After Amazon's Pullback, The Future Of Multistory Warehouses Is In Question

It's been less than five years since Prologis built the first multistory warehouse in the country, and the number of these pricey properties has taken off since. But with millions of square feet of multistory industrial under construction and seeking tenants, questions remain about how deep the demand for this space goes.

There are five multistory properties under construction right now with roughly 5.3M SF of industrial space combined that have no announced leases signed, according to new CompStak data analyzing multistory warehouses.

The industry is still relatively nascent in the U.S. with Prologis building the first of this kind of property in the country in Seattle in 2018. New York has become the hub for this kind of development, per CompStak, with at least seven properties tracked as existing or under construction throughout the boroughs.

The only other city in the country with a multistory warehouse in the pipeline, according to CompStak, is Chicago, where Logistics Property Co. broke ground in October on a two-story, 1.2M SF warehouse.

But just how much room there is to grow with this sort of development is now in question, according to Alison Baumann, the director of real estate intelligence at CompStak.

“It will be interesting to see if we see any acceleration in the sector in terms of construction or whether we really take a pause for the next couple of years," Baumann said in an interview. "Construction is a challenge now, capital costs are rising, e-commerce brands like Amazon are pulling back a little bit.”

The only tenants to have taken space in any multistory building so far are Amazon and Home Depot, according to CompStak's data.

Amazon is a tenant at all four of the existing multistory warehouses. The e-commerce giant, with Home Depot, combined to lease up Prologis’ groundbreaking Seattle development.

The Jeff Bezos-led company also took the entirety of the the 400K SF multistory logistics center at 640 Columbia St., which was the first multistory property on the East Coast and is now owned by CBRE Investment Management, which paid $330M for it last June.

Last October, Amazon leased one floor of the two-story property at 2505 Bruckner Blvd., which is owned by Innovo Property Group and Square Mile Capital. That building is 58.7% occupied, according to CompStak. Amazon’s 1.1M SF lease at 55-15 Grand Ave. in Queens, meanwhile, is the most valuable industrial lease in the state at $40 per SF.

Baumann said while it is possible there are other firms taking space in those properties, CompStak's analysis didn't show  any others aside from Amazon and Home Depot.

“It definitely seems like it's a sector that serves the e-commerce brands that are last mile,” she said. “The prices that tenants are willing to pay and that the property owners/developers are commanding is really based off the ability to access a large volume of customers within a short period of time. Which also happens to be the places where land is constrained and zoning is a challenge.”

The weighted average for starting rents in multistory industrial properties is just over $37.20 per SF, significantly higher than the overall average industrial rents. 

In the New York City boroughs of Queens, Bronx and Brooklyn, average industrial rents have reached $24 per SF up 26.7% since 2019. In North Chicago, where Logistics Property is looking for the first tenant at its multistory facility, average rents are $12.11 per SF, per CompStak.

Turnbridge Equities' and Dune Real Estate Partners' 1.3M SF Bronx Logistics Center, is set to be completed this year, while Innovo Property Group's 840K SF project at 23-30 Borden Ave. in the Bronx is due to deliver in 2024. Bridge Development Partners and DH Property Holdings, which built the Columbia Avenue property in Red Hook, have a 1.3M SF property under construction in Sunset Park without a set completion date, per CompStak. 

None of the buildings have announced any signed leases.

The reach of New York multistory buildings, in terms of population density, is significant. Innovo's Bruckner Boulevard building can reach 18.6 million people within an hour’s drive, while the properties in Red Hook and Queens can reach 17.8 million and 17.9 million residents, respectively, per Compstak.

Baumann expects this to be a defining moment for multistory development — with the question now if demand will continue to grow, or multistory remains as a small “niche sector."

A pullback from Amazon could be a significant challenge for this particular part of the industrial market. Amazon, in its quest to cut costs, has now canceled, closed or delayed at least 99 warehouses, per MWPVL International data. Amazon is still planning to open another 231 facilities comprising more than 82M SF. More than half of those buildings are slated to be delivery centers, according to Supply Chain Dive.

Baumann said multistory buildings may be more vulnerable to economy cooling off than other parts of the industrial market.

“E-commerce is a driver who's taking these last-mile properties, e-commerce is susceptible to changes in consumer spending,” she said. “Amazon and others are adjusting their outlooks for what they think your spending is going to be over the next couple of years based on what's happening with the economy, I think, yes, they probably would, might be a bit more sensitive to a downturn.”