Why some cities are likely to see taller warehouse projects — and the role Amazon is playing

By Ashley Fahey – Editor, The National Observer: Real Estate Edition, The Business Journals

After proliferating largely in other parts of the world, multistory warehouses are beginning to rise in the United States.

Nationally, there were 62.8 million square feet of warehouses with three or more stories in the U.S., as of August, with another 11.9 million square feet underway and 23 million in planning stages.

Notably, 74% of that pipeline and existing inventory is occupied by Amazon.com Inc. (Nasdaq: AMZN), the dominant player in industrial real estate, despite its pullback since the height of the Covid-19 pandemic.

But the cost to develop multistory warehouses continues to be higher than a more traditional industrial box, one reason why taller warehouses are likely to remain a fairly niche part of the market and concentrate in the nation's densest cities.

"We do think it’s going to continue to be a trend, and something we're going to see, and more are planned in many of these (denser) markets because there continues to be a need for occupier clients."

They recently examined multistory warehouses in the U.S., as the nation is in its fifth year of building multilevel logistics facilities. The first U.S. multistory warehouse opened in 2018 in Seattle.

Today, notable multistory warehouse projects include several in New York, where urban-logistics projects under construction and in planning would add 9.4 million square feet of additional last-mile logistics space.

Those include the 385,510-square-foot Red Hook Logistics Center in Brooklyn and the Borden Complex, which totals 680,000 square feet, in Long Island City.

The multistory warehouses being built in the U.S. today are past the point of "version 1.0" of five years ago, which tended to be larger projects, including some 1 million square feet or larger.

"People are looking at smaller parcels and then designing there, which is cool, because it gives occupier clients a little bit more variety," she continued.

At the Red Hook project, for example, there's an ability to subdivide the space by floor, so tenants that need 40,000 square feet or 80,000 square feet of industrial space in a dense urban market could lease space there, Lanne said.

Most of the urban multistory warehouse tenant demand is coming from groups needing last-mile delivery space, although, she said, there's also a lot of interest from food-and-beverage groups in occupying that kind of space.

Still, while the multistory warehouse trend has gained traction in the five years it's been in the United States, it's not likely to become a mainstream part of the industrial market.

For one, these facilities are more expensive to build — and may require specific, costlier infrastructure like underground parking, Lanne said. There are also zoning constraints to getting a multistory warehouse project approved, not unlike more traditional single-story industrial facilities.

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