While the commercial real estate industrial sector continues to improve and evolve, properties in the asset class also continue to grow… in height.
Bisnow recently highlighted a CBRE report that says the heights of industrial buildings have increased. The average warehouse height was 33 feet in 2016, and that number should continue to grow as Ecommerce users convert upper clear heights into mezzanine space – which, in turn, adds shadow square footage to the asset. This recent evolution shows why newer assets have a distinct competitive advantage. Older standard heights, specifically 24 feet, established in the 1960s, are lagging behind when it comes to this particular need for vertical space.
Again, E-commerce is one of the main drivers of this trend – so this need is prevalent in one specific use type. But, as there is a growing concentration on cubic footage inside the asset (total SF available internally) instead of square footage (based on solely the footprint) this clear height distinction will continue to separate newer stock from legacy assets. With the increased trend toward online shopping, there is a need to stack wide varieties of products vertically so both height and footprint are becoming differentiators.
This trend has slowly been taking place for a few years now, and ceilings in industrial buildings have gone as high as 36 feet recently to accommodate the new tenant requirements. Higher clear heights are now the new norm for developers, and this adds additional requirements to the development of these assets. The trend began in California’s Inland Empire, along with logistics hubs in the Midwest, like Indianapolis. It’s now spreading far and wide, and in areas that can accommodate the zoning and height restrictions, it’s becoming a developer’s main differentiator in many areas.
All of this is good news for the industrial sector, developers, and the construction industry. While the rise of e-commerce can have a negative impact on retail real estate in brick-and-mortar locations, as evidenced by the numerous store-closings year to date, this is more of a market specific issue and does not necessarily mean bad news for the overall commercial real estate industry.
Additionally, the Trump administration’s proposed improvement of the country’s infrastructure system is likely to aid the industrial segment as well. If the plans come to fruition, industrial real estate will see immediate benefits. The improved movement of goods at a rapid pace through improved highways, rail systems, and other modes of transportation, will make storage in current and new industrial a critical part of many business plans. Add in the decade long push toward same day delivery, and this trend toward more, newer and better located industrial assets continues.
The needs of e-commerce, import and export firms, and everyday citizens are likely to drive these infrastructure improvements. Regardless of this potential outcome, industrial commercial real estate is well positioned in the foreseeable future to continue its solid run.