Multistory Distribution Buildings On the Way

CHICAGO—The US industrial market keeps rising, even as many people are on the lookout for any signs of the downturn that has to come eventually. But although few see any of those signs, other difficulties and challenges have arisen in this expanding sector. The nearly full-employment economy means labor has become scarce, much of it absorbed by the burgeoning Amazon, pushing up the costs needed to attract and retain workers.

But even though development now presents a set of new challenges, builders drawn by the robust demand that continues fueling the sector’s remarkable expansion, especially for product devoted to e-commerce. are experimenting with new designs and seeking out different locations.

“People who have never bought industrial property before are beginning new projects,” Brian D. Milberg, principal and senior partner of the Sitex Group, an Englewood, NJ-based developer, tells GlobeSt.com. And the need to quickly deliver goods direct to consumers within a day has several looking to break ground in dense urban areas such as the Bronx and Brooklyn.

Many of the region’s distribution centers are in Northern NJ, which offers lower rental costs. But Innovo Property Group and Square Mile Management LLC recently acquired Whitestone Multiplex Cinemas in the Bronx, and plan not just to transform it into a new distribution center, but one with multiple levels and 840,000 square feet. “They are making a bet that these last-mile companies need to be in the boroughs,” Milberg says. “It’s a perfect example of people trying to diversify their portfolio.”

That partnership is not the only one with this idea. Goldman Sachs Group has joined up with developer Dov Hertz and plans to launch a three-level distribution center in Red Hook, Brooklyn. Although such multi-story projects are not common, Prologis has already constructed a successful multi-level distribution center near Seattle’s waterfront, and these centers could be part of the sector’s next wave.

At the most recent I.CON industrial conference, held in early June by NAIOP, “everybody was talking about the multi-story buildings going up in the boroughs,” Milberg says. But he believes a cautious attitude is warranted. Same-day delivery is quite important, but space within these proposed structures will need to garner rents far higher than properties in either NJ or the boroughs. Spaces in the latter can go for $15 per square foot, but the multi-stories may need double that. “These are big bets with a lot of money.”