Demand for distribution space near major US ports continues to be strong, such that available real estate in many markets is almost gone. That situation in turn is pushing rates for existing space higher and higher. So along comes distribution real estate and management company Prologis with an idea new to the US but common in Asia and Europe: build multi-level, multi-purpose distribution facilities close to the ports to reduce real estate costs.
In fact, Prologis just recently broke ground on such a new facility near Seattle, the first of its kind in the US, according to a report in the Journal of Commerce. The 590,000 square-foot facility will have three levels, and be located two miles from the Port of Seattle and five miles from Seattle's downtown. Of course, multi-level warehouses were once common in US cities, but handling inefficiencies at these buildings and the move of millions of people from cities to the suburbs, where land for DCs was relatively inexpensive, soon made multi-level DCs obsolete. But maybe they are coming back in style. DC vacancy rates around major US ports is very low currently, often less than 3%. What's more, land suitable and available for building DCs in the popular 500,000 to 1 million square foot footprint is hard if not impossible to find in these markets. In the Seattle market where Prologis is building its new facility, the DC vacancy rate in Q4 was just 1.8%, according to the quarterly analysis from real estate form Jones Lang Lasalle.
Land prices have also soared for any land that is available, sometime to the point of making an investment for distribution not financially viable, forcing importers to either look to other ports or to secure sites farther and farther from port complexes, adding time and costs. JLL says land values near Seattle have shot up 20% to 25% over just the last two years. Prologis is said to the facility will be targeted at several different logistics services for the three-story structure. Those include import distribution, regional distribution and ecommerce fulfillment all from the one building, which was built "on spec" hoping the clients will come. The first two stories (see image below) will focus on crossdocking and transloading and have truck ramp access, using a sort of mezzanine approach on the second level. The third story will focus on storage and replenishment services, and will be served by freight elevators. Back to the future, it seems. "Major urban areas are running out of industrial space," said Hamid Moghadam, chief executive of Prologis last November. "The only way the logistics sector can compete is with this more dense format."