Sky's the Limit: U.S. Industrial Property Goes Vertical
- Alketa
- 13 hours ago
- 13 min read
A New Warehouse Skyline Rises
At a construction site in Queens, New York City, steel girders climb story after story into the air. What will soon stand here is not a typical office tower but a five-story logistics behemoth – over 200 feet tall with 50 truck bays – slated to become the tallest warehouse in New York. The site plan reads like a blueprint for a small vertical village, featuring multiple loading levels and ramp systems for freight trucks. This dramatic project, one of nine new multi-story warehouses planned to boost the city’s industrial capacity by about 10%, signals a turning point in American logistics real estate. Across the United States, warehouses are stretching upward, embracing unprecedented height and even multiple floors in a bid to solve modern distribution challenges.
Not long ago, a “big” warehouse meant an expansive single-story building covering acres of land. Today, however, height is the new frontier. In major markets from New York to Los Angeles, developers’ site plans increasingly emphasize verticality – clear heights of 36 to 40 feet inside cavernous structures, and in some cases the addition of second or third stories for storage and fulfillment operations. Modern warehouses that once averaged 24-foot ceilings now routinely reach 40 feet or more. Each extra foot of height translates to additional pallet tiers and cubic capacity, enabling companies to store more goods without expanding a building’s footprint. In an era of e-commerce and same-day delivery demands, this skyward expansion offers a critical pressure release for an industry running out of room on the ground.
Higher Ceilings, Higher Demand?
The push toward taller warehouses is not just an architectural trend – it’s driven by economics. Adding vertical space can significantly boost a facility’s storage volume and throughput, which tenants value highly. In hot distribution hubs, a warehouse boasting 40-foot clear heights and advanced racking can lease at a premium, since it offers more utility per square foot than a comparably sized, shorter building. “In essence you’re renting by the square foot but gaining by the cubic foot,” as one industry observer quipped. Tenants can stock more inventory and even stack automated systems within the same footprint, potentially lowering their overall occupancy costs. A recent high-profile example underscores this appeal: Burlington Stores (formerly Burlington Coat Factory) purchased a modern distribution center in Riverside, California, paying about $289 per square foot for a 2019-built warehouse outfitted with 40-foot clear heights and 220 dock doors. The hefty price – and the fact that Burlington has fully occupied the facility since completion – reflects how coveted these high-volume warehouses have become for major retailers.
Industry data hints at a correlation between cutting-edge, taller facilities and strong market performance, although the picture is nuanced. Over the past decade, as average clear heights have climbed, U.S. industrial properties saw record-low vacancy rates – bottoming out around 3.8% in mid-2022 during the e-commerce boom. Even now, after a wave of new supply, many state-of-the-art warehouses remain highly sought after. In smaller “last-mile” warehouses under 50,000 square feet – which often can’t be readily built new, and thus face little competition – vacancy is still hovering near pre-pandemic lows of 5%. Such tight conditions have enabled landlords of these scarce spaces to command ever-higher rents. In fact, according to the InnoWave Database (an industrial real estate index), asking rents for small industrial suites (under 10,000 sq. ft.) hit all-time highs this year – soaring above $13.46 per square foot NNN on average. Slightly larger spaces (10,000–25,000 sq. ft.) also reached record rents over $11.77 per sq. ft., as local distributors and service firms compete for limited supply.
At the opposite end of the spectrum, the recent building boom of massive, high-clearance warehouses has introduced a temporary glut in some regions. Developers raced to meet surging demand by constructing logistics buildings of 100,000 square feet and up – typically with 32- to 40-foot ceilings – especially in peripheral suburbs and Sunbelt markets. The construction surge expanded the stock of mid-sized logistics facilities (100,000–500,000 sq. ft.) by more than 14% in just four years. This rapid expansion overshot demand in certain areas. As a result, vacancy rates for these larger warehouses have climbed to around 10%, the highest level in over a decade. Nationally, industrial vacancy has been on the rise for nearly three years, now averaging roughly 7.5% as of early 2026 – up from those 2022 record lows, but still modest by historical standards. Essentially, the big-box segment is experiencing some indigestion after years of feverish development. Landlords of hulking new centers in markets like Phoenix or Indianapolis are having to work harder to fill space, often offering rent discounts or concessions. Indeed, year-over-year rent growth for large logistics properties has flattened to near 0% in many markets. In contrast, rent growth in the smaller, shorter warehouses remains positive, buoyed by their sub-5% vacancy environment.
These dynamics might seem to contradict the idea that “higher = better” for warehouse performance. The truth is, demand for tall warehouses is robust – but it’s concentrated in specific locations and user types. Many Fortune 500 retailers and e-commerce firms virtually require 36-foot-plus clear heights and are willing to pay top dollar for such space. However, the rush of speculative construction means some areas now have more high-clear buildings than there are immediate tenants, pushing up vacancies in the short term. Over time, as those buildings lease up, analysts expect the performance to normalize. For now, the market is bifurcated: if you own an older, low-ceiling warehouse close to the city, you’re in luck (scarcity is on your side); if you’ve built a brand-new giant box on the outskirts, you might be waiting a bit for the right tenant to materialize. Still, the overall industrial sector remains healthy by broader real estate standards – even with a recent cooling, national rents are slightly up year-on-year, and the vacancy rate is projected to peak at roughly 8% before gradually easing. In other words, despite short-term imbalances, the long-run trajectory of “higher and bigger” warehouses ties into solid demand fundamentals.
Automation to the Rafters
One of the biggest catalysts behind the vertical warehouse trend is invisible from the outside: automation and robotics under the roof. Stroll into a newly built fulfillment center and you may not see many human workers navigating the 40-foot-high aisles. Instead, automated storage and retrieval systems (ASRS) and fleets of robots traverse the grids of shelving, efficiently ferrying goods from dizzying heights down to packing stations. This technological leap has made it feasible to fully utilize the vertical space. In a traditional warehouse, a ceiling beyond 30 feet high offers diminishing returns – forklift equipment can only lift pallets so far, and manual pickers can only work so high up safely. But with robotics, those upper reaches become just as accessible as ground level. As one warehouse designer noted, “If you’re not taking advantage of heights today, you’re leaving capacity on the table.” Many companies evidently agree: the site plans for modern distribution centers now routinely include features like multi-level mezzanines, high-bay automated storage zones, and conveyor systems spiraling upward through the facility’s core.
The influence of e-commerce giants has been especially pivotal. Amazon, for instance, helped set the standard for multi-level, automated fulfillment hubs. Its newer fulfillment centers often span 700,000+ square feet on the ground but pack in several mezzanine levels of robotic picking modules – effectively creating a four-story warehouse within one massive box. These buildings can reach 100 feet tall or more at their highest points (when counting the interior mezzanine structure), and they function akin to vertical factories of consumer goods. Other retailers and third-party logistics firms are following suit, integrating similar automation-ready designs. In food distribution and manufacturing, fully automated high-bay warehouses are also emerging – in some cold storage facilities, robotic cranes now zip along aisles 100 feet high, stacking and retrieving pallets in sub-zero temperatures where humans could hardly operate. Every element of these cutting-edge warehouses, from floor slab strength to the fire suppression system, is engineered to accommodate greater height and mechanization.
Crucially, automation is not just a fancy add-on – it’s becoming a necessity to make vertical warehousing efficient. A building three times taller can theoretically hold three times the inventory, but without technology to quickly access items at height, those upper shelves would be wasted. Automated systems solve that by maintaining rapid throughput even as volume grows vertically. This is one reason tenants with high turnover – like e-commerce distributors processing thousands of orders a day – are among the biggest proponents of tall warehouses. They can justify the investment in automation by the sheer gains in capacity and speed. As robotics costs gradually decline and capabilities improve, expect even mid-sized warehouse users to embrace taller buildings with automated picking. The endgame is a cubic revolution in warehousing: optimizing not just square footage, but the full three-dimensional volume of space. Ceiling height becomes as crucial as floor area in site selection decisions. It’s telling that many brokers now list clear height prominently in warehouse listings, right alongside square footage and dock count – a sign that the industry views height as central to a building’s value proposition.
Building Up When Land Runs Out
If technology is enabling vertical warehouses, geography and urban economics are demanding it. In America’s most crowded logistics markets, developable land is scarce and prohibitively expensive. Take New York City, where the hunt for last-mile distribution sites has run into a simple reality: there’s virtually no open land for sprawling one-story warehouses. The solution is to build upward. That five-story Queens project by Goodman Group exemplifies this shift – a bold (and costly) answer to NYC’s space constraints. Similarly, in Brooklyn, developers recently completed one of the East Coast’s first multi-level fulfillment centers, a three-story facility known as 640 Columbia, which marked the beginning of vertical logistics design in the region. The site plan for such facilities looks radically different from the classic single-floor grid. It must incorporate truck ramps curling up to higher floors, freight elevators, and structural reinforcements to support heavy loads on upper levels. In effect, architects are fusing principles of parking garages and industrial plants to create a new hybrid: the urban vertical warehouse.
On the West Coast, the trend is similar. Land near the ports of Los Angeles/Long Beach or in the Seattle area comes at a premium, so developers are experimenting with multistory designs. In 2018, Prologis – the nation’s largest industrial landlord – opened the country’s first true multistory warehouse in Seattle’s Georgetown neighborhood. This pioneering facility has three levels totaling 590,000 square feet, with truck access to the second floor via a ramp and traditional docks on the ground level. At the time, it was a radical idea on U.S. soil (though common in Asia): would tenants actually use an upstairs warehouse? Today, that question has been answered as companies have moved in, and Prologis and others have since proposed or built additional multistory projects in places like San Francisco and Silicon Valley. In dense urban cores, these vertical warehouses can bring goods closer to consumers – shaving miles off delivery routes – which is a big competitive advantage for e-commerce delivery speed.
There are trade-offs, however. Building vertically is expensive. Above a certain height (often three stories), U.S. building codes require stronger fireproofing and structural materials, such as reinforced concrete or heavy-gauge steel, which significantly drive up costs. Also, not every square foot in a multistory warehouse is usable – stairwells, elevators, ramps and mechanical systems eat up as much as 25% of each floor. Developers thus must carefully crunch the numbers: the higher rent or strategic value of an urban location has to outweigh the higher construction cost and slightly reduced efficiency of multi-level layouts. So far, this calculus only pencils out in select markets (New York, Seattle, San Francisco, etc.), where land prices and delivery demands are so extreme that tenants will pay a premium for space, even if it’s on a second or third floor. As online shopping grows and cities expect lightning-fast delivery, more locales may reach that tipping point. It’s conceivable that in a decade, Los Angeles or Chicago could also sport multi-story warehouses where land constraints pinch. In any case, the “build out, then build up” development mantra is here to stay – first fill the site’s footprint, then go vertical to multiply the capacity.
Implications for Investors, Developers, and Tenants
The vertical warehouse trend carries different implications for each stakeholder in the industrial real estate ecosystem.
Investors: For real estate investors, taller warehouses and multistory facilities present both an opportunity and a complexity. On one hand, these cutting-edge properties cater to the most creditworthy tenants (think global retailers, cloud kitchen providers, or specialized logistics firms), often locking in long-term leases at high rents. The sales market has recognized their value; despite higher interest rates and some recent market cooling, institutional capital has been actively acquiring modern “big-box” warehouses, confident in the sector’s long-run prospects. Industrial assets as a whole remain darlings of the investment world, thanks to historically strong rent growth and relatively predictable costs. In fact, as of late 2025, overall industrial deal volume was rebounding, and cap rates (investment yields) for top-tier warehouses – while up from their 2021 lows – still hover around a competitive 5.5–6% range. The Burlington transaction in California is a case in point: a user-occupier was willing to pay a premium for a high-spec warehouse, which in turn set a high watermark for asset values in that market. For investors, the message is that location and specifications matter. A generic older warehouse might struggle in the face of new supply, but a well-located distribution center with 40-foot clear height, ample trailer parking, and next-gen amenities is likely to retain value and see strong rent rolls. As vertical warehouses become more common, investors will need to underwrite not just the square footage, but the cubic footage and technological capabilities of these assets. Those who get it right could enjoy outsized returns, especially as the economy eventually rebalances and today’s vacant space gets absorbed.
Developers: Developers are the ones literally drawing the site plans for this new vertical era, and they face a mix of excitement and challenge. On the plus side, being able to offer more buildable volume on a given plot opens up new revenue potential – it’s a chance to meet tenant needs in high-demand markets where land is limited. Developers with expertise in multilevel construction (a skill more common in Asia until recently) are now at an advantage in places like the Northeast U.S. However, the technical hurdles are non-trivial. Engineering a warehouse with two or three loading levels means beefing up structural support, adding ramp access that can handle truck weights, and ensuring floor plates align with efficient goods movement. During site plan review, developers often must work closely with city officials unaccustomed to such tall industrial proposals, addressing concerns from traffic flow to fire safety. The timeline and cost of these projects can be significantly higher than a normal warehouse. As noted, special materials and fireproofing may be required by code for multi-story designs, and construction crews must execute complex features like ramps or freight elevators that they wouldn’t on a single-floor project. This all can push construction costs perhaps 1.5x or more above conventional builds. There is also the risk of pioneering something new: if the market shifts or tenants balk, a multi-story warehouse could take longer to lease. Yet developers see the writing on the wall – the horizontal approach to industrial real estate is running up against its limits in many markets. Those who can master building upward will be poised to deliver the next generation of distribution hubs. We are already seeing major players like Prologis, Goodman, and others create internal design standards for multilevel facilities, hinting that they expect to replicate such projects widely in years to come.
Tenants: From the occupant’s perspective, the trend toward taller and multilevel warehouses is a double-edged sword. On one side, these new facilities can dramatically improve a company’s logistics operations. A higher clear height means more inventory under one roof – for a retailer, that can translate to fewer stockouts and the ability to consolidate what might have required two warehouses into one. Automation-rich, vertical warehouses also often boast greater efficiency and speed, which are vital for e-commerce fulfillment or just-in-time manufacturing supply chains. Companies that have embraced these facilities, like large online retailers or national distributors, report improved throughput and the capacity to handle growth without immediately needing additional buildings. On the other side, occupying a vertical warehouse demands more sophisticated planning and investment. A tenant has to ensure they have the right material handling equipment to exploit a 40-foot clear height (standard forklifts might only use half that height, so they might need deep-reach forklifts or robotic systems for the top tiers). If they are in a multistory building, they must organize operations by floor – perhaps dedicating one level to bulk storage, another to picking and packing – and move goods between floors via conveyors or freight lifts. There’s also a labor consideration: workers may need training to work alongside automation, and the facility’s design must prioritize safety at height and on ramps. Some smaller businesses may conclude that a fancy high-cube warehouse is overkill for their needs, sticking instead to older, cheaper spaces. But as more operators see their competitors gain an edge with modern facilities, pressure will mount to adapt. In sectors like 3PL (third-party logistics), having a state-of-the-art, tall warehouse can be a selling point to customers who want their supply chain handled in the most advanced way.
The Road Ahead: Higher and Higher
From sprawling single-story depots to towering multi-level logistics hubs, U.S. industrial real estate is undergoing a vertical transformation. It’s a response born of necessity – e-commerce growth, land scarcity near consumers, and technological advancements all converging – but it’s now moving beyond isolated examples to a broad trend. Industry analysts anticipate that even if the current construction wave slows, the next cycle of warehouses will almost invariably be taller and more volume-optimized than the last. Developers are already moderating the pace of new projects after a record burst of building; annual supply additions are projected to hit a 10-year low by the end of 2026 as fewer groundbreakings occur. This pause may allow demand to catch up to the glut of big boxes delivered in recent years. As the equilibrium returns, those modern, tall facilities are poised to fill up, and when the market tightens again, tenants will be lining up for high-clear space. In fact, InnoWave’s data indicates that even as overall construction wanes, the share of new warehouses with 36-40 foot clear heights remains at an all-time high – a sign that builders are not turning back from the vertical paradigm, just building fewer total projects for now.
Ultimately, the warehouse of tomorrow looks a lot like a small skyscraper. It may not pierce the clouds, but it will certainly stretch the definition of “big box” to new heights. The implications will ripple beyond just real estate: local zoning laws may evolve to accommodate taller distribution centers; skylines in industrial corridors could feature giant logos perched 100 feet up on warehouse walls; and the logistics workforce will increasingly include technicians overseeing robotic systems that roam concrete cliffs of inventory. The phrase “sky’s the limit” has seldom been taken so literally. Yet for an industry long defined by flat rectangles on the horizon, reaching upward is a natural evolution. As American industrial property goes vertical, warehouses are becoming not just wider storage sheds, but complex vertical machines – monuments to a society that now expects everything on demand, and a property sector that is, quite literally, rising to the challenge.
Sources:
InnoWave Database – United States Industrial National Report (Jan. 26, 2026). Key national metrics for Q4 2025: vacancy rate ~7.5%, annual net absorption ~92.1 million SF; average asking rent ~$12.09/SF (NNN) with ~1.5% YoY growth, vacancy 7.4% at end of 2025.
Colliers (Press Release)
Nusbaum, David. “Burlington Acquires Riverside Distribution Center for $257 Million.”
De La Rosa, Shawna. “Prologis Builds First Ground-Up Multistory Warehouse In U.S.”
Isaacson, Greg. “The Future of Industrial Real Estate.”
Jones, Orion. “NYC’s Tallest Industrial Building Coming to Queens.”
Bockmann, Rich. “CBRE Nears $330M Deal for Amazon-Leased Warehouse in Red Hook.”
Hallum, Mark. “CBRE Completes $330M Acquisition of Red Hook Amazon Facility.”
Kirk, Patricia. “Why Multi-Story Industrial Assets Might Be in the Future for Dense U.S. Cities.”
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