Can Multistory Warehouses Remake Our Idea of Industrial?

BROOKLYN, NY—As we are becoming conditioned to ordering everything we need online and expecting within 24 hours, or even less, the industrial real estate sector is faced with the challenge of ensuring that our purchases make it through the “last mile” from distribution centers to our homes.

And a key innovation to ensuring that happens is “multistory” warehouses. We’ve become accustomed to seeing sprawling large flat warehouses nearing 1 million square feet on the outskirts of our cities and towns. But because companies need warehouses closer to where people live, will warehouses start to grow vertically?

In Brooklyn, an 18-acre site in the Red Hook district will be the future home to a four-story, 1.3-million-square-foot distribution center – the largest multistory warehouse in the US.

The topic was debated at I.CON, the industrial real estate conference hosted by NAIOP in New Jersey this week.

Paul Klink, EVP, head of Industrial Services, Newmark Knight Frank moderated the session with speakers Dov Hertz, president of DH Property Holdings; Leslie Lanne, managing director of JLL; Jeff Milanaik, principal of Bridge Development Partners LLC and Brian Milberg, senior partner of Sitex Group.

Hertz said that the biggest challenges to multistory warehousing is finding appropriate land.

“The biggest challenge is building an appropriate site that works. Finding industrial land that gives you the ability to ramp up is like looking for a needle in a haystack. Look how many industrial sites are in the development pipeline; there aren’t many.”

Other challenges come in the form of tenant expectations, particularly tenants who are used to the more wide-open spaces of the Meadowlands. “A lot of tenants are used to having plentiful surface parking, which isn’t the case in urban multistory,” said Milbe

Multistory isn’t a fit for every tenant. “If your company doesn’t have to be in these well-located multistory buildings, it’s not going to be,” said Lanne. “Some companies will stay in areas like the Meadowlands instead of coming into Brooklyn. And if a company doesn’t need to be there, it will go south or west. It essentially becomes a matter of supply and demand, and the companies that have to be in the more urban markets will make it work.”

Getting the goods in and out of the facility can be a challenge, particularly for projects like the one in Brooklyn that is surrounded by streets that can’t handle multiple large trucks. This means that goods come in at off-peak hours, said Milanaik, and sometimes goods are transferred from large trucks to smaller vans to make it into the facility.

Hertz said that the developers who take the risk early into multistory will reap the benefits of going with their gut.

“The truth is, once its been proven out, it’s too late. Land costs jump considerably. That’s the difference between being the pioneer and waiting for it to be proven out.”

But the panel agreed that consumer demand for goods to be delivered more quickly is not going away.

Kathryn Hamilton is vice president of NAIOP.