Earlier last week Prologis broke ground on a development in South Seattle that, if successful, will entirely reshape the way developers approach industrial in-fill projects for years to come. The project is called Georgetown Crossroads, and it is the first multi-level modern industrial building to be built in the US. On a site that measures 596,454 square feet, Prologis will deliver 589,615 square feet of high end industrial warehouse and manufacturing space, in addition to a 500-stall parking garage, and ample maneuvering room for trucks. By traditional standards, the quantity of delivered product would necessitate a site nearly three times as large. Instead of expanding horizontally though, Prologis chose to go vertical. While the concept is not entirely new, the multi-level warehouses of the early 20th century presented functionality challenges from day one due to limitations on the movement of product in and out of upper floors. This problem has been solved through the use of two enormous ramps that circumnavigate the building on either side in order for truck traffic to efficiently access the second level loading court. The top floor will be accessed via both freight and standard elevators, and will generally be geared toward high-end manufacturing and tech companies that have lighter transportation requirements by nature. Tenants of the project will enjoy class A finishes throughout, with top-of-the-line conference facilities and other amenities. While the visually striking nature of the project alone is impressive, the impact it will have on industrial development as a whole is far more noteworthy.
The biggest impact is turning the historic relationship between land cost and development feasibility onto its head. Rents are collected based on floor area, which means the land under a given building is an essential limiting factor on what income that building can generate. As such, one can extrapolate the approximate rents that must be achieved to rationalize a specific price per square foot of dirt. This unit cost of land is a major factor in the feasibility of any given development, and in the last few years rapidly climbing land costs have pushed close-in markets into nearly unattainable values for industrial development. While rents have risen significantly, they have not kept pace with the land cost increases in these markets. That has resulted in many developers looking outside of the close-in markets for development sites. By going 3-stories high, Prologis is able to pay significantly more for the dirt under the building and achieve the same returns at fair market lease rates. This is revolutionary in the industrial development world, and could pave the way for developers to stop looking to ancillary markets as much for new projects. Of course, the cost of building additional floors capable of supporting industrial loads is high, but this is mitigated by the higher rents that close-in facilities can demand. The market has made it very clear that tenants are willing and able to pay big if it means being close to their customers. This multi-level concept allows for a much higher density of development that will keep pace with the rising land costs.
Another less apparent benefit to going multi-level, and one that is right at home in the environmentally conscious Seattle market, is the significant positive environmental impact. By locating in close-in market, tenants are able to significantly reduce the number of miles and hours that their trucks spend on highways and roads. Not only does this save businesses significantly on transportation costs, but it prevents thousands of tons of carbon from entering the atmosphere. This multi-level concept will have an enormous impact on reducing the overall carbon footprint of the market. As it takes root and is duplicated on other sites, far more tenants will be able to locate in the close-in industrial pockets. It will also mean a smaller overall physical footprint that is able to serve the those tenants. That means that less land will be required to keep up with demand, leaving many more acres available for green spaces or other uses that aren’t as high-impact on the environment.
Prologis is taking a big risk to take on a project like this, and has worked tirelessly for over two years to obtain the necessary entitlements and approvals. While the investment is high, similar projects in Tokyo and other high-density markets globally have been met with great success. If the market trends in Seattle continue, all signs point to this project being no different. It will become the prototype for infill sites throughout the US, and you can expect other developers will quickly catch on. You can learn more about the project, and experience a tour of the facility in virtual reality, at www.prologisgeorgetown.com.
Prologis is the global leader in logistics properties, with a portfolio of over 675 million square feet spread across 20 countries. Across their entire portfolio, Prologis sets an example of sustainability and corporate responsibility. This is evidenced by the many awards they win each year in both categories, and by the green designations that their buildings often hold. You can learn more about the company at their website: www.prologis.com.