Why don’t industrial landlords rent space by the cubic foot?
“Good question,” a broker said when I asked.
Well, why not?
I’m sort of kidding — but it always comes to mind when I’m in a big warehouse, thinking about the space and how it’s used.
Brokers talk about “clear height,” not just ceiling height, because the clear height is what’s important: the highest level at which conveyors, forklifts, cranes and other tools of inventory management systems can move, stack and rack pallets of widgets as they come and go.
Anything above the clear height isn’t wasted; lights, fans and other mechanicals are in that space. It’s not part of the actual work of the warehouse; it does support it.
Storage is three-dimensional, even though warehouse space is rented by the size of the floor, with rent rates by the square foot. And cubic feet do — or should — go into decision-making for warehouse tenants.
Let’s say the choice is between two 60,000-square-foot warehouses, one with a 24-foot clear-height for $4 per square foot, and one with a 30-foot clear height at $5 per square foot.
The annual rent for the warehouse with the 24-foot ceiling is $240,000 per year. The annual rent for the one with the 30-foot ceiling is $300,000.
The 24-foot ceiling has 1.44 million cubic feet of space, which comes to 16.6 cents per cubic foot.
The 32-foot ceiling has 1.92 million cubic feet of space, which comes to 15.6 cents per cubic foot.
Strictly speaking, the warehouse with the 30-foot ceiling, even though it rents for $1 more per square foot, actually costs a penny less per cubic foot – so is 6 percent less expensive than the warehouse with the 24-foot ceiling.
So, all else being equal, a tenant with a system that would utilize all of that extra capacity would get the better deal by paying the extra dollar per square foot for the extra 8 feet of ceiling height and the extra 480,000 cubic feet.
All else is never equal, but more than square feet matter. Cubic feet do, too.