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To Stay Competitive, E-commerce Players Fight For Space Within City Limits

An Amazon fulfillment center in Baltimore

In September, Amazon announced its first New York City warehouse, a $100M, 855K SF facility on the west shore of Staten Island. The warehouse, which supplements smaller, same-day delivery hubs at West 34th Street and in Brooklyn’s Sunset Park neighborhood, will provide the company with faster access to customers throughout the city and in nearby suburban areas. 

Amazon’s Staten Island facility is proof of the growing demand among e-commerce players to improve last-mile logistics and delivery times. To meet that end, companies have moved closer to urban centers. But the desire to develop or acquire property closer to customers comes with higher prices and dwindling supply.

The Staten Island facility is not the first Amazon facility in the NYC metro area, with additional facilities such as a 141K SF distribution center in Bethpage on Long Island having been developed to meet increased local demand.

Rezoning of former industrial hubs like Bushwick and Long Island City has removed inventory while pricing for large urban sites over 1M SF topped $100K/acre in 2017. This is up from roughly $50K/acre a year earlier. As more e-commerce players enter urban markets, the fight for space will intensify.

“Now that Amazon has made last-mile delivery a two-day process, demand for these spaces close to the customer is only going to increase,” Berdon LLP principal Jon Scalzitti said. “It’s only going to get more difficult for these e-commerce players to manage and exceed consumer expectations.”

Scalzitti, who is part of the Berdon LLP real estate practice, has seen fast and efficient last-mile delivery become a key consideration for investors acquiring urban industrial assets and for e-commerce tenants looking for a faster method of reaching more customers. While two-day shipping was previously the norm for customers requiring quick deliveries, same-day shipping has become increasingly popular, resulting in the same-day delivery window shrinking to as low as one hour.

The expectation that delivery should not only be fast, but also free, has made e-commerce players look to further optimize the delivery process. Among the required warehouse features, proximity to major highways and adequate space for loading docks top the list. Sufficient clear ceiling heights for stacking a high volume of deliveries is another critical component, Scalzitti said. 

Large facilities within city limits are rare and come at a premium. While New Jersey facilities with over 1M SF are priced from $5/SF to $13/SF, similar space in the NYC boroughs can cost from $200/SF to $225/SF — or higher. Limited inventory on the market continues to drive prices higher, Scalzitti said. 

A 1951 photo of the Whitestone Cinema drive-in theater in the Bronx. The theater will be redeveloped into a distribution center.

Companies have downsized to make up for the limited available inventory. In tight markets like New York City, developers are experimenting with smaller, multistory warehouses. Some have forgone building new and expensive facilities, choosing instead to either redevelop existing spaces or repurpose structures like old department stores or parking garages.

In the Bronx, former drive-in theater Whitestone Cinema sold for $75M and will be redeveloped into a distribution center. Adjacent to the Whitestone Bridge and Interstates 95, 278 and 678, the facility checks off several boxes for e-retailers looking for effective last-mile solutions.

As populations in urban centers rise, larger warehouses remain the most efficient way to reach a customer base that is now in the millions, Scalzitti said. 

The suburbs have since become the last bastion for larger last-mile facilities. Until Amazon’s Staten Island facility opens later this year, the company will ship orders to customers from its New Jersey warehouses, the largest of which lie along the I-95 corridor. Investing in suburban markets gives e-commerce players access to the larger warehousing infrastructure needed to serve customers in the NYC Metropolitan Area. 

“They are going outside the area, to New Jersey and beyond,” Scalzitti said. “Amazon added a 1M SF distribution facility near Philadelphia, which gives them proximity to NYC and the D.C. metro areas. Positioning warehouses along I-95 creates a hub with access to numerous cities.”

Amazon’s Staten Island warehouse offers a facility close to a large urban population and the highway access one might expect from suburban industrial property designed to service customers in the NYC Metro Area and beyond. 

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