Online shopping trend creates surging”last mile” warehouse demand

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prologis abc carpet
Prologis purchased the former ABC Carpet building in the Bronx

The trend to online shopping has created new opportunities for warehouse construction including new “last mile” demand that is pushing up costs and encouraging new construction.

Industrial rental rates are near record levels, while there is fierce competition to buy such properties with foreign purchasers spending $61 billion since 2010, says a New York Post report.

There have always been small warehouses and larger industrial buildings scattered around the boroughs. But the monster, one million-square-footers in the logistical supply chain are mostly sitting right off the I-95 corridor in New Jersey, and creeping closer as developers reactivate spots in the city itself.

Cushman & Wakefield says both asking rents and new construction are at “century highs.”

Examples include Wayfair’s lease of two buildings with 1.24 million sq. ft. in Cranbury, NJ, the tightest submarket off I-95’s Exit 8A. M+H Architects designed the structures, built on spec with 40-foot-high ceilings.

Meanwhile, in the Bronx, Prologis bought the former ABC Carpet building — and is seeing demand — while LBA Realty purchased the 212,335-sq. ft. 130 Docks Corner Rd. in South Brunswick for $19.15 million or $90.19 per foot from Prologis. Prologis is reportedly the largest US industrial owner, with about 380 million sq. ft.

Then there are the “last mile” warehouses, described as anywhere bike messengers can deliver in a 20-block radius, says John Maltz, a principal of Greiner-Maltz. He has seen an uptick in queries, with higher rents and sale pricing.

FedEx has expanded its same-day service to 1,800 cities in 30 markets as all shipments worldwide will reach $4.03 billion in merchandise, Business Intelligence predicts.

The “last mile” or “final mile” concept is changing, says Mo Beler, managing director at JLL Capital Markets. Now it includes the ability to deliver to customers in under an hour.

This means that former industrial buildings that might have become hotels are now being turned into distribution centers, including Amazon’s long-term lease in Staten Island for an 880,000-sq. ft. industrial building Ikea’s 975,000 sq. ft.at the same Matrix Global Logistics Park.

“Every investor, both institutional and private, is looking to purchase buildings in the . . . boroughs,” says Stan Danzig, vice-chairman of Cushman & Wakefield. “Anyone who owns a building in Long Island City or Brooklyn or Queens . . . is taking a second look at industrial. It’s a lot less work and a lot less capital (to keep it industrial).”

While leasing million-square-foot New Jersey warehouses is cheaper — from $5 to $8 per foot up to newer places at $13 per foot — trucking packages into Midtown is both time-consuming and expensive.

“Delivering from New Jersey two to three times a day becomes an expensive proposition,” the Post quoted John Reinertsen, senior vice-president of CBRE, as saying. “That’s why everyone is over here: to get smaller spaces.”

Rents have doubled for borough warehouses to the $20- to $30-per-foot range. They now fetch $200 to $225 per foot — or higher.

“We have some spaces on the sales market in Queens for over $300 per foot,” says Peter Hauspurg, chairman of Eastern Consolidated. “Ten years ago, they would have been $40 per foot.”