Increased consumer expectations for same-day and next-day delivery have placed pressure on retailers and third-party logistics users to find industrial space near influential population centers.
Before the Greater Los Angeles/Orange County region became the thriving metropolis it is today, it was like any other region, sprawling across the Southern California landscape. The population boomed, and space became scarce, resulting in residential developers building up instead of out. The local industrial market faces a similar challenge as existing available supply and land have become nearly extinct. The answer here may also be to look skyward with multistory warehouses.
The graphic demonstrates how popular ordering online has become for many adults living in the region over the past year.
Strong regional e-commerce demand and demographics caused many retailers and third-party logistics users to implement innovative strategies to achieve last-mile goals, but challenges still remain. For developers planning to build last-mile facilities, higher land costs and smaller site areas have become problematic. Increased land prices due to competition from other land uses created a scenario in which higher utilization rates are key to building industrial facilities in the land-constrained region.
We anticipate that land prices will continue to rise in coming years. As a result, the emergence of multistory industrial facilities should grow in popularity and necessity. The trend can work favorably in the densely populated infill markets throughout the region, providing last-mile efficiencies. Additionally, multistory warehouses will enhance usable floor space per square foot, and provide multiple modes of product storage and handling. Conversely, there are obstacles developers must overcome to be successful. The cost of building a multistory warehouse could be twice as expensive, in some cases, when compared with redeveloping an existing building. Landlords or owners may have concerns over finding tenants willing to pay a top rate to occupy the spaces. Inevitably, the need for infill centers will outweigh the negative aspects as demand rises over time and available land becomes scarcer.
—Analysis by CBRE
