Development

Do Tenants Want 40-Ft. Clear Heights? Prologis Thinks So

File Type: Article
Release Date: July 2015

At this year’s I.CON, The Industrial Conference, held at The Westin Long Beach hotel, Long Beach, California, June 10-11, participants in the “CEO Power Panel: View from the Top” were asked if tenants really want 40-foot clear heights in new warehouse distribution centers.

“There are tenants who really want a 40-ft clear height,” commented Jeffrey Phelan, president, DCT Industrial, “but in my experience the only time that has happened is in a build-to-suit situation. Gene [Gene Reilly, CEO-The Americas, Prologis] is now building the first speculative 40-foot clear in Tracy, California, which will be fascinating for me to watch and see how that plays out. He is very brave.”

Reilly, who was part of the same I.CON panel, noted that the project that Phelan referred to had three users looking at the building at the moment. “One of them,” said Reilly, “really wants 40-foot clear and if they do not lease our building, they will do a build-to-suit. The other two would be fine with 36-foot clear. The reason we are going with 40-foot clear is that we intend to own this building for a long time. We are building it for the future in a 1,000-acre park.”

Panel moderator, James Klein, SIOR, president, Klein Commercial, said that he was in Chicago at a panel similar to this I.CON session recently and the audience was asked how many tenants were actually utilizing 36-foot clear in those buildings. He said that the audience responded that perhaps 13 percent to 15 percent of tenants were actually using all 36-foot clear height. He said that there seemed to be a disconnect between those that were building the structures to 36 feet high and those that were actually using such buildings today.

Carl Panattoni, chairman, Panattoni Development Company, Inc., a member of the I.CON panel, estimated that the cost difference between going from 32-foot clear height to 36-foot clear was only about $1 a square foot, however, the difference between going from 36-foot clear and 40-foot clear was considerably more.

Phelan said the issue for both he and Reilly is that both companies are long-term owners: “We are going to build the higher buildings because we don’t know what the future will bring.”