By Erica E. Phillips
Higher ceilings are the latest trend in warehouse real estate,
but some builders say they could do more harm than good.
Speaking on a panel at the NAIOP Commercial Real Estate
Development Association's Industrial Conference in Long Beach,
Calif., on Wednesday, executives from Prologis Inc., DCT Industrial
Trust Inc., Panattoni Development Co. and The McShane Companies
debated the merits of 36-foot and 40-foot clearance.
Proponents say aiming for such great heights can attract prime
clients such as Wal-Mart Stores Inc.'s Walmart.com or Amazon.com
Inc., who need the extra space as the booming e-commerce sector
continues to grow. Prologis is currently constructing--on spec--a
one-million-square-foot warehouse in Tracy, Calif., that will have
40-foot-high ceilings, which is 25% taller than the typical 32
feet.
But some builders on the panel said many warehouse tenants can't
make good use of that extra space because they don't have the right
equipment or know-how to use it efficiently.
Jim McShane, chief executive of The McShane Companies in
Chicago, said many companies are building to 36-foot clearance, but
only about 13% to 15% of the tenants are using the entire space.
"The market wants a 36-foot clear building but the users don't seem
to be using it," he said.
Jeffrey Phelan, president of DCT Industrial, said higher
ceilings are "the future," but that future might not have arrived
just yet. In 36-foot buildings, for example, the column spacing is
several feet wider than in 32-foot buildings, and some tenants
compensate by making their aisles wider. "It's a tremendous hit
upon your rent because they can't use the space," Mr. Phelan said.
"There's probably anywhere from 10% to 15% inefficiency in that
building."
Mr. Phelan warned, "At some point the brokers are going to
figure that out."
Gene Reilly, chief executive for Prologis in the Americas, said
only one of the three tenants planned for Prologis's new 40-foot
building actually needs the space, while "the other two tenants
were OK with 36." But he said he thinks of the new building as an
investment in the future. "We're going to own that building for a
long time," he said.
In Brazil, Prologis has 6 million square feet of warehouse space
with 39-foot (12-meter) clearance and it is used very efficiently,
Mr. Reilly said. That is because "it's the only modern space that's
ever been built, so they buy all new stuff," such as forklifts and
picking equipment, he said--unlike U.S. tenants who might try to
make the old equipment work in the new space.
It is "ironic," Mr. Reilly said, "In an emerging economy the
customers actually use it more than ours do."
Mr. Phelan of DCT said he and others are watching what happens
with Prologis's new 40-foot warehouse, adding that he thought Mr.
Reilly was "very brave."
Write to Erica E. Phillips at erica.phillips@wsj.com
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