The industrial segment of commercial real estate is one of the most lucrative in the nation’s market. According to a third quarter report from JLL, this sector is becoming more favorable to the landlords. As the vacancy rates are decreasing, tenants, owners and developers are running out of space. There have been several ideas to increase the space of industrial properties. One of these trends is multi-story warehouses. Our friends over at the Hightower blog recently published an article on the topic of multi-story warehouses. You can read an excerpt of the article below, then click the green button at the bottom of the article to read the full post.
Are Multi-Story Warehouses the Next Big Thing?
Industrial remains one of the tightest commercial real estate sectors in the nation, with JLL reporting that the national vacancy rate dropped to 5.8% in the third quarter—despite 53 million sf of new construction being added during that same time period.
Los Angeles and Orange County remain the tightest markets with sub-2% vacancies, while port markets like Seattle and Miami experienced double-digit declines in vacancy. Total year-to-date absorption was up 10%, with 67.9 million sf leased versus 51.3 million sf of new deliveries. Nearly 18% of the leases signed were by new-to-market tenants, indicating companies are growing and discovering a new need for industrial space. If that remains the case, industrial vacancy will only become more difficult to come by.
Not only are developers and industrial tenants suffering from lack of space and land, but U.S. shippers are running out of space needed to maintain the supersized inventories that make e-commerce sales growth possible. The Journal of Commerce reports that as a result, they’re paying more to store the items, cutting into savings they’ve recently enjoyed in transportation costs due to lower fuel prices and excess truck capacity.
New Ideas to Maximize Industrial Space
Given such numbers, developers might consider going back to the drawing board to look at unique ways to add more space, especially in places where developable land is constrained.
One recent notable example is Prologis, which told the Wall Street Journal that it is starting construction next year on a three-floor, 580,000 sf warehouse just outside downtown Seattle. Its unique features will include a truck ramp that leads to loading docks on the second level and a third level accessible via freight elevators for lighter-scale warehouse operations. The WSJ notes that it will be the first building of its kind in the U.S., although multi-story industrial buildings are already common in Asia and Europe. Prologis is also exploring similar construction in areas like New York, San Francisco, and Los Angeles.