires a fair amount of imagination and investment to successfully execute.

Simply growing food is a challenge, and when you consider the unique building requirements, the surrounding urban landscape, and the complex logistical needs of an urban farm, there is a lot to consider. These are complex challenges and having a real estate professional involved in the property strategy for urban farming space is critical to making the right moves during property selection. A real estate professional is far more likely to understand where unidentified building opportunities may be hiding. These are Controlled Environment Agriculture (CEA) facilities, and an expert can ensure the building systems and attributes will accommodate the unique needs of an essentially “closed environment.”

In addition, the Food Safety Modernization Act (FSMA) may apply to urban farm operations. It is crucial to have a real estate advisor with in-depth understanding of FSMA.

The Utilities of Urban Farming

 Light, water, temperature, humidity, and nutrients are the ingredients required for indoor agriculture. These ingredient parameters are the lifelines of the product being grown and must be managed and controlled to avoid poor production or worse, crop failure. And what about soil, which is seemingly one of the most important ingredients to a crop’s success? The produce grown in production scale indoor agriculture facilities is usually planted in a soilless growing environment to minimize the threat of any unwanted pests, spores, or bacteria common in most outdoor soils.

Energy consumption is also a huge element for consideration in selecting an urban agriculture site. Locations with lower electrical rates (kilowatt costs) are preferred because the lighting and HVAC systems required for indoor farming can consume large amounts of electricity beyond the typical main electrical services. Finding an infill property with heavy power capacity can be a difficult task and industrial properties are the most likely to accommodate this need. The good news is that with the advent of emerging energy efficient LED technologies and HVAC systems, many of the operating costs typically associated with indoor farming are improving.

Water availability also needs to be front of mind when choosing a property. Although indoor cropping is reported to use approximately 80 percent less water than traditional outdoor agriculture, the process still requires a significant amount of water. It’s important to check the water service size at a property and to verify water quality if not provided from a municipal source.

Utilities aside, indoor agriculture facilities are often setup like a laboratory clean room or a sanitary food processing facility, which can become very costly. Air filtration systems and, more commonly, air lock entries and exits are needed to prevent outside air contaminants. As most of these indoor products are grown without the use of herbicides or pesticides, a controlled environment is a basic design principle that allows for operational success. This is why most facilities are basically closed environments, so the risk from pollen, spores, bacteria, and other contaminants entering the facility is minimized. Carbon dioxide gas, which plants require for nutrients, is then commonly introduced into the air in controlled environments from tanks or CO2-producing equipment.

The environment also typically requires higher temperatures and humidity than a typical commercial office or warehouse space. The facility must reach close to 80 degrees and 80 percent humidity depending on the crops being grown. The management of humidity in a controlled environment to the interior of an existing building poses a challenge, and all finishes and systems that are susceptible to humidity and condensation must be taken into consideration.

Smart Building Design

It is critical that building design and equipment layouts allow for proper ingress, egress, emergency exits, and path of travel through a facility.

Ingress and egress on the property must be evaluated for employee parking and delivery trucks, and, if the operation is large enough, dock doors may be needed to load produce. In addition, if an urban farmer plans to sell produce on-site, customer foot traffic will need to be considered. Fire & Life Safety can also be a concern due to the combination of flammable plastic components, nutrient storage, and low voltage high amperage DC power situated on-site.

Structural load and floor load capacity are factors that are determined by the growing system being used. Many of the mechanical systems needed for indoor agriculture must be rooftop mounted, and, typically, existing infill facilities can’t handle the load. Floor load is typically fine as long as it can handle forklift loads, but floor drainage can be a challenge since floors may need to be washable and sanitary.

Zoning Surprises

Understanding what is allowed at a facility is important to consider from the beginning when developing an urban farm. Many cities haven’t updated zoning regulations to account for indoor farming, so an exemption is often required to proceed with an urban farmer’s vision. During the zoning discovery phase, urban farmers should be prepared to discuss what will be grown in their facility, how it will be grown, and how it will be sold or transported for sale.

Zoning regulators, for example, may ban the on-site sale of goods but allow the goods to be transported elsewhere for sale. Or a farmer may want to grow fruit, which will require bees on-site, and this could result in additional zoning considerations.

If an exemption is required, the community will have a chance to participate in the discussion. The good news is, communities are typically in support of urban farms. Concerns usually arise when the proposed location is close to residential areas. Residents are often concerned about truck traffic, noise from the operations, light pollution, the use of any harsh chemicals, or the emission of strong odors.

Winning the Race in this New Space

When it comes to competition, greenhouses will remain the biggest rival for indoor farming operations because these operations are already perfected and scaled. The conversion of infill buildings can be complex with tenant improvements reaching as much as $150/SF or more depending on the condition of a given building. An old mall, for example, could be an enticing reuse project, but may not be advisable due to conversion costs.

There are certainly viable infill opportunities for urban farms however, and for those with the creativity and commitment required for a conversion, the payoff could be worthwhile. With rising freight costs, a shortage of long-haul truck drivers, and new laws that limit the number of hours these drivers can be on the road, the cost and feasibility to deliver crops and produce is mounting. The American Trucking Association predicts a shortage of 63,000 long-haul drivers by the end of 2018 and as many as 170,000 drivers by 2026. This comes at the same time as rising demand for supply chain transparency, same-day harvests, and sustainable production practices from consumers in urban areas.

Ultimately, the success of urban farming relies on location, building fit-up, local climate, and proximity to customers for distribution. The first companies to strategically invest the appropriate amount of capital into an infill property, while effectively scaling indoor cropping operations, will be the ones to win the race in this new space.

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