Is Amazon Setting a Trend Toward Multi-Story Industrial?

With the added cost to build, multi-story warehouses are unlikely to become a widespread phenomenon, according to Colliers.

It’s an intriguing approach, though, as available land, costs, the supply chain, e-commerce demand, and general willingness are stacked on a list of considerations.

Amazon dominates the space. It occupies 92 percent, or 75 million square feet, of Class A warehouse distribution properties with 3+ floors.

And 70 percent of projects under construction are slated to be occupied by Amazon. 

This is a significant market share, although Colliers is seeing indications that other companies, primarily third-party logistics, are buying into the concept. 

Colliers said Amazon is a company with much to gain from innovating efficiencies in the supply chain, it makes logical sense that it would be the company to create demand for multistory warehouse buildings. 

“Not all companies will be able to justify the added cost to develop,” Colliers said. “Rethinking its operating procedures by using robotics, Amazon is paving the way for the US industrial market to densify where demand for space is high and available land is scarce.”

Multi-story warehouses are arguably the only way to increase the amount of functional space without encroaching on more valuable land for residential and other commercial development that can fetch higher rent, according to Colliers. 

John Basile, executive vice president, industrial services group, NAI Hiffman, tells GlobeSt.com, “The big concern for developers is how shallow the target market of tenants is for these facilities. It’s really a market of one right now, but where Amazon goes, others will adapt and follow.”

Conventional Wisdom No More

Adrian Ponsen, director of U.S. industrial analytics at CoStar Group, tells GlobeSt.com that conventional wisdom used to be that multi-story warehouses were only needed in the most expensive coastal cities, where open land for building new warehouse facilities was extremely limited. 

“But that was back when even the largest distribution centers topped out around 1 million or 2 million square feet,” Ponsen said.

“With e-commerce and home delivery now flourishing, Amazon needs more than twice that amount of space for its largest fulfillment centers, and multi-story warehouse facilities are popping up in states previously thought to have more than enough land available for development such as Texas, Oklahoma, and Georgia. 

This new wave of multi-story warehouses that have been built for Amazon in the US are also fundamentally different from the typical multi-story warehouses that have been built in Asia and Europe in prior decades, Ponsen said.

“Most of the older multi-story properties overseas include ramps that allow trucks to park and dock on each floor. This new generation of Amazon’s multi-story warehouse facilities doesn’t have those ramps. Instead, the extra floors are mainly being used to speed up the process of prepping small parcels for lightning-fast shipment.

“The extra floors not only add space to keep a larger amount of goods on hand close to customers in major cities, but they also add room for the kinds of robotic equipment that speeds up the process of sorting, picking, and packing hundreds of thousands of orders each day.

Yeah, But Where

“Amazon’s multi-story warehouse strategy doesn’t appear to be urban-centric,” Andrew Block, Senior Vice President of Lee & Associates of Illinois tells GlobeSt.com.

“Whether urban or suburban, locations that support its ability to get products in and out to easily reach population-dense communities appear to be driving their decisions.

“While a suburban speculative multi-story development in today’s environment could pose risk to the project, developers could find an opportunity with the right tenant looking for an integral cog in their supply chain wheel. A balance could be struck by an attractive land basis, access to high population densities, and proximity to a transportation network without the logistical challenges of trucking in and out of the city.”

Louis P. Archambault, Real Estate Practice Vice Chair at Saul Ewing, tells GlobeSt.com that the US does not have enough areas where multi-level warehouses would make sense. 

“Building a large distribution center outside of an urban core is easier and cheaper,” Archambault said.

“There are also challenges in design including building a warehouse that is functional for trucks on multi-levels since they need to turn and dock, which is difficult to design in multi-layers. 

“A modern, smart warehouse can function at enough capacity to make it equal or close to equal (for the price) to a multilevel warehouse. However, Amazon is a specific user that may be able to use multilevel space to facilitate stocking and restocking of their last-mile delivery trucks.”

Peter Curry, real estate partner, Farrell Fritz, PC, tells GlobeSt.com that there is little need for multi-story construction in exurban areas.

“However, older suburbs have high land costs almost equivalent to nearby cities,” he said. 

“The problem is that they also have zoning codes limiting the height of commercial buildings and are concerned about exacerbating existing traffic issues. There will be little appetite for any multi-story logistics buildings in these areas, particularly in the Northeast.”

New York and Greater Los Angeles (including Inland Empire) may see speculative demand, Colliers suggests. 

Buy Small, Go Vertical

Ricky Byrd, SVP, Commercial at Caddell Construction, tells GlobeSt.com that since the pandemic, his clients have faced inflated real estate and construction costs.

“The demand for industrial space has encouraged more owners to buy smaller properties and go vertical with multi-story buildings,” Byrd said.

“Building multi-story warehouses is not always practical, but automation and advanced material handling equipment make it possible. For example, major retailers have utilized multi-story facilities for their e-Commerce fulfillment centers. The data center market is also trending in this direction with multi-level buildings for the same reason: to combat inflated real estate costs.”

Jesse Dean-Kluger, a real estate attorney based in Miami, tells GlobeSt.com that demand for multi-story industrial properties continues to increase as customers expect same-day and next-day delivery.

“This is trending mostly in densely populated areas and where there is a lack of available land,” Dean-Kluger said.

“Despite construction costs being much greater to build vertical warehousing, multi-story industrial buildings allow suppliers to efficiently manage last-mile distribution in condensed timeframes.