Prologis to Build First Multistory Warehouse in the U.S.
November 01 2016 - 1:40PM
Dow Jones News
Developers are having a harder time finding space for new
warehouses in increasingly crowded and expensive U.S. cities. Their
answer: build upward.
Prologis Inc., the world's biggest warehouse owner, is starting
construction next year on a three-floor 580,000-square-foot
warehouse just outside downtown Seattle that is scheduled to be
completed in 2018, the company told The Wall Street Journal. 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.
It will be the first building of its kind in the U.S., though
multistory warehouses are already common in countries like Japan
and Singapore, as well as elsewhere in Asia and Europe, where
vacant land is harder to find.
In the U.S., plenty of open space is available in rural areas
and suburbs. But as e-commerce sales grow, many retailers are
bringing warehouse operations closer to their customers, who
increasingly demand speedy delivery. Available warehouse space has
hit record lows in many urban markets in the U.S., driving up the
value of industrial land and pushing rental rates to new
heights.
"Major urban areas are running out of industrial space," said
Hamid Moghadam, chief executive of Prologis. "The only way the
logistics sector can compete is with this more dense format."
Large developers like Prologis have contributed to industrial
vacancy rates that remain below 5% in several major cities around
the country. As rents have risen, Prologis and other large
real-estate investment trusts have been reluctant to build new
space without a customer lined up for fear of flooding the market.
Mr. Moghadam has said constrained development drives down vacancy
rates, giving landlords the power to set rent prices at a
premium.
In Seattle, geographic features—mountains, lakes and Puget
Sound—also constrain available land for development. According to
real-estate firm Jones Lang LaSalle Inc., industrial vacancy was
2.5% in urban Seattle last quarter and land values have shot up 20%
to 25% over the last two years.
Prologis said it is also exploring multistory warehouses in
other cities where space is tight, including New York City, the San
Francisco Bay Area and the west side of Los Angeles. The firm
doesn't have tenants lined up for the Seattle project, but hopes to
have leases in place within a year of completing the facility.
For potential tenants, multistory operations in urban centers
don't come cheap: analysts estimate that rental rates for
Prologis's multistory facility could be as much as 50% higher than
standard warehouse rates.
Still, those rates could make sense for many retailers who will
be saving money on delivery costs by locating closer to customers,
said Andrew Hogenson, a Seattle-based retail consultant with Ernst
& Young LLP.
"The model has changed," Mr. Hogenson said. "You're no longer
just moving big volumes from one point to second point," such as
from remote distribution centers to big-box suburban stores,
"you're moving much smaller volumes to many points."
Retailers who can't reach their customers quickly could lose
those sales, Mr. Hogenson added. That is especially true in
Seattle, where homegrown Amazon.com Inc. offers free two-hour
delivery of many goods through its Prime Now service.
Large warehouse developments have faced resistance in some
regions. The Brookings Institution says denser warehouse
development could mean more trucks on city streets, leading to
potential negative effects on traffic, noise and air quality.
Residents from Newberry Township, Penn., to Moreno Valley, Calif.,
have called on lawmakers to halt large warehouse projects, citing
road congestion, public health and other concerns.
"With the surge in e-commerce shipments…a lot of regions are
currently grappling with what that means for long-term freight
planning and economic development," said Joseph Kane, a researcher
at Brookings. The Prologis project presents a "grand experiment"
that other cities can observe before approving similar facilities,
he said.
Seattle's city planners have supported the Prologis development,
which will create hundreds of jobs, said Nathan Torgelson, director
of the city's department of construction and inspections. He said
the city is processing two permits and expects to issue them within
the next 18 months.
Write to Erica E. Phillips at erica.phillips@wsj.com
(END) Dow Jones Newswires
November 01, 2016 13:25 ET (17:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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