The Case For (And Against) Multi-Storey
The Future of Industrial Warehousing
November 27th, 2020
Let me tell you a story.
This isn’t the one with a daring hero or an epic journey against insurmountable odds. Nor is it one with a happy ending. In fact, it has no ending at all, as this tale continues to unfold and write itself in real-time.
Whereby most accounts are told from a personal or psychological perspective, this one simply tells of the various forces at-large that are at play, and how their effects are manifesting in the creation of a type of property that has yet to be proven and adopted by the mainstream in North America – and even – the greater world.
What’s this, say you?
It is the futuristic, feat of engineering that captures the imagination and carries us off into a world with drones and flying cars a la Blade Runner. It’s a concept so foreign and complex in execution that it would send many developers and contractors running for the hills. Strangely enough, it is also one that has its history in Asia for well over two decades; where builders have, as a response to necessity, cast aside notions of what can or can’t be done.
The reason it has yet to become a staple of commercial properties stateside is simply for pragmatic reasons. There was never a real need to go through all of the zoning, design, architectural, and financial hurdles that dramatically amplify risk and eat into pre-existing, easy, and healthy margins (analysts and underwriters beware).
As we enter into 2021, we are talking about a product in an asset class that is not only ‘on fire’ as it is so popularly described, but rather, it has become multi-dimensional in its forms and applications.
It has become the ‘legs’ for dozens of industries to operate via social distancing and same-day deliveries.
It has become the carrier of our food, the creator of our streaming content, the laboratory for our medicines, as well as the manufacturer of our goods.
The asset class is industrial.
And the property is multi-storey industrial warehousing.
(And yes, it’s coming to Canada soon… actually, it is under construction, as we will highlight in one of our upcoming issues…)
Oxford’s Riverbend Business Park, Vancouver. Source: Skyrise Vancouver
What Is a Multi-Storey Warehouse?
According to Prologis’ definition:
As we covered in detail in our first issue, the concept of a multi-storey warehouse emerged in Asia out of necessity and due to constraints such as land and development costs, rental rates, and a need to both access large urban city centre populations and fulfill same-day delivery requirements.
As these forces become more pronounced in North America with increasing densities, rising asset values, and the accelerated adoption of e-commerce (largely driven by the pandemic), then we will naturally see this type of product become more mainstream.
As Ware Malcomb has noted, “This is not a trend, but rather the next evolution of industrial building design and development. This innovative prototype will transform and reinvent how and where some new fulfillment centers are developed.”
Source: Ware Malcomb via NAIOP
The Case for (and Against) Building Vertically
Constructing multi-storey industrial warehouses is not as simple as a traditional industrial facility. The change in form – namely height – brings about new challenges.
Wherein one could construct a single-storey building of up to 40, 60, and even 80 foot clear heights and manage them efficiently with racking or automation systems… accessing multiple levels – sometimes occupied by different Users – adds additional layers of complexity.
- to construct industrial warehouses in densely populated urban settings in a cost-effective manner.
Benefits of Construction
- higher rentable area per acre of land, when executed properly
- strong demand for industrial product
- perfect ‘last-mile’ facility
- urban setting
- access to consumers and labour pool
- lower transportation costs
Challenges in Construction
- must increase rentable area to justify high land and construction costs
- lack of developable land
- must not compromise Tenant’s operations
- a ceiling on reasonable rental rates
- complex permitting and zoning process
- complex construction process
- more expensive and time-consuming to construct
- less efficient site use
- no backing (yet) from capital markets
Oxford’s Riverbend Business Park, Vancouver. Source: Skyrise Vancouver
“Multistory industrial warehouses need to be fully functional, divisible and leasable without compromising the typical tenant’s operational requirements.” – Jay Todisco, Ware Malcomb
As we can see above, the challenges appear to outweigh the benefits in their volume, however, the juice is thought to certainly be ‘worth the squeeze’ when you have a property of this nature fully constructed and operational.
The concept of a multi-storey industrial warehouse is one of creativity, imagination, and ingenuity. Its existence and operation within our society will be one of necessity and financial incentive… either that or an initiative carried out by a progressive and risk-taking developer. So far, the Greater Toronto Area does not have a backer, but, given the forces at play, the Region would likely make a great candidate.
Extremely dense pockets of the urban core may be well served by these futuristic buildings and their ability to connect with consumers. The only roadblocks right now are economics and experience. With few understanding the former, and even fewer possessing the latter, it may take a bold move to get the ball rolling. However, once successfully completed, the pioneers should inspire the early majority. From there, it will not be unreasonable to see them spaced throughout the City of Toronto.
Next issue, we will examine the anatomy of a multi-storey industrial warehouse; for what is needed in form and function, as well as how its design may evolve for differing contexts.
In the meantime, if you would like a confidential consultation or a complimentary opinion of value of your property please give us a call.
Until next week…
Goran Brelih and his team have been servicing Investors and Occupiers of Industrial properties in Toronto Central and Toronto North markets for the past 25 years.
Goran Brelih is a Senior Vice President for Cushman & Wakefield ULC in the Greater Toronto Area.
Over the past 27 years, he has been involved in the lease or sale of approximately 25.7 million square feet of industrial space, valued in excess of $1.6 billion dollars while averaging between 40 and 50 transactions per year and achieving the highest level of sales, from the President’s Round Table to Top Ten in GTA and the National Top Ten.
Goran is currently serving as Immediate Past President of the SIOR ‐ Society of Industrial and Office Realtors, Central Canadian Chapter.
Industrial Real Estate Sales and Leasing, Investment Sales, Design-Build and Land Development
About Cushman & Wakefield ULC.
Cushman & Wakefield is a leading global real estate services firm that delivers exceptional value by putting ideas into action for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with 48,000 employees in approximately 400 offices and 70 countries.
In 2017, the firm had revenue of $6.9 billion across core services of property, facilities and project management, leasing, capital markets, advisory, and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.
For more information on GTA Industrial Real Estate Market or to discuss how they can assist you with your real estate needs please contact Goran at 416-756-5456, email at email@example.com, or visit www.goranbrelih.com.
Connect with Me Here! – Goran Brelih’s Linkedin Profile: https://ca.linkedin.com/in/goranbrelih
Goran Brelih, SIOR
Senior Vice President, Broker
Cushman & Wakefield ULC, Brokerage.
Immediate Past President, SIOR – Central Canada Chapter