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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