Need for speed: Developers race to build warehouses amid site shortage

VIRGINIA BUSINESS – Geoff Poston likens the current market for building, buying and leasing warehouses and distribution centers to the mid-1800s California Gold Rush: Everybody wants in.

Poston, vice president of Cushman & Wakefield | Thalhimer’s Hampton Roads industrial group, says demand has never been greater for industrial real estate, creating a tight market with low vacancy.

“The amount of speculative development of industrial space taking place right now is unprecedented,” says Jason El Koubi, interim president and CEO of the Virginia Economic Development Partnership. “Some of this space will go to manufacturing, but much of the demand is being driven by warehousing and distribution needs.”

One leading factor behind this drive is companies attempting to keep up with e-commerce giant Amazon.com Inc. in getting products to consumers quickly.

Amazon is constantly pushing the envelope, shortening delivery windows from what was once five days to same-day delivery, says Marc Wulfraat, founder and president of Canadian logistics firm MWPVL International Inc.

“That speed to market is a competitive advantage,” he says, “but what it requires is that you have more buildings that are closer to urban metro markets.”

And adding more buildings and sites is easier said than done, particularly around in-demand markets and locations with ready access to interstates and shipping routes.

“The big difference is we have a lot of institutional developers in the market tying up sites left and right in order to accommodate the demand that they’re seeing,” says Poston, adding that “all of that developer demand is just really creating a frenzy.”

Running out of land

In Chesterfield County, every piece of property zoned for distribution centers, warehouses or manufacturing facilities is either under contract or in negotiations, says the county’s director of economic development, Garrett Hart.

“It’s the most active market I’ve seen in my 40-year career,” Hart says. “I’m spending my days trying to look for property to get more property zoned and in place and ready to go.”

But it’s not just Chesterfield where industrial sites are scarce and development is booming. Across the commonwealth, the demand for more warehousing and distribution space is causing developers to scramble.

“Where I think the demand is different today is there is a shortage, especially in Virginia, of zoned, approved sites that are ready to go,” says Mark Hourigan, founder and CEO of Richmond-based construction and development firm Hourigan Development.

In the past several months, hundreds of jobs and millions of dollars in capital investment in warehouses and distribution centers have been announced in Virginia.

Goochland County-based Performance Food Group Co., a Fortune 500 food products distributor, will invest $80.2 million in a new facility in Hanover County. In the first quarter, it will break ground in Ashland on a 325,000-square-foot warehouse, scheduled to be built over 18 months.

Hanover County Director of Economic Development Linwood Thomas says big economic development announcements like that keep coming.

“What will happen over the next 24 to 36 months is about an additional 6 million square feet of new industrial space, warehouse, logistics [and] industrial supply [space]” will be built in the county, he says, which will increase Hanover’s current industrial inventory by more than 40%.

Meanwhile, Amazon has facilities popping up all over the state. In Suffolk’s Northgate Commerce Park, Amazon is building a nearly $230 million, 3.8 million-square-foot, five-story robotics fulfillment center. It’s also constructing a fulfillment center in Henrico County near Richmond Raceway and an import processing center in Chesapeake. Amazon has at least 15 facilities in Virginia, with more coming.

Lang Williams, Colliers International’s Norfolk-based senior vice president, works with a lot of developers and companies seeking space.

He says the past 18 months have been “without precedent” in the Norfolk region. “We’ve really kind of caught up with the rest of the country in terms of just massive demand for all logistics and warehousing space.”

The difference now, Williams adds, is that there are two and three companies “practically fist-fighting for space.”

“Normally we don’t have that problem. Normally, we’re pursuing and trying to make a deal. Now, the tenants are scrambling to find a space, no matter the cost, wherever they can get it, because they don’t have any options around,” he says.

Over the past several years, Virginia localities have been eliminated from consideration for several economic development projects involving warehouses or distribution centers due to a lack of site readiness. 

“These sites were unable to meet the project’s start-up schedule due to time required to fulfill a number of demands,” including due diligence, permitting and utilities and road infrastructure, El Koubi says.

The lack of available, ready sites for warehouse and distribution center projects is a statewide problem, he adds, “but more pronounced along the Interstate 95 and 81 corridors as well as Hampton Roads, where demand is higher.”

In the Fredericksburg region, less available land means building farther away from I-95, though localities have done a good job pivoting, says Todd Gillingham, vice president of marketing and operations for the Fredericksburg Regional Alliance at the University of Mary Washington.

While alternative distribution routes are available, the lack of available sites “will soon become an obstacle for the Fredericksburg region and much of Virginia,” Gillingham says. “I know there have been quite a few projects we lost out on because there wasn’t available existing industrial space.”

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