As online shopping has boomed, the industrial warehouses needed to store all the stuff people are ordering have become the darling of the asset classes.
According to CBRE, $1 billion in e-commerce sales causes 1.25 million square feet of absorption of industrial and logistics space. Industrial rental rates are near record levels, while there is fierce competition to buy such properties with foreign purchasers spending $61 billion since 2010.
There have always been small warehouses and larger industrial buildings scattered around the boroughs. But the monster, 1 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.” Distribution space in New Jersey is tight, with vacancy in 2017’s third quarter at just 3.9 percent, and absorption is at 10 million square feet for the fourth year in a row. It’s obvious that if you build it, they will lease it.
In Cranbury, NJ, the tightest submarket off I-95’s Exit 8A, Wayfair leased two buildings totaling 1.24 million square feet. Designed by M+H Architects, they were built on spec with 40-foot-high ceilings.
Nearby, LBA Realty purchased the 212,335-square-foot 130 Docks Corner Rd. in South Brunswick for $19.15 million or $90.19 per foot from Prologis. The largest industrial owner in the US, Prologis has some 380 million square feet.
Goods arriving from global manufacturers by container ship, rail or 18-wheeler are stored here before making the trek to the so-called “last mile” warehouses in New York City.
This true “last mile” space is 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.
Rather than counting its costs per foot, Amazon tallies by package delivered, so the closer it gets to customers, the faster and cheaper it gets.
That’s why the online giant turned the office building at 7 W. 34th St. at Fifth Ave. into a local distribution warehouse.
But the concept of “last mile” or “final mile” is changing, says Mo Beler, managing director at JLL Capital Markets. Now it includes the ability to deliver to customers in under an hour.
That’s led to a scramble for local industrial buildings that, in the past, would have become residences hotels or offices. Amazon’s long-term lease in Staten Island for an 880,000-square-foot industrial building was also a wake-up call for area investors. And now Ikea has signed for 975,000 square feet 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].”
Over the last year, UPS and FedEx have also signed leases or made large purchases of industrial space in the metro area to accommodate their own growth.
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 pricey.
“Delivering from New Jersey two to three times a day becomes an expensive proposition,” says John Reinertsen, senior vice president of CBRE. “That’s why everyone is over here: to get smaller spaces.”
That’s also doubled rents for borough warehouses to the $20- to $30-per-foot range. With little for sale, 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.”
Cushman & Wakefield is marketing a warehouse for $110 million with pricing at $245 per developable foot. The facility at 23-30 Borden Ave. in Long Island City can be expanded to 448,346 feet and has a legal billboard. An upcoming sale by C&W in Maspeth will hit $265 million — a record $750 per foot.
In this same Maspeth area of Queens, UPS leased a 475,000-square-foot former Duane Reade facility from the Goldman family, after the retailer relocated its warehouse to New Jersey, a state with many incentives.
In the Bronx, Prologis bought the former ABC Carpet building. “They fixed it up and are getting a lot of demand,” says Danzig.
Innovo Property Group and Square Mile Capital purchased the Whitestone Cinema site in the Bronx for $75 million from Extell.Once a drive-in theater for 1,500 cars, it sits adjacent to I-95, I-278 and I-678. Its easy truck access makes it perfect for an industrial distribution center or even a desperately needed truck stop.
Meanwhile, parts of Brooklyn’s Red Hook can access 2.5 million end users in 35 to 40 minutes, Beler says, making that the new go-to area. Here, UPS leased a 12-acre site where it can develop 1.7 million square feet. Also in Red Hook, former Extell executive Dov Hertz, of DH Properties, is buying a 4-acre site along with Goldman Sachs at 640 Columbia St. next to Ikea by the New York Harbor. According to the Real Deal, the pricing is nearly $50 million — over twice its $21 million purchase price in Dec. 2013 — with expectations to develop an approximately 350,000-square-foot industrial facility. Expect even more projects like this to come.