For warehouses, tomorrowland may be today, Solutions!, Online Exclusives, October 2003

FOR WAREHOUSES, TOMORROWLAND MAY BE TODAY

by Stephen Roulac

North America’s changing economy has rewritten the laws about warehouses. New uses for old buildings—and new buildings to serve new uses—have altered the definition of warehouse space..

It used to be simple to know where you were at a given moment. All you had to do was look at the building you were in. Banks looked like banks, homes like homes. Offices were identifiable by their use of marble, dark woods and partitions. And warehouses were, well, warehouses. They lay on the fringes of our towns, in undesirable industrial locations, built of concrete blocks or wrapped in corrugated metal siding. Warehouses were simply large, functional boxes.

All that has changed. Homes have offices, offices have places for staff to eat, work out, and even sleep. Some even have play areas for pets. Banks have coffee shops and dry cleaning establishments in their lobbies. And warehouses are now the prime office space du jour.

A steady stream of skateboard-riding, software-developing billionaires has been flowing into warehouse sites through out the country. Lured by affordable lease rates and the enormous square footage available in industrial parks, as well as the opportunity to develop a space that will accommodate their characteristic steep growth curve, entrepreneurs and iconoclasts are forsaking traditional business park developments in striking favor of the corporate headquarters-neo-warehouse.

So, what about real warehouses—the large, ugly boxes used to store goods until shipment? They are shifting, too, to ever larger, ever more technologically advanced showrooms of automation. This shift, although a long time coming, has been expedited as a result of e-commerce. The dynamic strategic logistics issues of e-commerce have profound implications on the “where” of warehouse properties, their functions, their systems and intelligence, and especially their scale. With a compressed communication sequence, eliminating multiple layers between the originator and consumer of goods and services, the storage function of warehouse properties has taken on a new role.

Break with tradition
Direct shipping from manufacturers and instant purchase and acquisition of digital products including software, books and music directly from the intellectual creator (programmer, author, musician, etc.) eliminates the need for traditional warehousing, distribution centers and retail space altogether. Distribution-related land uses are being transferred to short-term warehouse space and distribution centers used by UPS, FedEx and similar rapid delivery companies. The concept of shelf turn, usually applied to retail, is being applied to warehousing—the less time a product sits on a warehouse shelf, the greater the profitability for that product.

Traditional book distribution and retailing would theoretically require the exact same net amount of warehouse space as would a hybrid e-commerce distribution firm, such as Amazon.com. And yet the e-commerce companies are building warehouse space faster than any other industry segment has since the industrial revolution. As an example, Amazon built a 322,560 square foot regional warehouse/distribution in Reno, Nevada, and hired 300 employees to serve functions that would have otherwise been handled by existing traditional distribution-point real estate and employees. Unless the overall demand for warehouse space grows, there now exists a duplication of buildings within existing warehouse stock. This duplication can result in excess supply of warehouse space and employees who must be reallocated. Occupancies, values and employment threaten decline as a result of e-commerce and technology barring continued economic expansion at our current record rate of growth.

Why can’t new needs for warehouse space be met by existing structures? One reason is that the sprawling, unsightly box of yesterday is now obsolete. Future warehouses will require more intensive use of land with multi-storied 3-D robotic systems or increasingly larger floor plates (100,000-plus square feet) and average ceiling heights of 35 feet, up from 15 feet just fifteen years ago.

Older, existing low-clearance ceiling height warehouses, which are generally smaller structures, will either be used by smaller independent business owners or adapted to alternative uses such as call centers and New Economy corporate headquarters. Much as the loft craze of fifteen years ago gave permission for people to think of alternatives to single family homes, condominiums or apartments, the conversion of warehouse space from industrial to corporate use allows a similar kind of creative adaptation. And the design industry has seized on this hot opportunity to resurrect modern minimalist/post industrial styles from the ash-heap of five-minutes-ago style.

As we progress with our space use revolution, the new technology-enabled warehouse structures will stand as monoliths to e-commerce and technology, while the reclaimed warehouse-turned-multi-billion dollar corporate headquarters will perhaps be seen as an homage to the past. Can you imagine, perhaps in the year 2030, taking a tour of a restored string factory and gazing in awe at a half-acre warehouse area filled to the top of its fifteen foot ceiling with shipping boxes and industrial sized spools of twine? What about hearing your grandchild exclaim, "look – an old-fashioned loading dock with a truck and everything! Cool!"?

About the author: Stephen E. Roulac advises executives and investors who seek outstanding business outcomes and serves as an expert witness in high stakes, bet-your-business litigation. He is the author of numerous books including Place and Property Strategy and 274 Corporate Real Estate and Place Mistakes and How to Avoid Them. For more information, call 415-451-4300 or visit www.roulac.com.