Forget about the land-hogging facilities situated in the middle of industrial parks in rural and suburban areas. The warehouse or distribution center of tomorrow could extend vertically into the sky, be manned by robots, and situated in metropolitan areas where real estate is at a premium.
A multistory warehouse where forklifts move from floor to floor via elevator. A B2B distributor that uses drones to deliver from the rooftop of its own distribution center (DC) directly to a retail store’s rooftop in the middle of New York City. A “lights-out” warehouse where robots roam the floors 24/7, fulfilling orders and packing boxes.
If these scenarios sound far-fetched, think again because all three are already unfolding in innovative warehouses nationwide. Largely driven by e-commerce, and the fact that e-commerce operators need an average of up to three times more space than traditional warehouse users (due to a greater diversity in products handled and the need to have them immediately accessible), the push to find alternatives to space-hogging, expansive DCs to store, cross-dock, and ship product is in full force right now.
“Trends in e-commerce have increased demand for well-located distribution warehouses,” says Russ Moroz, first VP, investments, and associate director of the National Office and Industrial Properties Group at Marcus & Millichap in Roseville, Ca. One of the more interesting trends Moroz is tracking in various regions/cities is the redevelopment of retail properties into DCs. As e-commerce continues to take market share away from brick-and-mortar retail, he says, expect to see more of this happening.
“The retail industry has been significantly affected by e-commerce. We’ve seen many traditional retailers go bankrupt, leaving large chunks of retail space vacant,” Moroz notes. “Retail has experienced quite a shock, with many stores unable to survive, as evidenced by recent announcements from Sears, Toys R Us, and Mattress Firm. These and other companies are just having a really tough time maintaining their brick and mortar presences.”
Filling the Gap
The vacated shopping centers that are being left behind by retailers are usually located near major freeways and traffic arterials in central, densely-populated parts of town. Because of this, Moroz says they tend to be good places for DCs—and especially for last-mile deliveries (from the last point of distribution to the end user).
“Historically, retail locations were too expensive to rent for warehouses. However, given increasing rents for warehouse space in most markets in the U.S., and the growing number of large vacancies from traditional retailers going out of business, this is becoming more and more feasible in many markets,” says Moroz. “There are several developers actively looking to acquire vacant big box retail buildings, add additional roll-up doors, and reposition the properties for distribution.”
Creative Adaptation of Space
As he surveys the “creative adaptation of space” that’s taking place in the industrial real estate market right now, Moroz sees plenty of opportunity for electrical distributors that want to think outside of the box. Companies that are situated in urban areas—and that need to get materials to jobsites quickly, even in wall-to-wall traffic—are exploring vertical use of space-plus-aerial drones for delivery.
“There are certain markets in the U.S. where going vertical really makes sense,” says Moroz, who points out that vertical moves aren’t cheap, and that they introduce certain inefficiencies (e.g., the transfer of goods from the ground floor to upper levels) that are irrelevant in “flat” warehouses and DCs. “Working through those inefficiencies requires an investment,” says Moroz, who does see potential for “vertical” warehouses in markets like San Francisco and New York, where rents are “substantially higher than almost anywhere else in the nation.”
Amazon is already jumping into the vertical warehousing game, having recently announced its plans to build a futuristic airborne fulfillment center where it will use drones to deliver goods. The company may test the concept out at its planned second headquarters location, CoStar Group reports. According to Amazon’s patent, the airborne fulfillment center is designed to look somewhat like a blimp and to float thousands of feet up in the sky where drones buzz in, pick up packages, and fly away to make deliveries.
Up, Up and Away
Amazon isn’t alone. In Seattle, Prologis Georgetown Crossroads is opening the 3-story, 590,000-square-foot, ground-up warehouse that it first announced in 2016. The facility features 410,000 square feet of dedicated fulfillment space designed for e-commerce purposes. When finished, the building will look like two warehouses stacked on top of each other, with a truck ramp to loading docks on the second level and a third floor, accessible via freight elevators, for lighter-scale warehouse operations.
According to Jay Todisco of Ware Malcomb, his firm is currently designing some of the first multistory warehouse facilities in major markets throughout North America. Predominantly located in highly urbanized population centers close to seaports handling containerized cargo arriving from overseas, these are not “theoretical experiments,” Todisco writes in NAIOP’s Industrial Development Goes Vertical, “but rather realistic plans for functional buildings rooted in the basic design principles that define successful institutional grade industrial distribution facilities. Each of these proposed buildings is located in a market with great demand for multitenant fulfillment space.”
Noting that multistory industrial buildings are more common in Asian markets such as Japan and China, Todisco says tenants in these locations have accepted this type of building configuration without sacrificing functionality. “The need to go vertical in these foreign markets is a direct result of the same market pressures now being faced in North America,” he writes. “The notable difference is that the rapid growth of e-commerce and the need to provide an efficient, expanding last-mile delivery network have further magnified the need and urgency to develop such facilities here.”
A Deep Trend That’s Not Going Away
As electrical distributors ponder locations for their new warehouses, or seek out alternatives to their current facilities, expect to see more of them exploring some the options mentioned in this article. Especially in regions where real estate costs and land scarcity have to be balanced against customers’ delivery demands (by 2028, 40% of all parcels will be delivered within two hours, according Zebra Technology Corp.), the creative adaptation of space is sure to continue.
Next year, for example, Goldman Sachs Group Inc., plans to build a three-story, 370,000 square-foot warehouse in the Red Hook section of Brooklyn, with truck ramps to the second floor and elevators that can hold a forklift going to the third floor, WSJ reports. Innovo Property Group and Square Mile Capital Management LLC, are planning a two-story, 840,000 square-foot warehouse on the site of the former Whitestone Multiplex Cinemas in the Bronx. “This is a deep trend,” JLL’s Rob Kossar told National Real Estate Investor, “and it’s not going away.”
Read the sidebar piece of this article, “Four More Innovations Coming to a Warehouse Near You.”
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