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When Will The Bay Area See Multistory Warehouses?

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With multistory warehouses gaining some modicum of steam in the U.S., industrial experts in the Bay Area have confidence the region will see its first such building in the very near future. 

San Francisco Gateway
Highlighted is the site of what could be San Francisco's first multistory warehouse

"I would imagine that in the next couple of years we'll see a few projects break ground that are intended to be multistory," said JLL Managing Director Greg Matter, a panelist at Bisnow's upcoming Northern California Industrial and Logistics Summit

Matter, who co-heads JLL's urban logistics practice in NorCal, said many of the big industrial real estate companies, including Prologis, are looking to do multistory in various spots throughout the Bay Area.

Prologis, the San Francisco-based logistics REIT that finished the country's first ground-up multistory industrial building in Seattle last year, has plans for two three-story industrial buildings totaling 2.1M SF in what it calls a "first-of-its-kind facility" in the San Francisco's Bayview neighborhood.

Prologis originally proposed its San Francisco Gateway development in 2017, and last month project architect Jackson Liles Architecture submitted revised drawings for the complex back to the planning department, according to city records. Prologis did not immediately respond to request for comment on when it expects to break ground.

San Francisco Gateway, which will target a mix of last-mile delivery and wholesale storage and distribution uses, could come to S.F. for the same reason multistory industrial has reached New York City and Seattle. San Francisco rates high in population density, e-commerce use and industrial occupancy, all of which are key variables for multistory warehouse development, according to a CBRE report

While the national industrial vacancy rate is 4.4%, San Francisco's is 1%, according to CBRE. Other Bay Area submarkets like San Mateo County, the East Bay and Silicon Valley have similarly tight market conditions. 

South Seattle multistory warehouse
Georgetown Crossroads in Seattle is the first multistory warehouse built from the ground up in the U.S.

Westcore Properties President and CEO Don Ankeny believes the kind of land scarcity and building costs that have led to several multistory industrial projects coming to New York could also necessitate them in the Bay Area. 

The increased density and rent premium demanded could be what makes a multistory project pencil, even with construction costs rising to support heavy loads on the extra floors and fireproofing code requirements for multistory structures

For instance, Prologis' Georgetown Crossroads development cost about $260 per SF including land compared to $230 for other projects in the same Seattle neighborhood, according to the Wall Street Journal. But with the cost comes higher rents and much more scale.

Transportation and labor costs account for 60% of operating costs for tenants of distribution centers, while real estate accounts for just 4% to 6%, meaning the savings generated by a location like Bayview could greatly outweigh the increased rents, according to JLL

Besides San Francisco itself, the Bay Area has several other potential landing spots for its first multistory warehouse, including further down the Peninsula, Ankeny said.

"South San Francisco would be my bet for where we see it first," Ankeny said. "There are possibilities in the East Bay, but I really think South San Francisco has got the most demand and finite supply of development sites."

Matter sees San Francisco itself as the ideal spot, but said it could be anyone's guess for where it ends up.

"San Francisco is a prime location for this type of product," Matter said. "But it remains to be seen exactly where this is going to be headed."

Join Don Ankeny, Greg Matter, and many others, at Bisnow's Northern California Industrial and Logistics Summit on Dec. 10 at Fairmont San Francisco.