Recently, we had the privilege of asking Dan Letter, President of Central Region, Prologis, about the company’s new innovative facility near downtown Seattle. Prologis is the global leader in logistics real estate. The company recently completed the first multistory logistics facility in the U.S. What led to this development? Here is what Dan had to say.
Tell us a little bit about your warehouse innovation in Seattle.
Prologis’ Georgetown Crossroads is the first multistory logistics facility in the United States. Located near downtown Seattle, this three-story distribution center recognizes the need for companies to be ever closer to their customers without compromising the functional attributes of a fulfillment center. It features truck ramps leading to loading docks on the second level and the third floor, served via forklift accessible freight elevators, for lighter-scale warehouse operations.
What led to developing this concept/project? What is driving this trend?
The traditional warehouse was once a cavernous building, tucked away in a second-tier city and seen simply as a means of storing goods. However, today’s robust e-commerce-driven economy has created a significant shift in how logistics real estate is viewed. Same-day delivery is evolving into same-hour delivery in some places, and consumers are insisting on a broader selection and availability of goods. As a result, selecting a market and a property are now business-critical decisions that favor high-quality space in prime locations near urban centers.
E-commerce comprises about 20% of new leasing for logistics real estate, up from less than 5% five years ago. One reason for this growth is online retailers need approximately 1.2 million square feet per billion dollars of online sales on average, which is three times the distribution center space required for traditional brick-and-mortar retailers.
How difficult was it to get approved by the local government?
We partnered with the City of Seattle and King County throughout the two-year entitlement process to make the vision of the first multistory warehouse in the U.S. a reality. One of the challenges is this type of property hadn’t been developed before. So, we worked closely with city officials before construction began to study the development and to correctly interpret building codes.
Where will we see this concept replicated in the U.S.? Will this type of development only occur in major urban areas or perhaps in a distribution hub area like Sacramento?
We believe multistory facilities will be attractive in dense urban markets where industrial real estate is in short supply and property values are at a premium. In the U.S., we see this in the five or six most densely populated markets.
What are the general economics of this compared to a one-story warehouse?
Prologis’ research team found for every $1 spent on rent, users of logistics real estate spend $10 on transportation and $5 to $7 on labor. This means the physical cost of transporting goods from faraway facilities still significantly exceeds the cost of higher rent. In fact, we’re finding users are increasingly willing to pay more in rent because the location creates more value, particularly for last-mile space.
How many types of these facilities would you build in a major metro area like San Francisco or Los Angeles?
We redeveloped a former retail space in the Bronx, which is now our first multistory warehouse on the East Coast. We also have another facility pending approval in San Francisco.
Anything else?
Our main focus is on the ever-changing needs of our customers, and the completion of Georgetown Crossroads is an excellent example of our commitment to customer-centric innovation. We used our global scale and leveraged the expertise of our colleagues in China and Japan to optimize the building. Forward-looking projects like Georgetown Crossroads demonstrate our commitment to doing everything we can for our customers and puts us closest to the consumption side of the logistics supply chain.
Greg Dresdow is a Senior Tax Advisor in the Real Estate Industry Group at BPM. Contact Greg at [email protected] or call 925-296-1088.
