Store or Warehouse? Zoning for Micro-Fulfillment Centers

May 3, 2021

By Tim Richards, AICP, ESQ

Several months ago, a client community reached out regarding development applications they were seeing for small to medium-sized order fulfillment centers repurposing vacant retail space. As planning staff, they had mixed feelings. On the one hand, seeing a vacant building repurposed and put to use is a good thing. On the other hand, they worried about potential impacts to the character and vitality of commercial centers (picture windowless storefronts, no shoppers, fleets of delivery trucks, etc.).

Trends in consumer preferences and behaviors toward online shopping, and the increasing normalcy of lightning-fast delivery options, were already challenging conventional notions of “stores” and “warehouses” well before the COVID-19 pandemic. Same-day and even one-hour delivery for online orders are now commonplace in many large urban areas. You may have had an experience like I did recently when I ordered a microwave online and the default-free delivery option was next-day delivery from my local big box store. During the last year, as many of us have adjusted our expectations around working and shopping, gray areas between activities traditionally thought of as commercial (retail sales) and those thought of as industrial (warehousing, order fulfillment, etc.), have become more apparent. As someone who never considered using grocery pickup or delivery services before, I now find myself in a weekly routine of Friday night grocery shopping on the iPad for Saturday morning pickup. I rarely see the inside of my local grocery store anymore, only the order pickup spaces. Of course, it’s hard to say whether new habits will stick once the pandemic has passed. Some analysis suggests they will.

In a world where more and more purchases are completed with a click of a mouse or a tap on a screen, and where delivery times are measured in minutes and hours rather than weeks and days, we can expect to see more micro-fulfillment facilities, including so-called “dark stores”, as well as a spectrum of land uses that mix, in varying proportions, fulfillment of online orders and in-person shopping. Communities will do well to consider whether and how their land-use policies address this changing landscape and amend their zoning regulations if needed.

Photo courtesy of the Michigan Municipal League

Turning to zoning regulations, a good place to start is with the question, “how do we define this use?” Should the use be classified more broadly as a commercial or industrial use? I find the Land-Based Classification Standards, or LBCS, developed by the APA in the late 90s to be helpful in this inquiry. Those standards look at five aspects of land use, including two that are particularly relevant: activity, the actual use of land-based on its observable characteristics, and function, the economic function or type of establishment using the land. Based on the LBCS descriptions for activities, dark stores appear to straddle two of the LBCS codes: (1) goods-oriented shopping, and (2) primarily goods storage or handling activities. As far as function goes, dark stores really appear to be a better match with the retail sales and service code than the warehouse and storage services code, based on the code descriptions. In my experience, communities that have defined these types of micro-fulfillment uses have grouped them with industrial uses rather than commercial uses, but I think there is an argument they could be grouped with commercial uses. As noted above, there is gray area here. Regardless of its more general classification, defining the use specifically in the ordinance does not necessarily require the creation of a new use or uses. A general warehousing and distribution use already defined in the ordinance may be able to be refined in its definition to include a range of fulfillment type uses.

Photo courtesy of X5 Retail

Once the use is defined, we can talk about where it is allowed. Looking at the market forces at play, some communities are approaching warehousing/fulfillment uses in a more nuanced way, allowing micro-fulfillment facilities outside of industrial zoning districts. Of course, planners are always mindful of potential impacts of land uses on surrounding areas. Particularly where a dark store (a former retail building repurposed for order fulfillment only and no in-person shopping) is proposed in an existing commercial building, care must be taken to balance the benefits of the reuse against potential negative impacts on the surrounding area, especially when mingled with existing commercial uses (e.g., in the same shopping center). Impacts might include the appearance and sounds of delivery vehicles, whether stored or loading; impacts of delivery vehicles on vehicular and pedestrian circulation; a lack of people coming and going; reduced window transparency; changes in signage, etc. All of these can affect the character of the area (think “vibrant” places) and the bottom line of surrounding businesses.

To address potential impacts, standards specific to micro-fulfillment uses typically go hand-in-hand with allowing them more broadly in commercial areas. These standards might address the design of the building façade, queuing and loading areas, hours of operation, overnight parking of delivery vehicles, etc. The community I mentioned at the beginning of this post ultimately decided to allow what they called “goods distribution hubs” up to 10,000 square feet in floor area in some of their commercial districts. They included standards for the use to limit the size of vehicles making deliveries from the facility and the size of delivery vehicles stored on-site. To encourage reuse of existing buildings, the building size limitations are significantly relaxed if the use is established in existing buildings, up to 80,000 square feet, if at least ten percent of the gross floor area of the building is used for in-person retail sales. The goal was to retain some of the foot traffic in the commercial areas while also providing flexibility for the reuse of existing buildings.

Of course, market conditions, the built environment, and values vary from place to place, and how competing interests are balanced will also. It will be interesting to see how things unfold in the next year or two, and how much of the last year represents a new normal. Zoning is just one piece of a fast-moving, 3-D puzzle. That’s something to think about next time you’re sitting in your car in a designated pickup space.