Warehouses Move Into Prime Downtown Office Space
Increased demand for same-day delivery from retailers like Amazon is driving a shift in the commercial real estate market
The blueprints for Millennium Chicago, a new dock and loading area servicing the Midwest, look not unlike those for most such facilities: Namely, the plans guarantee easy access for delivery vehicles, and offer up to 380,000 square feet in storage space. But the project stands out on account of its address. Situated directly beneath the famous Millennium Park, Millennium Chicago sits in the heart of its namesake city.
The backers behind the project, described in own brochure materials as “an institutional landlord group,” insist Millennium’s central location make the facility an appealing space for wholesalers—more appealing than its competitors, most of whom have traditionally stood on the outskirts of cities.
Millennium Chicago is just one of a growing number of warehouse facilities to shift into urban centers. As same-day delivery becomes an ever-more important feature for online consumers, and with Americans continuing their large-scale migration to cities, shipping and warehouse facilities are following suit. The shift isn’t confined to massive projects like Millennium Chicago either; recent years have seen more retail and office spaces converted into storage areas.
According to Josh Samuels, an associate broker with real estate giant Voit, these converted office and retail spaces—much like their larger counterparts—offer a number of unique advantages: access for delivery trucks to sub-street levels; a reduction in transportation and delivery costs; and easier access for last-mile delivery (industry-speak for the final leg of a delivery).
“Companies are now looking for not just more space, but a smarter use of space to keep up with demands. The idea of converted office and retail space is that online orders would be sent from the warehouse to a more sophisticated, flexible infrastructure to deal with detailed logistics such as packaging orders with multiple items and repacking return items,” Samuels predicted. “This will increase shipping productivity so that with growing demands customers can continue to expect to receive their delivery in a snap.”
That ability to deliver “in a snap” is only going to become more important. A recent report by Go People, a Sydney-based on-demand delivery and courier startup, predicted 65% of retailers will offer same-delivery by this year.
Yet, while much ado has been made about the rise in online shopping and same-day delivery, research suggests that, when it comes to groceries, people still prefer the in-store experience. (One report, by researchers at Deutsche Bank Securities, found just 3% of grocery sales occur online.) To that end, grocers simply want their warehouses nearby—another perk of an urban location.
This concurrent rise in converted warehouses is only going to grow, according to Samuels. “As the conversions have taken place, many states have seen a drop from the 25% vacancy rate in the former office buildings to only a 5% vacancy rate in the newly renovated industrial spaces,” he wrote. “This trend explains the changing needs of urban populations, and how companies are transforming business operations to fill these needs.”
Of course, these urban-centric benefits extend to both consumer and corporate deliveries. Millennium Chicago, for example, boasts about the facility’s proximity to everything from Lollapalooza and Blues Fest to Bears and Bulls games. For that, you’re going to need a lot of trucks—and a lot of space.