More Multistory Industrial Buildings Are Coming. What Will That Mean?

There aren’t many multistory warehouses in the US, but that will soon change as the US relies more on e-commerce.

These buildings, which typically exceed 200,000 square feet, are concentrated in New York, Seattle, and Chicago, according to a new report from CBRE. Two more facilities are proposed in San Francisco.

Most existing facilities are fully leased and the five under construction are being developed without a tenant commitment and are available for occupancy.

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

These buildings pull higher rents due to their extensive development costs, high land values, and locations near dense population centers.

Part of the attraction is that multi-story facilities maximize FAR (floor area ratio). This helps the economics of accessing densely populated areas with high land prices and few sites, CBRE said.

These buildings mean that large industrial space no longer needs to have a gigantic square footage on a single floor.

This niche subtype represents less than 1% of US industrial facilities, but “there is an increasing need for these facilities— in the US and abroad—because e-commerce has fueled demand near population-dense regions, where infill land prices are higher and rising,” according to the report.

The most inventory is contained in New York, with its four existing buildings (2.65 million total sq. ft.) and four under construction (3.7 million total sq. ft.).

CBRE said that net rents vary from market to market and much of this variation depends on auto/truck parking.

Leases are often structured with rates that include the tenant’s parking area, as well as a separate rate based on the sq. ft. of space needed within the building.

CBRE said that most buildings tend to lease between $30 to $40 per sq. ft. NNN and the parking areas typically garner $10 to $25 per sq. ft.

Other leading multistory buildings include the Prologis Georgetown Crossroads in Seattle, the first such building in the US.

Built in 2018, it includes three levels, 100 external docks, and 28 feet clear height. Another local facility (695,000 sq. ft.) is under construction and scheduled to deliver this quarter.

The first non-coastal multistory warehouse facility (1,184,800 sq. ft.) is being built by Logistics Property Company in the north part of Chicago and is expected to be delivered during the second half of 2024.

Two new  facilities totaling 2.2 million sq. ft. have been proposed in San Francisco.

“While the U.S. multistory and urban logistics landscape is currently very much in its infancy, there is tremendous potential in the future of multistory and urban logistics in both the established urban logistics markets and emerging logistics markets,” JLL’s Lesley Lanne stated last year.

With the added cost to build, multi-story warehouses are unlikely to become a widespread phenomenon, according to Colliers, and Amazon will be the primary occupant.