Sitting at home has been good business for the city’s industrial sector, which was already revving up to service the influx of packages ordered through online shopping.
“We had as much growth in the first three months of 2020 as in the last 10 years,” said Rob Kossar, vice chairman of global real estate company JLL, adding that the pandemic has pushed those who had never bought goods online to became home-delivery converts. “From a business perspective, for industrial, it has caused an incredible boom.”
In the past, about 11 percent of all retail sales were made online — but by the end of 2020 it had bumped to 22 percent, and is expected to rise to 30 percent.
On Thanksgiving weekend, 88 percent of the 194 million US shoppers bought goods online, according to the International Council of Shopping Centers.
With e-commerce growth, large new facilities are needed to process and ship goods to others closer to home, known as “last-mile” facilities. These receive the packages brought in by the big tractor-trailers and then sort and redistribute the packages so they can be shuttled by smaller trucks and vans or even bicycles, right to your front door.
“The need for the last-mile has made industrial the hottest sector,” said Jimmy Kuhn, president and head of investment services at the commercial real estate brokerage Newmark.
JLL expects a need for an additional 1 billion square feet of industrial space across the US with an astounding 30 to 40 million square feet in New York City alone by 2025.
That obvious need, and visions of future profits, have already boosted prices in excess of what they were pre-pandemic.
Since everyone wants their products delivered same day, facilities are needed closer to the neighborhoods, Kossar said.
Currently, all of the new facilities are rising in New Jersey, Queens and Brooklyn.
“There are zero in Manhattan so most will be serviced from outside,” he said.
Amazon, for instance, changed the office building at 7 W. 34 St. to a neighborhood distribution hub with a pickup storefront.
North River Company has nearly 100,000 square feet available at the 230,000-square-foot B&O Building at 610 W. 26th St. across from the Starrett-Lehigh office building in Chelsea. It has loading docks and can create a building within a building there for flex distribution and offices, which would overlook the Hudson River.
Several local investors, including Scott Rechler’s RXR and Andrew Chung’s Innovo Property Group, have jumped into the segment which is also the target of dedicated real estate investment trusts (REITs), including Prologis, a real estate investment trust headquartered in San Francisco.
“Prologis will be a player in the city and they have been buying existing buildings and buying development sites,” said Kossar.
Prologis already owns buildings near JFK International Airport. Also at JFK, Triangle Equities is developing a 400,000-square-foot Terminal Logistics Center at 130-02 S. Conduit Ave.
“It will be available for December occupancy,” said Frank Liggio managing director of Cushman & Wakefield.
“We need more fleet storage than when these projects were first conceived,” Kossar added.
He is handling all the leasing for Innovo, including the 1 million-square-foot 25-05 Bruckner which is under construction with partner and investment manager Square Mile Capital on 20 acres in The Bronx.
The developers closed on a $305 million construction loan in April. Half of the new building will be used for warehouse fulfillment and the rest for fleet storage.
At 23-20 Borden Ave., in Long Island City, Innovo, together with partners Atalaya Capital, an investment advisory firm, and the Nan Fung Group, property developers based in Hong Kong, are planning a five-story, 680,000-square-foot mixed-use building targeting both industrial and studios. The 4.7-acre site was purchased for $75 million just two years ago.
In Maspeth, Queens, RXR and LBA Logistics, a industrial real estate company, are creating a 1.1 million-square-foot “premier” logistics and distribution facility at a former Cascade box factory at 55-15 Grand Ave.
The new five-story building will have some office space and include a two-story distribution space with fleet storage capabilities. Based on a lease with Amazon, the construction, project and acquisition financing of $305 million was provided by JPMorgan in December.
Amazon has been gobbling up others since it announced in 2018 it would open a $100 million, 855,000-square-foot fulfillment center at 546 Gulf Ave., Staten Island. It now has two more warehouses in that borough alone.
In The Bronx, Amazon will be the tenant, sources said, for a new facility that it will lease from Prologis. The REIT bought the site last fall for $51 million from a Tennessee radio group and it can be developed to over 400,000 square feet.
In Brooklyn, Goldman Sachs and DH Property Holdings founder Dov Hertz are developing a modern, three-story distribution center at 640 Columbia St. in Red Hook.
The brokers declined to discuss exact pricing for these facilities but the rents are rising and range from $35 to $38 per foot under a triple-net lease for the interiors. Under a triple-net lease, the tenant is responsible for all property taxes, utilities, insurance and maintenance. And because the truck sizes vary, fleet storage is also priced per foot and currently runs from $15 to $20 a foot.
“But all of the rents are creeping up fast,” said Kossar.