Global warehouse developer Prologis has won the green light to build a massive industrial project that’s been in the works for a decade in its hometown of San Francisco.
The city’s Board of Supervisors this week approved the firm’s SF Gateway project, a 1.6 million-square-foot proposal that would be one of largest industrial developments in San Francisco’s history.
Two warehouses are planned to replace four World War II-era warehouses spread across 17 acres in the city’s Bayview Hunter’s Point neighborhood. Prologis says the “modern, sustainable logistics hub” designed to support businesses operating in San Francisco could be used by manufacturers, distribution operators, wholesale storage, light industrial firms and others.
If it breaks ground, it would be among the largest warehouse projects under construction in the United States. Among the industrial projects currently underway in California, just one ranks larger: a 2.5 million-square-foot Amazon Fulfillment Center that’s slated to open next year in Hesperia, in the Inland Empire.
Prologis’ proposal is a vote of confidence for the U.S. industrial sector, as the nation’s vacancy rate has increased steadily for nearly three years and now stands at 7.5%, according to CoStar’s national industrial report. The soft market — complicated by millions of square feet of new warehouse space completed by developers in recent years — has shifted negotiating leverage to tenants and caused quarterly rent growth to stall, according to CoStar.
But Prologis executives are pointing to an “inflection in occupancy and rent” as a result of “strengthening customer sentiment, improved leasing velocity, and continued success in build-to-suit activity,” Chief Financial Officer Tim Arndt said during a recent earnings call.
The company posted a 9% year-over-year increase in revenue, to $2.2 billion, in the third quarter as tenants signed 62 million square feet of leases — a company record for any quarter — to secure warehouse space ahead of rising demand.
Keeping goods moving
Prologis, the world’s largest industrial landlord, began pitching a version of the project back in 2015. The project is now subject to final approval by the Board of Supervisors.
Prologis Vice President of Development Courtney Bell described it as the first project of its kind in San Francisco and the product of years of collaboration with the community and the city, which resulted in design changes and refinements.
“This project will deliver infrastructure that keeps goods moving, creates jobs and contributes to San Francisco’s economy,” Bell said in a statement.
The proposed project includes about 514,000 square feet of open, “active” roof space and green building features, such as a 3.2-megawatt solar array. Prologis has also committed to spending about $50 million on improvements to the surrounding streetscapes, including building accessibility ramps, sidewalks and bicycle parking space.
Pollution to potential?
Some community members opposed the project, arguing that the facility would lead to heavy truck traffic in the neighborhood and worsen air pollution in a neighborhood that’s been suffering for years from environmental problems.
The southeastern corner of the city houses the infamous Hunters Point Naval Shipyard, which the U.S. Navy occupied from 1945 to 1974 and is now a Superfund site contaminated with radioactive waste. The military is responsible for cleaning up the 866-acre shipyard to unlock a long-planned mixed-use redevelopment with thousands of new homes.
Bayview neighborhood Supervisor Shamann Walton said in a statement earlier this year that the Gateway project would bring “significant public benefit to the southeast part of San Francisco.”
He said Prologis had committed to giving $8 million in direct contributions to community-serving programs and $11 million in additional capital improvements to the surrounding area. “This is one of the largest private investments Bayview has seen in decades,” he said.
Prologis has agreed to employ all union labor and is expected to create nearly 2,100 construction jobs annually and approximately 2,000 permanent on-site jobs. It has promised to fund local programs that support early education, small businesses, workforce training and public art. The company estimates the project would generate around $7 million annually in property taxes, $16 million in development impact fees and $5.8 million in annual revenues to the city’s general fund.
Amazon currently leases a warehouse from Prologis on the project site, at 749 Toland St., which would be razed if the project moves forward.