New York City’s Industrial Stock is Outdated. Here’s How Developers are Responding.

Investors and occupiers alike are still bullish on industrial real estate and for good reason. The coronavirus pandemic dampened activity nationally across most property sectors, but the amount of dollars spent on industrial property has climbed steadily since 2016. In the year ahead, e-commerce will fuel further expansion of the sector, as retailers and shippers continue updating their supply chains to meet demand.

According to CBRE, 250 million square feet of industrial net absorption is forecasted for 2021, topping a five-year annual average of 211 million square feet. Research firm Deloitte sees demand for 850 million square feet of additional industrial space in the U.S. by 2023, with e-commerce as a major contributor.

New York City is the country’s largest population center. It’s also a bastion of digital shoppers increasingly expecting one-day, same-day and even two-hour delivery. That’s a main reason Amazon has expanded its industrial footprint across the city and is signaling additional investment in the coming years. Other retailers, digital platforms and 3rd party logistics firms (3PLs) are following suit.  On the heels of the pandemic, even the state’s government has stepped in to accelerate e-commerce adoption. In October, Governor Andrew Cuomo announced the Empire State Digital Initiative that enlists e-commerce brands like Shopify and Etsy to train and provide marketing support to small businesses growing their online presence.

When looking to reach New York City residents, investors and occupiers traditionally scoured northern New Jersey, eastern Pennsylvania and southern Connecticut as typical hunting grounds for space. But in today’s industrial real estate market, New York City’s outer boroughs are ideally positioned to serve the city’s shipping, warehousing, manufacturing and innovation needs, thanks to their geography-hugging waterways and major road arteries.

Standing in the way is outdated building stock.  Hailing from the early 20th Century, these properties are largely Class B/C product with building age averages of 75+ years.  They’re also functionally obsolete with compact floors, few loading docks, limited parking, and lack the digital infrastructure that modern logistics and e-commerce operations demand. In its latest research on the future of industrial real estate, Deloitte recommends industrial owners to position their properties more competitively through investments in high-speed connectivity and energy grids or renewable energy sources, as sustainable, efficient properties generally lower operating costs.

The importance of functional, modern space can’t be understated. Increasing automation of the supply chain process means that the future of shipping — with AI for inventory control and robots in the warehouse — is here and now. Heavy floor loads to support machinery, high-speed internet access, design that accommodates digital infrastructure and wide open spaces that accommodate multiple docks are necessary for those companies who want to expand while staying nimble. Among the most salient needs for occupiers of space in shipping and fulfillment centers are connectivity and flexible space, according to recent surveys. To improve efficiency, owners can retrofit and upgrade existing properties to allow for more efficient storage, multi-tenant spaces, higher ceilings and more cross-docks and doors. 

There is a dearth of state-of-the-art industrial space in the five boroughs of New York City. Seeing the need, New York City’s developers are delivering strategic product to fill it, focusing on function and efficiency. Thoughtful owners are incorporating creative ideas to unlock further value, such as adjacent office space, dining and retail options, event spaces, and in some cases rooftop farms. The new wave of industrial space swelling across the metropolitan area must be scalable, enabling growth for a diverse array of businesses.

Jon Ratner is managing director with Madison Capital.