October 17, 2018
Older warehouses, long ago dismissed, are increasingly becoming the hottest real estate in major cities. Not just for the art galleries, micro-breweries, and chic residential lofts that are the use du jour; urban warehouses are hot for the most basic of uses: distribution of goods. The fast-growing e-commerce industry has been a driving factor in the rising need for last-mile delivery causing tight demand in the urban warehouse market. In addition, traditional distribution users are realizing the operational benefits and savings of having facilities closer to the dense population centers that still require everyday goods.
For the typical distribution operation, transportation represents more than 50 percent of overall costs. Naturally, a location that the customer can reach quicker or that facilitates a company distributing to more customers in the same allotment of time allows the user to better utilize its capital and labor.
Securing urban warehouse sites are not without challenges. The biggest challenge industrial users face is securing sites to develop new facilities or existing industrial properties that may have some functional deficiencies – such as ceiling clear height, loading capacity, and site configuration – but can be modified cost effectively.
While urban core locations proximate to large concentrated populations have their benefits, the issue of securing urban warehouse sites remains – whether they are in excellent shape or in need of improvement. With the increasing popularity of this property type across uses, space is becoming more limited and comes at a premium price in most areas. Highly sought-after warehouse properties’ rental rates are spiking, with some now demanding more than double the peak in 2007.
Expensive, depleting, and in high demand, what does that mean for the future of urban warehousing? While it mainly depends on the sourcing of goods and the requirements of the evolving end-user, the future holds more automation and innovation with how goods are distributed. Multistory warehouses, high cube facilities, or more urban warehouse construction and reconstruction could be in the cards for the future; however, it depends on various factors.
The lack of city core space has caused industrial users to become creative. For example, there have been recent reports that Amazon plans to build four-story warehouses in four different locations, and the market is watching to see how new three-story warehouses in Seattle and New York perform. In addition, some brick-and-mortar stores are exploring converting portions of the retail space into warehouse or fulfillment space as a way to meet the last-mile dilemma.
Overall, the spike in urban warehouse interest is not just a sign of the modern digital age, but of how users are adopting their models to more efficiently and cost effectively meet the demand of the end users. Undoubtedly, the commercial real estate industry must adapt to meet the change.
– By Walter Byrd, Senior Managing Director, Miami, FL