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NY Industrial May Become Increasingly Vertical As Market Reaches New Heights

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2505 Bruckner, a distribution center under construction in the Bronx, is part of a growing family of multistory warehouses in urban infill locations across the U.S.

As the demand for industrial real estate in New York grows, key players in the market say the only way for it to meet it is to reach new heights.

The prospect that the city will rezone is slim, and industrial real estate builders need to find inventive ways to meet the demands of a surging market, said Jeff Randolph, managing partner at Bluecup Ventures and the former head of Amazon real estate.

“Is there enough industrial ... no. But was there enough office? No. So people went up," Randolph said during a Bisnow industrial real estate webinar last week. “I think the solution is going to be vertical.” 

New York's need for industrial space is more dire than peer markets like Chicago, Randolph said. But the city also has a lot of area zoned for industrial compared to its size. Still, over the past 15 years, millions of square feet of land zoned for industrial property in the city has been eliminated.

“You’re going to see more and more pressure on the need and desire to own warehouses, and there’s just not enough supply,” said Wharton Equity Partners founder and Chairman Peter Lewis, who was also a speaker on the webinar. “I don’t think that rezoning is a solution.”

This isn't the first time the idea of building up has been touted by industry experts as a solution to a growing issue in New York industrial real estate. Several developers have launched multistory projects, including Innovo Property Group and Dov Hertz, but it also has its skeptics.

“It’s really hard,” Randolph said. “But that’s the only answer.” 

Lewis said the coronavirus could accelerate another trend: industrial real estate developers sprawling farther outward into New Jersey, Lewis said. Prices and construction costs would be lower while still in the four-hour radius of New York. 

“You’re going to get the best of both worlds,” he said.  

Randolph is currently working on projects in the Greater New York metro area, including in parts of Pennsylvania, he said. Unless a company is offering two-hour delivery, its warehouse can be up to four hours away from the city, he said. That could make places like the Lehigh Valley a viable option for companies to build industrial space to service New York, he said. 

“The toothpaste tube is getting squeezed,” Randolph said. “You don’t need to be in the city.”