By Robbie Whelan
Eight feet of added ceiling height may not seem like a lot, but
for warehouse builders, the extra clearance can be the difference
between an empty building and one that attracts a tenant such as
Walmart.com or Amazon.com.
Real-estate firm Prologis Inc.'s latest project, a
one-million-square-foot warehouse in Tracy, Calif., will boast a
40-foot-high ceiling, 25% taller than the typical 32 feet. The
project isn't pre-leased, making this the first speculative
building of such dimension that the company has built.
Prologis executives said it is going bigger to tap into the
e-commerce boom, which is changing the way industrial properties
such as warehouses and fulfillment centers are built. E-commerce
retailers need more space than do wholesalers that ship goods in
bulk to stores, because they transport a vastly wider variety of
products in much smaller batches.
"If your stapler breaks, you go online and you order a single
stapler. If you're delivering to OfficeMax, you don't go into a
warehouse and pull one stapler off the rack, you pull out a whole
pallet of them," says Scott Lamsen, president of Prologis'
northwest region.
As a result, e-commerce companies need workers to pick out and
pack each product by hand. They often build multiple mezzanine
levels and racking systems known as "pick modules," which are
typically about nine feet high. Ceiling heights of 40 feet, rather
than the industry-standard 32 feet, allow a distributor to build
three levels above the ground floor instead of two, and still leave
room for light fixtures and fans.
The share of retail sales conducted online has been growing
steadily since at least 2005, clocking in at 6.7% in the fourth
quarter, according to the Census Bureau. The increasing sales
online stimulate the need for more spaces to stock, sort and pack
shipments to send to shoppers.
Most warehouse construction in recent years has been of
structures with ceiling clearances of 28 to 36 feet. Since 2011, of
the 554 large warehouses built in the U.S., 89% have had ceilings
between 28 and 36 feet high, according to brokerage CBRE Inc. Only
52, or 9.4%, have had heights of 36 feet to 40 feet, and only 11
have had heights above 40 feet.
Consultants and executives at logistics firms say larger
warehouses with taller ceilings are becoming more prevalent.
Warehouses began to get taller in the U.S. even before the
recent, explosive growth of e-commerce, as new automation
technologies such as racking robots and new forklifts came into
use, allowing logistics companies to access items stored at loftier
heights. That saves money by allowing retailers to build
vertically, rather than horizontally, which requires more land.
Overall size is rising as online retailing grows, forcing retailers
to keep a wider variety of products on hand.
"Those investments are being made pretty aggressively," said
Will O'Brien, president of Sedlak Management Consultants Inc., a
supply-chain consultancy. "One million square feet, or even 1.2
million or 1.4 million are still considered big, but they're not
unusual anymore. And clearly, it's because omni-channel retail is
growing faster than brick-and-mortar retail."
Prologis says large e-commerce users can keep as many as 1
million distinct items known as stock keeping units, or SKUs, on
hand at their distribution centers. A typical e-retailer uses three
times as much warehousing space to generate $1 billion in revenue
as a traditional brick-and-mortar retailer does, Prologis says.
"Buildings have been getting larger and larger over time," said
Prologis Chief Executive Hamid Moghadam in an interview.
"Twenty-five years ago it was 24 feet. Then came 30 foot ceilings.
They're really using the height of the building."
The Tracy Calif., warehouse is part of a larger 1,800-acre
project known as the International Park of Commerce, which is under
construction and set to be completed in August. Prologis says
several large distributors already have expressed interest in the
park's first building. FedEx Corp. and medical products
manufacturer Medline Industries Inc. said in late April that they
had signed up to be the park's first tenants, and construction has
begun on two other buildings to serve them.
Stifel real-estate analyst John Guinee said Prologis is betting
the Tracy project will benefit from growth at the Port of Oakland,
about 50 miles to the west, including from retailers that sell
goods manufactured in Asia via their online stores.
"They're basically counting on one of about five big tenants
being in that market for the long-term," Mr. Guinee said. "They're
basing their construction on an educated guess on what these
tenants need, and making the building generic-enough that any one
of a few tenants could use it."
Write to Robbie Whelan at robbie.whelan@wsj.com
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