As demand for urban industrial space grows, on the back of the e-commerce boom, investors and developers are looking at multi-storey warehouses as the next step in urban logistics.
Developers are increasingly moving into key urban centres across the globe as the demand for ever faster delivery of goods increases. In 2017, online sales accounted for 10.2 percent of all retail sales worldwide, according to Statista. This figure is expected to reach 17.5 percent in 2021. Retailers need to be close to their core markets, but land closer to urban development is both costly and scarce, forcing developers to look to the skies.
“Developers are looking at multi-story in core markets with large consumer bases to attract industrial users who want immediate access to their customers for delivery,” says Craig Meyer, JLL President of Industrial.
When operating a distribution centre, transportation and labour are key expenses, accounting for as much as 60 percent of operating costs, according to data from JLL. Conversely, real estate represents just 4 percent to 6 percent of costs, making it cheaper to build up than rent a warehouse further from the consumer base.
A disparate global trend
Multi-storey warehouses have existed in the Asia Pacific region for decades, particularly in the more developed markets of Japan, South Korea, Singapore, and Hong Kong, where dense populations and limited land availability has made them a necessity.
In the U.S., however, they are a more nascent concept. Logistics developer, Prologis built the country’s first multi-storey industrial warehouse in Seattle last year while Goldman Sachs Asset Management PRE and DHPH announced a joint venture to develop a three-storey, 370,000 square-foot institutional grade warehouse and distribution centre in Brooklyn.
“The cost of land-to-building ratio has crossed the economic threshold that allows multi-storey development. Sophisticated capital has recognised this, and has made huge bets to get the first mover advantage in the development cycle of these types of facilities in premium locations,” says Meyer.
In January 2019, Bridge Development Partners and DH Property Holdings followed suit, joining forces to acquire an 18-acre site, in Brooklyn. Innovo Property Group is also in the game, having bought a US$75 million, 20-acre development site in the Bronx, which it plans to turn into a two-level warehouse. And it is not just the New York and Seattle markets – developments are also upcoming in San Francisco and Los Angeles.
In Australia, the multi-storey trend is still relatively new, but is also being driven by e-commerce and same day delivery, which has been ramping up demand for industrial space. Two two-storey warehouses are being developed in Botany, home to Australia’s biggest seaport. In Europe, multi-storey buildings are more familiar a concept. They were developed in Paris in the 1970s. More recently, Vailog, a SEGRO Group company, completed a ramped warehouse called Paris Air 2, which was leased up immediately. And in the UK, the first multi-storey facility was completed in 2008 by developer Brixton.
According to Meyer, investors, developers, and occupiers will have to keep up with a changing logistics environment as e-commerce continues to grow, and as consumer delivery expectations only increase in densely populated areas.
“Demand for efficient and effective last mile distribution solutions is key. Facilities will take on many different shapes and sizes, and, most certainly, will not all be multi-storey. However, in very large, densely populated centres globally, on-demand consumer trends will require more multi-storey warehouses,” says Meyer.
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