Gale Brewer, the Manhattan borough president, was walking around the Upper West Side last fall when she noticed several new grocery stores in the neighborhood. They stood out, not because they had flashy signs or welcoming window displays but because they had nothing.
"It was covered with paper literally taped to the windows," Brewer said of one new arrival. Peering in, she saw rows of food and a bunch of delivery bicycles. She was mystified, she told Insider. "What's the store? Can I go in? I didn't know what it was."
It was an outpost run by a rapid-delivery startup, Brewer learned. And it was just one of many that had arrived in New York City — as well as Chicago, San Francisco, and Boston — in the past year. They were launched by outfits like Gorillas, Jokr, Fridge No More, and Gopuff that promise doorstep delivery of everything from eggs to pizza in as little as 10 minutes.
These well-funded startups, many of which pioneered their models in dense European neighborhoods, are part of an on-demand ecosystem whose growth is pushing big warehouses closer to the hearts of American cities and repurposing urban storefronts as mini warehouses. The reasoning is simple: Having stuff start closer to customers is one of the best ways to meet increasing demand for once-unheard-of delivery times.
Like the ultrafast startups, bigger retailers want warehouse space in cities to deliver things faster. But real estate is more expensive in urban areas than in rural ones, prompting companies like Amazon to find warehouses with multiple stories.
"Warehouses in urban areas are in high demand because of their scarcity," the real-estate-investment trust Prologis wrote in a recent report on large, multilevel warehouses, another kind of space that's becoming more common in US cities.
Former retail spaces in cities are also getting reworked into warehouses. Phoenix Logistics is retrofitting a former Sears warehouse outside Memphis to work better for e-commerce. The company has already done the same with other properties, such as a former JCPenney furniture outlet in the Milwaukee suburb of Wauwatosa, which Amazon will operate.
"It's almost entirely driven by land costs," Robert Kriewaldt, Phoenix's senior vice president, said.
It's why Amazon and Home Depot are the new tenants of a million-square-foot, two-story warehouse and logistics center that has taken the place of the Whitestone Multiplex Cinemas in the Bronx. Originally home to a drive-in theater, the 20-acre site will now see delivery vans and trucks rolling in and out.
"Way back in the beginning of e-commerce, companies' approach was one single warehouse in the middle of the country, and they tried to get to everyone from there," John Morris, the leader of industrial and logistics at the real-estate-services firm CBRE, said. "The other extreme of that is one single warehouse in everyone's backyard."
Pushback builds within cities
Since 2010, developers have built 21 large warehouses in New York City — 10.3 million square feet in total, the equivalent about 14 LaGuardia airports. An analysis by the Environmental Defense Fund found these warehouses were responsible for 9,500 additional daily truck trips in the city since 2010.
Trucks idling near warehouses create pollution "right where people are walking, playing, and going to school," said Aileen Nowlan, the policy director of global clean air at the Environmental Defense Fund.
Environmental activists are pushing for regulations that would limit warehouse size and keep them away from schools, parks, and other warehouses, Gothamist has reported.
Brewer and other councilmembers say the "dark stores" — a nod to the warehouses' (illegal) habit of papering over their windows — are marring the city's lively, walkable neighborhoods and threatening the livelihoods of bodegas and mom-and-pop supermarkets.
"The community just became dark," the councilmember Christopher Marte said of the influx of dark stores in his Lower East Side neighborhood. The son of a bodega owner, Marte cointroduced a series of bills that would mandate a weight limit for deliveries.
Brewer is pressuring city-building and consumer-protection officials to ensure rapid-delivery stores follow the same rules as grocery stores and bodegas, including being open to the public and allowing walk-in customers to pay cash.
The rapid-delivery players have scrambled to comply with various regulations, taking the paper off the windows and installing kiosks for walk-in customers. But the changes seem to prioritize the letter over the spirit of the law. Brewer tested one store by insisting on paying for a banana with cash. "They had to get a key that took about 10 minutes to open the cash register," she said.
Some rapid-delivery players are trying to follow the rules by setting up indoor kiosks for pickup orders. Marte calls this a "loophole" that doesn't erase the fact that these are micro warehouses in urban areas.
Ultimately, Brewer said, consumers will decide the fate of the urban warehouses. For the dark stores, it doesn't look good. After growing quickly in US cities, rapid-grocery-delivery startups are flailing: European companies such as Fridge No More, Buyk, Jokr, and 1520 have shuttered or pulled out of the US. Getir, Gopuff, and Gorillas have laid off workers.
But the larger warehouses opening on the edges of urban cores — like the movie theater turned Amazon hub in the Bronx — won't be so easily displaced. A depot within quick striking distance of millions of consumers is too valuable a commodity.
CBRE forecasts that more warehouses will be built inside dense cities like New York. Urban warehousing allows for both faster and cheaper delivery, said Morris, and, for now, warehouse owners and retailers are willing to shoulder the higher costs.
"We're gradually moving down that spectrum," Morris said, "from where one warehouse was enough to where everyone needs their own warehouse in their backyard."
