Stream Insights, a Thought Leadership Series featuring
Chase MacLeod, Managing Director, Industrial Services
Warehouse space in California’s Inland Empire is always in high demand. As consumers increasingly shift their retail consumption through e-commerce, the need for space to store and distribute those products is ratcheting upwards. E-commerce retailers need three times more warehousing space than traditional retailers to make the same amount of revenue; numbers like these mean demand in the already-crowded Inland Empire won’t be slowing down any time soon.
To truly understand the evolving dynamics of industrial demand, you have to look up. Literally. Where small- and mid-sized industrial properties might have been built with 24- to 26-foot clear heights in the past, 32-foot clear heights are the new minimum, with buildings very rarely being built lower than that—even those with specs under 100,000 square feet. Over the last two decades, clear heights have increased by 25%.
The clear height debate really lies within the 32- to 40-foot range. There’s no exact science to determine which clear height within that range will meet exact user requirements, especially for product built on speculation. But raising clear heights increases an asset’s long-term viability, as retailers need greater space to store products.
For 3PLs, e-commerce sellers, and storage companies, 36-foot clear heights are increasingly standard, allowing space for a full six pallet positions of racking so that more product can be stored—providing leverage over shorter buildings with the same square footage. A four-foot differential in clear heights can increase storage space by 10% to 25%. The trick is balancing that increase in space with the price differential found in building taller facilities.
Up, Up and Away
Amazon has been the trendsetter, raising clear heights in its big-box industrial facilities of one million square feet or more. In these buildings, 36- and 40-foot clear heights are standard. But until recently, big retailers like Amazon and Walmart have been in a class of their own, with smaller warehouses sticking to clear heights at or below 30 feet.
However, we’re now starting to see 36-foot clear heights even in smaller spaces. In 2016, Alere Property Group completed a 700,000 square-foot building with 36-foot minimum clearance. The building, which was not pre-leased, was split into two spaces: 225,000 square feet and 475,000 square feet. Alere has also delivered and since leased two speculative projects, one 671,000 square-foot building in Fontana and another 1.1 million square-foot building in Moreno Valley, both with a 40-foot clear height—a first for buildings not already pre-leased or earmarked for a build-to-suit.
The average clear height in buildings under 300,000 square feet sits at just around 32 feet, but that number is inching upward. Liberty Property Trust will deliver a 94,000 square-foot building with a 36-foot clear height in Ontario. Like Alere, Liberty Property Trust based its decision to deliver a greater clear height specifically on meeting prospective tenant demand.
New and tall, or old and low? Navigating clear heights
Raising clear heights offer several benefits. Increased clearance allows room for more mezzanine levels and higher racking systems. In the Inland Empire, where average rents net much higher than in other areas of the country, there’s an obvious benefit to building up.
The great debate is in the 150,000 to 250,000 square-foot arena, because this is where the price differential of installing higher clearance is really felt. These small to midsize buildings will likely continue to convert and grow to 36-foot clear heights in the Inland Empire. In some instances, certain developers have initiated the trend of designing and developing buildings as small as 40,000 square feet to 32-foot minimum clearance in an effort to ensure the facilities stand the test of time based on the ever-changing demands tenants have for logistics facilities.
Although new spaces are increasingly being built with higher clearance, the Inland Empire is crowded with many older, smaller warehouse spaces that have clear heights below 30 feet. Because space is in such high demand in the area, we predict these buildings won’t see significant redevelopment or demolishing anytime soon. Creative racking and stacking solutions can still allow users to fit a significant amount of product in these spaces, and they can be more cost-effective because of the delta between new and used spaces, which sits at around 15% to 25%.
We will continue to see high demand for older, lower clear height industrial spaces, but we predict that new spaces won’t be built lower than 30 feet, with a standard minimum clear height of 32 feet. Customers demand millions and millions of new products, and the only way to store and distribute those products, especially in an increasingly tight space, will be with higher clearance that allow users to fit a “warehouse on top of a warehouse.” In the industrial space, building smart means thinking and building vertically.