Land Use Considerations for Fulfillment Centers

The COVID-19 crisis has weakened New York City’s real estate sector, but the market for warehouses remained strong in the first quarter of 2020. According to reports from CBRE Group and Cushman & Wakefield, the asking rent for industrial properties rose by more than 10% quarter-over-quarter, and the vacancy rate dropped to 5%. These reports indicate that this market strength has been driven primarily by retailers, including those seeking third-party storage and distribution facilities. This demand is likely to continue as pandemic guidelines remain in place, or are gradually lifted, and customers continue to seek high volumes of home delivery services.

These “fulfillment centers” are the subject of this client alert, which provides an overview of basic land use and zoning considerations that should be kept in mind when planning for these facilities.

Overview of Zoning Regulations

The Zoning Resolution of the City of New York (the Zoning Resolution) establishes zoning districts and use regulations within those districts. The use regulations include numbered “Use Groups,” which list within them related groups of uses. The New York City Department of Buildings typically classifies fulfillment centers as Use Group 16D “warehouses.” Warehouses are permitted on an as-of-right basis (i.e., without any discretionary City approvals) within C8 and M1, M2 and M3 zoning districts. A citywide map showing the location of these zoning districts is provided below.

Clients should be aware of certain use restrictions applicable to Use Group 16D warehouses. For example, within C8 districts, these uses must be located within completely enclosed buildings. In M1 districts, these uses must be located in completely enclosed buildings, except that some exterior storage of materials or products is permitted. In M2 and M3 districts, enclosure requirements are less restrictive, but outdoor storage of materials always requires screening by an eight-foot wall or fence. Use Group 16 uses within M districts must also comply with certain “performance standards,” which are intended to control noise, vibration, particulate matter and other externalities.

Of course, the Zoning Resolution also establishes bulk, parking, loading and other regulations that vary depending on the applicable zoning district and the physical characteristics of the site.

Special Considerations

As shown on the map above, areas where fulfillment centers are permitted as-of-right are often situated near the waterfront. The Zoning Resolution has special regulations that apply to properties on or near the waterfront. These properties may be located within the city’s “waterfront area,” depending on proximity to the shoreline, and on “waterfront blocks” or “lots,” as defined in the Zoning Resolution. These parcels are subject to additional use and bulk restrictions that modify the underlying zoning, often in quite complex ways. Some of these regulations are inapplicable to parcels occupied by industrial uses, including warehouses. Sites on the waterfront or elsewhere may also be located in a flood hazard area, in which additional Building Code and zoning requirements apply.

Clients and contacts are encouraged to reach out to the Kramer Levin Land Use Department for further insights and information regarding the selection of sites and the development of fulfillment centers.