When we’re talking about building logistics hubs, size really does matter.
For one thing, one million square feet of warehousing real estate is no longer a big deal. Not when e-commerce is on a steep growth curve in the United States, with consumers spending $517 billionOpens a new window online in 2018, a 15% increase over the previous year.
To supply that segment, you really must think big.
Just this past summer, Amazon, which accounts for two-fifths of all American online retail sales, announced plans for a ground-up fulfillment center in Pittsburgh.
The tech giant will use it for picking, packing and shipping bulkier consumer items including sports gear, patio furniture and larger domestic goods. And that new hub will contain one million square feet.
Building in Mega Era
Nearly 100 logistics centers of that magnitude have come on-stream in recent years. Amazon itself is behind a good deal of this mega-construction and is responsible for the four largest warehouse building starts last year, all of which came in at two million square feet-plus.
Overall, 48 warehouse projects of at least one million square feet went into construction during 2018, up slightly from 46 in the previous year, according to Dodge Data & AnalyticsOpens a new window .
There’s more in the pipeline. Walmart alone plans to build three mega-distribution centers this year, each building out well past the one million mark.
These large hubs are necessary to handle burgeoning volumes. Plus, in order to get the goods to customers as soon as possible, the new fulfillment centers can no longer stand outside the city in sprawling suburbs as once did older warehousing. Now, they are getting close to urban centers and that all-important last mile.
That’s key. According to a study conducted by Zebra TechnologyOpens a new window , close to 80% of logistics providers expect to offer same-day delivery by 2023, and 40% anticipate delivery within a mere two-hour window by 2028.
Going Up in the City
The closer to downtown, of course, the higher the cost to buy enough land to accommodate a new warehouse. Property prices will be prohibitive when considering mega-footprint. That means the way forward is straight up.
State-of-the-art warehousing is now all about verticality, with cubic volume rather than square footage the currency of measurement. Both Amazon and Home Depot, for instance, recently signed leases on multistory warehouses in Seattle to facilitate next-day and even same-day delivery in the city.
One project, Prologis’s three-story Georgetown Crossroads venture, is just a few minutes from downtown Seattle, close to the port and rail nodes.
More of these developments will follow. One is already in the works in New York: a three-story distribution center on the Red Hook waterfront in Brooklyn.
Moving Close to the Customer
Goldman Sachs real estate, one of the firms behind the project, maintains there is demand for what it terms “infill logistics facilities†such as the Brooklyn project in crowded urban locations where real estate is in short supply.
That makes sense. Anyone looking to execute same-day delivery in New York’s boroughs really does need to operate right in the city. And being closer to the customer has the advantage of lower transportation costs and reduced exposure to rising gasoline prices.
Being in the neighborhood, however, doesn’t have to mean going custom high-rise.
Scouting for Underused Properties
Facilities can be developed by repurposing real estate in what Deloitte calls “adaptive reuse.â€Opens a new window That means scouting for locations such as empty or underutilized office buildings, workshops, parking lots and garages.
Or, simply dig deeper. The Kansas Interstate Underground & Warehouse Distribution Center boasts millions of square feet of subterranean storage, much of it maintained at low temperatures at a fraction of the cost of surface facilities.
That kind of solution sounds ideal for fresh food deliveries in big cities. So, who’s ready to go underground?