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Super-Sized Industrial Facilities Take Shape

As the volume of imports from Asia continues to grow, so too do the industrial facilities that house the goods. Over the past decade, the definition of a large warehouse has climbed from approximately 300,000 sq. ft. to upwards of 1 million sq. ft. today. Imports from global manufacturing centers are largely fueling the demand for these massive industrial facilities.

Case in point: The Alter Group, a Chicago-based office and industrial developer last week announced more than 1 million sq. ft. of speculative industrial space split between Southern California and Indianapolis. The ambitious pipeline is a bet that demand will remain strong for high-volume distribution space for the foreseeable future.

Logistics providers as well as retailers and others lease these facilities to process large volumes of imports. Alter Group’s 590,000 sq. ft. Calabash II, under development in California’s Inland Empire, will handle imported goods from the Ports of Los Angeles and Long Beach. The 440,769 sq. ft. Airwest Indianapolis, in the Airwest Business Park in Plainfield, Ind., is within a day’s drive of 65% of the U.S. population via convenient access to four interstate highways and the Indianapolis International Airport.

The developer also is eyeing new development opportunities in Chicago, and would like to add Atlanta and the East Coast to its big-box industrial program in 2007, says Patrick Gallagher, senior vice president at Alter Group. “We’ve got major buildings going up in about four cities right now, and we look to expand even more so in those strategic cities that are tied to national and international logistics networks,” says Gallagher.

Most large logistics projects are naturally located near seaports — where companies can unload large oceanic shipping containers, sort goods and then transport them via truck or rail to stores or regional distribution centers — and at major crossroads of highways, rail lines and airports, including Indianapolis.

Large-scale logistics space was rare a decade ago. But it may soon garner its own subcategory among commercial real estate product types, believes Bob Bach, national director of market research at Oak Brook, Ill.-based Grubb & Ellis: “There clearly is a subset of the warehouse/distribution category that I would call modern logistics space.”

Researchers are still setting parameters, but the new product type will be defined by its large size, ceiling heights of 32 ft. or higher, state-of-the-art fire suppression systems, a high ratio of dock-height doors to floor area, and other factors. Quick turnaround time also differentiates these facilities from their predecessors: Large truck courts enable truck drivers to park a full trailer, pick up an empty one and quickly get back on the road.

The vacancy rate for warehouse/distribution space was 8.2% at midyear, slightly higher than the 7.9% vacancy rate for all industrial properties. Bach attributes that slightly elevated vacancy rate to a high construction rate, and says demand continues to keep a heavy supply of new space from spinning out of control.

“In the Inland Empire, in particular, demand is torrid and vacancy is 3.8%,” Bach says. “That’s incredibly low, considering it has by far the most space under construction at 22 million sq. ft.”

Warehouse/distribution properties represent less than half, or 5.1 billion sq. ft., of the 10.5 billion sq. ft. of industrial real estate in North America, according to Grubb & Ellis. Yet warehouse/distribution space accounts for a full 70%, or 80 million sq. ft., of the total 115 million sq. ft. of industrial space under construction nationwide in October.

The Alter Group has embraced big-box logistics space as a niche product type, Gallagher says. “It’s clearly a response to demand by large, logistically driven, import-type companies that are putting a lot of focus and attention on their distribution networks.”

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