Warehouses Transform N.Y.C. Neighborhoods as E-Commerce Booms

https://www.nytimes.com/2022/03/16/nyregion/ecommerce-warehouses-nyc.html

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An e-commerce boom turbocharged by the pandemic is turning the New York City region into a national warehouse capital.

In just two years, Amazon has acquired more than 50 warehouses across the city and its surrounding suburbs. UPS is building a logistics facility larger than Madison Square Garden on the New Jersey waterfront near Lower Manhattan.

In Brooklyn, Queens and the Bronx, 14 huge warehouses to help facilitate e-commerce operations are rising, including multistory centers previously found only in Asia.

Fueled by the soaring growth of e-commerce while so many Americans have been working from home, online retailers, manufacturers and delivery companies are racing to secure warehouses in the country’s most competitive real estate market for them.

Every day, more than 2.4 million packages are delivered just in New York City, an online-buying mecca in a region of 20.1 million people.

The feverish activity has already transformed the landscape of city neighborhoods and rural towns, transforming Red Hook in Brooklyn into a bustling logistics hub and replacing farmland in southern New Jersey with sprawling warehouses where packages are sorted, packed and delivered, often within hours of being ordered.

Just 1.6 percent of all warehouses in New York City and only 1.3 percent in New Jersey are available for lease, according to the real estate firm JLL; only the Los Angeles area has fewer warehouse vacancies in the United States. Some companies are converting buildings never intended to be warehouses. Amazon turned a shuttered supermarket in Queens into a makeshift package hub.

The soaring demand for warehouses, once the ugly duckling of the real estate industry, underscores their pivotal role in a complex global supply chain. Nationwide, developers are pouring billions of dollars into the construction of new facilities, helping lift the commercial real estate sector, which has been battered by the emptying of offices during the pandemic.

But the rise of warehouses has also sparked significant opposition. While they provide jobs and can lower residential property taxes by contributing to the local tax base, people across the region say the large hubs will lead to constant flows of semi-trucks and delivery vans that will worsen pollution and traffic congestion.

They have also bemoaned the loss of open land to mega facilities. In recent months, residents in the southern New Jersey township of Pilesgrove, just across the Delaware River from Wilmington, Del., protested plans for a 1.6 million square-foot warehouse — larger than Ellis Island — on former farmland.

While Amazon, major retailers and logistics operators such as UPS, FedEx and DHL dominated the initial wave of warehouse deals at the start of the pandemic, interest is now coming from smaller businesses seeking greater control of their supply chain amid a global bottleneck in the movement of goods.

“I’ve been doing this for 30-some-odd years, and I’ve never seen it like this,” said Rob Kossar, a vice chairman at JLL who oversees the company’s industrial division in the Northeast. “In order for tenants to secure space, they are having to negotiate leases with multiple landlords on spaces that aren’t even available. It’s insane what they are having to do.”

The rising cost to lease facilities has frustrated some small business owners who cannot compete with retail and logistics giants, as well as newcomers like Tesla and Rivian, which have opened showrooms and service centers for their electric vehicles in Brooklyn warehouses. Leasing prices for warehouses in the Bronx, for instance, have jumped 22 percent since the pandemic started.

Warehouse jobs are still just a fraction of New York City’s labor force, but companies are on a hiring spree. Since 2019, the number of warehouse jobs doubled to 16,500 positions in late 2021. New hires at Amazon make around $18 an hour and get starting bonuses up to $3,000. But the company has also been fighting workers at some of its warehouses, including on Staten Island, who are trying to unionize to improve working conditions.

Today, nearly everything — from cars to electronics and groceries to prescription drugs — can be ordered online and arrive in as little as a few hours. In New York City, new companies are offering 15-minute grocery delivery.

And though most retail sales nationwide still happen at brick-and-mortar stores, online sales are increasing at breakneck speed, growing by 50 percent over the last five years to reach 13 percent of all retail purchases, according to the census.

That surge is pummeling many retailers, especially smaller businesses, that have also had to weather the loss of customers during the pandemic.

At the onset of the pandemic shoppers switched to online buying at a rate that had been expected to take a decade to reach, according to analysts.

Some large retailers, such as Target and Best Buy, that have a handful of warehouses in the region lean on their stores to fulfill online orders. Wal-Mart, the nation’s largest retailer, does not have a store in New York City so it uses a warehouse in the Lehigh Valley of Pa., just over the border from New Jersey, and stores in surrounding suburbs to serve city residents.

Amazon is taking a different approach. Across New Jersey to the northern New York City suburbs to Long Island, Amazon is cobbling together a sprawling network of fulfillment centers, package-sorting facilities and last-mile hubs. In the city it has set up a handful of facilities in the Red Hook and Sunset Park neighborhoods of Brooklyn.

Amazon’s rapid expansion is not unique to the New York area. Last September alone, Amazon said in a recent earnings call, it added another 100 facilities to its delivery network in the United States.

Red Hook, a neighborhood of just under a square mile bounded by water on three sides, has become a center for warehouses in the city because it is near major roadways into population centers in other parts of Brooklyn, Lower Manhattan and Queens.

At least three new warehouses have opened in the neighborhood and more could be on the horizon. UPS paid $300 million for a 12-acre property, and two developers of logistics centers spent $123 million in December to buy several industrial sites there.

The warehouses in Red Hook are reshaping the tiny neighborhood, whose narrow, two-lane streets and low-rise buildings date to an era when longshoremen toiled on its docks. Vans line up early outside one new Amazon facility, double-parking and causing congestion, said Jim Tampakis, who owns a marine equipment store in Red Hook.

“The whole neighborhood is up in arms,” Mr. Tampakis said.

The area’s former City Council representative, Carlos Menchaca, whose term expired last November, had joined local residents in asking the city to undertake a traffic study for the neighborhood, though it was never done.

UPS has not made clear that it is building a warehouse in Red Hook, but in response to neighborhood concerns about truck traffic, the company said it was exploring using the waterways around the city to move some packages by boat. The company uses boats in Europe, but not in the United States.

Later this year, Amazon will move into two other warehouses in Red Hook, including a three-story facility on the waterfront. In a city where land is at a premium, the facility is one of at least four multistory warehouses under construction across New York City. Three of the four will be occupied by Amazon.

Multilevel warehouses first appeared in dense cities like Tokyo decades ago but only arrived in the United States in recent years.

“You are going to see multistory buildings in New York City because there is no choice,” said Dov Hertz, whose company DH Property Holdings developed the three-story hub in Red Hook.

About a half-mile south along the Brooklyn waterfront, Arnaud Plas took greater control over parts of his small online beauty company’s supply chain even before the pandemic. The company, Prose, makes custom shampoos and other hair products and is based in Brooklyn, with its research division in France.

In early 2020, two years after its founding, Prose moved into its first manufacturing hub in an industrial building in Sunset Park, sharing the property with Amazon. Later that year, Prose imported a manufacturing machine that can create 40,000 custom products every day to be shipped to customers.

As the company grew, Mr. Plas expanded its manufacturing operation beyond its 28,000 square-foot space in Sunset Park. Moving the operation to New Jersey or elsewhere outside the city would have saved money.

But Mr. Plas said it was important to stay near the company’s headquarters in Williamsburg, Brooklyn, and near many of its suppliers.

Last September, Prose took over additional space in the same building, more than doubling its operation to 72,000 square feet, even though leasing costs had increased. Prose now employs 150 people at the plant, where products are made and shipped across the country and to Canada.

“At the beginning, it was sort of like a bet because that decision was made in 2018, long before the supply chain issues,” Mr. Plas said about creating a manufacturing hub in Brooklyn. “I would say it has been a great decision.”