Warehousing space in the greater New York region is always at a premium, but new pressures on warehousing such as the emphasis on the last mile from e-commerce are changing warehousing in urban areas.
NAI Hanson, a full service commercial real estate firm specializing in the Northern New Jersey and Southern New York region, offered the AJOT some insights on the metro market from Eric Demmers, Sales Associate and Russ Verducci, Vice President.
AJOT: What increases in space and facilities do you see for warehousing in the metro-New York region over the next few years?
NAI Hanson – Eric Demmers: Developers are building at a steady pace, keeping the absorption rate in sync with new deliveries. We see this remaining the case for the near future.
AJOT: We’ve noticed a change in warehousing to smaller facilities closer and in some cases within urban areas - part of the Amazon impact and e-commerce in general - do you see something like that happening in the region?
NAI Hanson – Eric Demmers: Absolutely. In a high population density area like the Northeast, smaller facilities can be made more efficient by going vertical and it is typically less costly than constructing a facility with a larger footprint. The concept is the traditional hub and spoke model with a larger more centralized distribution center similar to those found along the Turnpike and major transportation arteries acting as the hub and many surrounding smaller facilities used for regional last mile in higher density areas.
AJOT: What impact has traffic congestion had on the warehouse market?
NAI Hanson – Eric Demmers: The costs of congestion are massive, to the tune of over $50 billion in just the major metropolitan markets in the U.S. Ultimately, at the end of the day operators are looking at their numbers. It is an equation between a multitude of things that all play a part, factors such as drayage rates, fuel costs, tolls and real estate prices. If we have an operator that sees congestion related costs as a large drain on their bottom line, it may make sense for them to relocate their facility slightly further from metro or port markets as long as they can still operate effectively and efficiently.
AJOT: Is warehousing becoming more specialized - we’ve noticed a trend of more complex cold chain facilities but does specialization extend to other sectors?
NAI Hanson – Russ Verducci: Yes, we feel that warehousing is becoming more specialized. Developers are increasingly building more efficient and specialized buildings. However, on the user side we find there can be a disconnect. Although the high-end, more sophisticated e-commerce groups utilize the full efficiency of their spaces, we see that many smaller users are not fully optimizing their space. For example, it is common to find these users want certain features or space for possible future capabilities but may not use them initially. Although the larger e-commerce operators do make a significant amount of headlines, much of the market activity is still driven by these smaller firms. Allowing them to better recognize their real estate needs in a rapidly changing industrial market will continue to be an important role for commercial real estate brokers and will lead to continued growth of better optimized spaces for these specific companies.
There is also certainly a trend toward more complex refrigerated and cold storage facilities. Our food chain continues to become increasingly global, with products and ingredients coming from all over the world. When you look at the complexity of these operations and the speed at which they are evolving, it is hard to imagine that many food products were moved using wooden ships and horses only a hundred years ago. With continued advances in technology and processes, it is easy to see that cold storage and cold storage facilities and networks will become even larger and more complex. With these advances, I expect to see continued development of specialized distribution facilities and increased hybridization of grocery stores as they grow to fill both retail and distribution roles.
