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Dec. 3, 2022

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All these big new warehouses help us get us our stuff faster. But are they worth the cost?

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TACOMA — There’s a rush to build in the Puget Sound region, and not just houses.

Driven by demand for home delivery of consumer goods and other economic factors, development of warehouses and distribution centers has increased dramatically over the past decade.

And just like any real estate, it’s all about location, location, location.

Historically focused in the Kent Valley and other areas of King County, giant warehouse projects seeking more affordable land are making their way into Pierce County, Tacoma and points south.

Lakewood, for example, has seen more than 2 million square feet of industrial space added in just a few years.

The cost: More trucks on the road, more huge buildings gobbling up vacant land, more complaints in some areas about noise, promises of jobs that sometimes don’t pay as much as advertised over the long run.

Is it worth it? That depends on whom you ask.

For more than a year, Christina Manetti of Lakewood has been challenging the redevelopment of acreage set to become Lakewood One industrial project, 4901 123rd St. SW., in the Springbrook neighborhood. The 8.73-acre vacant property for now is home to more than 100 trees, some native to the area.

On Aug. 2, her appeal filed with the Lakewood hearing examiner against the project was dismissed on procedural grounds.

“We’re in a climate crisis. You can’t go around paving over nature to make warehouses,” Manetti said. “Warehouses are ethereal, you know. Here today, gone tomorrow. And these trees can’t be replaced. There’s no mitigation for them.”

Monte Decker is senior vice president of CBRE, a commercial real estate services and investment firm. He spoke to The News Tribune in a June interview about the warehouse market growth.

“It’s funny, people complain about how many trucks are on the highway, then they get home and they order from their phone or computer,” Decker said.

As a result, he noted, “We’re all kind of responsible for the things that we don’t like,” when it comes to more traffic congestion on the roads.

While real experts and business advocates say the local warehouse boom is the natural byproduct of shifting economic forces, plenty of long-time residents are displeased by the changing landscape.

“Shame on the Pierce County Council, who mindlessly rubber stamps these ‘development’ projects while ignoring any mandatory developer infrastructure improvements that actually help those of us who live here,” wrote Puyallup resident Leeroy Perkins, responding on social media to recent news of a massive warehouse project in Frederickson. “Where are the new highways, hospitals, schools and other needs that the people need?”

How we got here

The pandemic and an upended global supply chain changed many business models from relying on “just in time” inventories to businesses setting up stockpiles to prevent future shortages.

Just-in-time inventory means what it sounds like. The global supply chain, when in sync, aims to match supply with current demand, arriving “just in time” to businesses without the need for massive stockpiles.

Abandoning that strategy and stockpiling have meant higher demand for warehouse and distribution space.

Demand for home delivery of online purchases skyrocketed as COVID-19 took hold worldwide and retailers suddenly found stock in short supply and far away from population centers.

Also taking hold: COVID-19 lockdowns that included port cities in China, the source of much of the world’s goods, followed by backlogs for shipping as markets reopened.

CBRE reported e-commerce sales totaling $871 billion in 2021, growing at an average of 16 percent annually since 2011, and 2020 growth increasing by 32 percent.

“‘Just in time and globalization do not go together in a pandemic, that we learned,” Nick Egelanian, founder and president of Siteworks Retail, a consultancy based in Annapolis Maryland, told The News Tribune in a recent interview.

“And they don’t go together when you have a war and two countries (Ukraine and Russia) that produce a large part of the world’s oil and wheat, not to mention precious metals,” he added. “So now we’re going to see how both industry and government adapt.”

Decker gave insight on how businesses have responded so far.

“A ‘just in time’ inventory only works well when it gets there just in time,” Decker said. “Because you had lumps in the timing of deliveries, retailers started panicking. … So they started onshoring,” he said.

Onshoring means bringing production and inventory back closer to target markets in hopes of simplifying supply-chain demands.

You could say “just in time” has been replaced with “just in case.”

Businesses “were trying to figure out how they store more product on shore versus ‘just in time’ inventory,” Decker said. “So they’re saying we need to put 30 percent more product in our warehouse, because once we get this thing smoothed out, if there’s another hiccup in the system, we don’t want to run out of, you know, XYZ product, and we want to have more stuff on this side of the ocean.”

“And because of that, you’ve had these big occupiers that are calling up saying we need 30 percent more warehouse, whether that be 30 percent more of 50,000 square feet, 150,000, 500,000 or a million square feet. It’s the same percentage increases, and that resulted in a lot of people gobbling up more space,” he explained.

“All the while you’ve got more product that’s being bought online and not going back to retail stores,” he added.

The result is development in the logistics world that shows no signs of slowing, and the deals keep rolling. The graphic below shows new permits filed just through the county since 2015. It does not include permits filed through municipalities, such as Tacoma.

A decade of growth

Locally, Lakewood alone has added “well over” 2 million square feet of industrial development in the past few years, according to Becky Newton, the city’s economic development manager.

“Industrial development has been one of the biggest sectors in terms of deals, particularly as we went into the pandemic. And even prior to that,” she told The News Tribune in a recent interview.

“Years ago, industrial kind of stopped at Fife, and a lot of them didn’t want to go south of Fife. However, running out of room off of I-5 and in the Seattle area forced developers to move south,” she said.

The Tacoma/Fife market has added an estimated 20 million square feet of industrial space in the past decade, according to CBRE data. The market includes Port of Tacoma, Tacoma West, Fife, Puyallup, Frederickson, Lakewood, DuPont and Gig Harbor.

The Tacoma/Fife market as of this summer had in its warehouse inventory a total of 61,904,415 square feet.

“In total, close to 300,000 square feet was delivered this quarter and has more on the way in the Tacoma/Fife market, 2.3 million square feet is under construction, and 15 million square feet more in the planning stage,” CBRE reported in its second quarter 2022 Puget Sound Industrial report, released in July.

In CBRE’s listings, Tacoma/Fife was second only to Kent Valley in total inventory. The Kent Valley consists of SeaTac, Tukwila, Renton, Kent, Auburn, Federal Way and Sumner. That area has grown from 114.8 million square feet total inventory a decade ago to 130.3 million square feet today.

Demand continues to move south. CBRE in July reported 1.2 million square feet under construction in Thurston County.

“Out of all the industrial markets, Thurston County and Lacey, specifically, continued to grow the most on a percentage basis,” in second quarter of 2022, CBRE noted.

Cost per square foot has zoomed up through the years.

From the first quarter of 2019 to the first quarter 2022, the average asking rent, per square foot, per month, triple net (where cost includes property expenses, including real estate taxes, building insurance and maintenance) for industrial space increased 6.25 percent in Thurston County, 26.3 percent in Pierce County, 28.1 percent in South King County and 31.6 percent in King County, according to figures from CBRE.

“Typically the closer you get to Seattle, the more expensive it is,” Decker told The News Tribune.

Newmark is a New York-based commercial real estate advisory and services firm.

In its second quarter industrial market review for the Puget Sound region, it described the area’s long-term outlook “encouraging,” even as the region’s capital markets have become “tenuous” amid inflation worries, higher interest rates and a tight labor market.

Meanwhile, two of Pierce County’s biggest land deals in 2021 involved future massive warehouse projects.

  • Chicago-based Bridge Industrial plans to redevelop about 150 acres of the former BNSF site in South Tacoma for Bridge Point Tacoma 2MM, a 2.5 million square-foot, state-of-the-art industrial site, consisting of four buildings along with 20 acres of trailer storage space. Bridge purchased the site last September for just over $158 million. The development would be about the size of 43 football fields, the Tacoma-Pierce County Health Department noted in its letter to the city as part of the SEPA review, which called for a health impact assessment. “Our Board of Health passed a resolution in 2016 recommending City of Tacoma assess the health impacts of large projects. With 2.5 million square feet of proposed warehouse space, this project qualifies,” the department wrote.
  • Irvine, California-based Panattoni Development Co., along with Crow Holdings Capital are redeveloping a nearly 310-acre parcel in Frederickson for FRED310, also purchased last September, from The Boeing Co., for $200 million. Phase 1 calls for four warehouse/distribution buildings totaling more than 2.3 million square feet. “When fully built out, “FRED310 will offer the potential for the development of as much as 4 million square feet of new Class A industrial product,” according to Cushman & Wakefield, a commercial real estate services firm handling marketing of the project.

The site already has 1.1 million square feet leased to an unnamed “leading specialty retailer.”

Costs and benefits

Panattoni also is developing the Lakewood One industrial project that Manetti has challenged.

The company’s plans in Lakewood call for a more than 135,000-square-foot speculative warehouse “with associated parking, landscaping and site improvements,” according to documents on file with the city.

Manetti has been involved in trying to preserve the site and trees and has formed the nonprofit Garry Oak Coalition in Lakewood.

In an emailed statement after her appeal was dismissed, she worried about losing the trees and their ecosystem, potential flooding and more.

“Even without significant flooding,” she wrote, “particulate matter from the many semi-truck tires that will be using the vast parking lots and roads of Springbrook will be washing into our water.

“I’m also worried that the quality of life for everyone in Lakewood, and especially for the people of Springbrook, will be further degraded by yet another warehouse development. First Woodbrook, now Springbrook.”

Newton of Lakewood’s economic development department says the city is sensitive to concerns about location, citing Woodbrook as an example.

“We are being very careful about where we allow warehousing and distribution,” she said. For example, “Woodbrook was a plan that we looked at way back in 2009-2010 as a partnership with Port of Tacoma, knowing that eventually there will be a need for more warehousing space and industrial space. So we are very careful about where they are.”

Lakewood Mayor Jason Whalen told The News Tribune in a phone interview that the city has taken balancing environment and development seriously since early zoning decisions going back to incorporation in the 1990s.

He also pointed to the city’s energy and climate change chapter in its comprehensive plan and the city’s current work on its tree preservation code, among other items also in the works.

The city received recent state acknowledgment for its work.

On Aug. 16 Lakewood was one of eight cities recognized with a Governor’s Smart Communities Award. Lakewood received a Smart Climate Strategies Award “for plans, policies, programs and/or actions addressing community climate impacts,” according to the announcement.

“Lakewood recognizes the need to have balance, and it is doing something about it,” Whalen told The News Tribune.

“When it comes to recognizing the need for balance with environmental concerns, climate change, and the like, I think the city has done that in the initial work with regard to zoning decisions made many councils ago,” he added. “It has been because of the significant work we have undertaken to provide the requisite infrastructure in those areas that now we finally see development coming to fruition in areas that were properly zoned way back when, for this kind of development.”

Concerns similar to Manetti’s were echoed by members of the Fir Meadows Management Association, representing more than 300 properties bordering the FRED310 Frederickson site. In a letter sent in January to the county’s Planning and Development Department as part of the public comment period, they listed concerns over flooding and tree removal, among other issues, and requested additional environmental impact studies.

They noted previous tree removal had an impact on the nearby neighborhood.

“Since the start of Frederickson Industrial site development, the wind that rips through Fir Meadows has increased. Barrier trees that protected us from these weather conditions have been removed due to prior developments. A few homes already have reported issues from these increasingly pounding wind storms,” they wrote.

“This may be just another industrial site project for Pierce County, however your neighbors have called this our home for 54 years. Please do additional studies …” the board members wrote.

The site received a Mitigated Determination of Nonsignificance from Pierce County in July and did not require an environmental impact statement as long as terms of the mitigation were met.

NewCold Storage 4601 S. Orchard St in Tacoma recently was approved for an amended land-use designation for its three-acre site, from a Light Industrial designation to a Heavy Industrial designation. The move allows NewCold to request a rezone and apply for permits allowing potential expansion of the 140-foot tall cold storage facility.

The council amended the measure before passage to include a request in future site rezoning, “that the City’s administration consider conducting a comprehensive, detailed noise study, with particular attention paid to noise levels at residential properties, including during times of extreme heat, and ensure implementation of necessary design and other mitigations to ensure the existing, and any expanded, facilities on the site will be operated consistent with the City’s noise ordinance.”

The amended measure also called for a cumulative traffic impact study.

A previous noise study that the Planning Commission referred to as part of its recommendation for approval was done in February. But neighbors have pointed out the site’s cold storage coolant noise is the loudest in the summer.

Deborah Hunter of University Place testified at the June 7 City Council meeting during the land use hearing to consider NewCold Storage’s request.

“I sit on a hill, cold storage sits on the other hill, Leach Creek runs down there and the roar of this cold storage is a detriment to my living in my backyard. It sounds like a helicopter is hanging over my yard,” she told council. “I’ve been in my house since 1977. And it was a rural area when I moved in. Now I have to look at this monstrosity.”

Patricia Clements of University Place also concurred about the noise in her public hearing testimony. “That building hums, and it hums to the detriment of those of us who live to the west of the building,” she said.

“And our concern is if they make it bigger, the hum will get bigger. It’s all of their mechanical equipment. And we have checked it to see whether it’s prevailing winds, but it has something to do with the temperature. So as it gets warmer outside the equipment works harder, and the hum gets louder.”

Officials for NewCold testified they operate to code, and served as a valuable local employer, hiring more than 100 workers in its Phase 1 and shipping more than 7,000 containers through Tacoma last year alone.

“We have no immediate plans for expansion, but we wouldn’t be able to expand without this rezoning change,” testified Matt Richardson, Tacoma site manager for NewCold.

Maddie Merton, vice president of business retention and expansion for the Economic Development Board of Tacoma-Pierce County, testified that NewCold played a critical role in the global food supply chain.

“Local access to storage and shipping facilities matter to food manufacturers. Tacoma is positioned to grow and facilities like this form the backbone of infrastructure needed to attract and keep production and manufacturing here in the South Sound. … With the world’s current food shortages and transportation issues regarding delivery of food goods, NewCold’s expansion could be one of the solution to these problems.”

Logistics as an industry may offer diminishing benefits as a labor-market engine as more entities move to robotics and existing jobs show little wage growth for some workers after hiring.

Josh Stovall, director of research and data for Workforce Central in Tacoma, shared data showing what he described as the “condensed” wage range for workers in the area.

“The starting wage isn’t too much lower for warehousing jobs versus the distribution of all jobs, but the wage range is more condensed, meaning there are fewer wage-progression opportunities within specific occupations,” he said.

“A worker could start off as a stocker-order filler making around $29,000 per year, but half of all these workers in Pierce County were making less than $34,000 per year. The wage progression just isn’t there.”

But, he added, there was opportunity for those with more training and education.

“If you were to get a certification in logistics or warehouse management, you can work in a lot of other industries, not just in warehouse and storage,” he said.

Adam Mays, a Tacoma NewCold employee, told the City Council at the June 7 hearing he’d advanced in his work and that the company had given him opportunity to grow.

“I started as a planner on the ground floor,” he said. “I learned a ton about the industry, the tech that we use to move product and was able to be promoted into a stock control position where I manage inventory. …. And then was promoted once again.

“I had a ton of support from management, and was able to to really develop myself personally and learn a lot about the industry to become part of the implementation team. And now I can give back to folks that were in my position at the time.”

While the NewCold hearing highlighted the tensions between neighbors and industry, at least one person in another community has found the predictability of an industrial neighbor preferable to a vacant lot or abandoned houses.

Harvard Robbins runs a honey farm in Lakewood directly across from the parking lot of an Amazon facility.

He told The News Tribune that Amazon had been an improvement to his neighborhood.

“I’ve been here 48 years,” he said. “All the riff-raff houses that used to be in this area, they’ve torn those old houses down, and they’ve put warehouses in here. And it’s a different neighborhood. Not as many people but it’s cleaner I think, better managed now than it was.”

He said the area previously was a dumping ground for other people’s garbage.

“I think it’s helped me. They took everything all the way down the street on the other side of me. So I don’t have anybody parking over there, dumping trash over there now.”

What’s next for warehouses?

As land prices and rents rise, more change is ahead, and it could mean a reduction in expansion along with more doubling up of entities using space.

Siteworks Retail’s Egelanian, who says he saw the decline of department store volumes in 2000 ahead of others, is now predicting a course correction for warehouses sooner rather than later given the pressures of rising land costs and distribution.

“In the short term, when you’re under a lot of pressure to solve a problem, money and facilities are often what are thrown at it,” he said. “In the long term, they come back to what’s efficient. So all this tells me that at least in the short term, there’s some kind of correction coming.”

Tacoma has seen reversals of fortune before in the logistics industry.

In 2008, San Francisco-based ProLogis announced plans to develop a 115-acre, five-building, 1.9 million-square-foot industrial park on the same site now in permitting with Bridge Industrial in South Tacoma.

Months later, the company backed out, as the Great Recession pushed it to halt “all of its early-stage development planning worldwide, put millions of square feet of warehouses on the market,” and it “sold off its interests in Japan and China,” according to The New Tribune in 2009.

Tacoma now is exploring what it would take to get a “green economy” happening, to move away from traditional industrial, and is considering a land-use designation change to an Economic Green Zone for the South Tacoma Groundwater Protection District, which would be a first for the city.

That process is expected to be completed in the next few years.

Elly Walkowiak is assistant director of the city’s Community & Economic Development Department and will be presenting results of a green economy study in the future.

While the consultants have been hired, the results are not yet in.

“It’s not just about attracting and growing green companies,” she told The News Tribune. “It’s also about the transition of companies that we have to more of a greener future; so trying to evolve the community in an amazing way that will make it more resilient.”

Currently, though, e-commerce is keeping warehouses alive and thriving and coming up with new ways to get space leased.

Co-sharing warehouse space has come into play so for small-medium sized businesses who can’t find or can’t afford the right amount of warehouse space. Much like the business model for co-working spaces, they can lease out what they need.

Cubework, based in Walnut, California, is a startup running such warehouse co-sharing operations, with more than 50 locations in 17 states, including Washington’s Puget Sound area.

“For example, if a company is scaling up and needs a truck loading/unloading dock, a forklift for pallets, an office space, but just 500 square feet of storage for only three months — and all by next week — a Cubework facility is designed to meet those requirements,” the company said in a recent release.

“The Seattle-Tacoma region is a potent logistics corridor,” said Christine Wei, chief commercial officer at Cubework in an announcement of the company’s new 300,000-square-foot Kent Valley warehouse, which opened in June.

The company also has a 200,000 square foot warehouse in Lakewood.

“An incredible amount of e-commerce is based in the Pacific Northwest, and warehouse space is the real estate that powers e-commerce,” Wei said in the release.

Manetti of Lakewood wonders when enough’s enough.

“I know times are difficult for everybody, but, you know, everybody has to start thinking about our future, the environment, clean air, clean water,” she said.

“I think in general, everybody has to take a greater interest in the environment now; it’s just too low a priority for many people.”

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