South Hampton Roads and the Peninsula have different stories when it comes to the growth of warehouses, but both are seeing an increase in demand for industrial real estate.
Clay Culbreth, senior vice president for industrial properties with Cushman & Wakefield | Thalhimer, said South Hampton Roads has seen an explosion of warehouses with more to come.
He said the Peninsula, with about 35 million square feet of the entire 110 million-square-foot market in Hampton Roads, has now left the starting gate.
Of that, Culbreth said they are tracking at a sub 2% vacancy rate.
“So, it’s easy to ascertain that because the vacancy rate is so low and the demand continues to maintain the velocity it currently has, we’re seeing a rise in both rental rates, which is translating into developers stepping in to finally start to build new product,” Culbreth said. “It’s a good sign that we now have product that will facilitate the needs of those looking to go to points west.”
Culbreth, well-versed on the Peninsula’s industrial market for the past 39 years, said there has been a resurgence of new development on the Peninsula that will help to provide the bulk distribution space demanded by some customers to allow them to move product up Interstate 64 versus out through U.S. Routes 58 and 460.
“It puts them on the other side of the tunnels, which some deem as warranted at this point and worthwhile,” he said.
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Lean pickings for warehouse space
Noting the Peninsula has not been as successful at attracting developers as the south side, Culbreth did point out that the Newport News shipyard is a still major development driver there.
“Over the years, I’ve literally leased them a million square feet of space,” he said. With the recent double aircraft carrier order, their continued refueling and decommissioning creates an ongoing need for warehouse space close to the shipyard, he said.
Culbreth noted Newport News-based W.M. Jordan Co. is currently constructing two 115,000-square-foot industrial buildings in Hampton.
The city of Hampton is negotiating to develop a 64-acre parcel at the intersection of Interstate 664 and Aberdeen Road, Culbreth said, with plans to construct two high-bay distribution facilities.
“There is an equilibrium between vacancy and occupancy, and that equilibrium provides opportunities for sellers and landlords to attract tenants and buyers at a point that both parties are satisfied with the outcome,” Culbreth said.
That equilibrium is around a 5-7% vacancy rate.
“Just like the residential market, when the supply drops, the demand is there, the interest rates are low and sellers increase their prices,” Culbreth said.
Noting this is probably the leanest market he’s ever seen relative to available space, Culbreth said it’s still a seller’s and landlord’s market.
“But with the increase in interest rates, I think buyers are starting to slow down, and prices may be starting to max out or stabilize from a sale perspective,” he said.
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Amazon, port fuel growth
Lang Williams, executive vice president on the industrial brokerage team for Colliers, has seen a lot of growth since he entered the industry in 1995.
“Last year, there was about 5.1 million square feet of buildings completed,” Williams said. Two of them were for Amazon: one a 3.8-million-square-foot facility in Suffolk and the other a 628,000-square-foot building in Chesapeake.
“This year, we expect about 1.5 million square feet to be completed, and next year, it should be about 3.5 million square feet,” he said.
Williams said the ongoing growth and demand at the Port of Virginia, the sixth largest container port in the U.S. ranked as the highest performing port in America in 2021, is a continual driving force.
With the port’s expanded capacity at its container terminals — $700 million invested in 2020 — comes a correlated spike and demand in buildings in close proximity to handle the freight.
“We have a diversity of companies that need to handle freight and build new warehouses here,” Williams said, noting Massimo Zanetti Beverage USA’s recent investment of $29.1 million to expand its Suffolk distribution center in Virginia Port Logistics Park.
Fully functional last November, Massimo Zanetti’s 355,933-square-foot facility includes offices, a conference room and a training center. The coffee giant delivers, stocks and disperses a variety of brands to multiple merchants, including Walmart, Amazon and Costco, from its bustling East Coast hub.
With the increase of e-commerce fulfillment, which has seen a dramatic surge because of online ordering and delivery throughout the pandemic, comes the need for warehouses to store and process freight.
“The overall supply chain function that a port market performs, we’re starting to see a lot of demand related to that,” Williams said.
Williams said 44% of the buildings built in Suffolk for the supply chain since 2000 were built within the past two years.
“There’s definitely a lot more robust demand and activity than there was 10 to 15 years ago,” he said. “Every market in the country, frankly, has really been booming in industrial real estate for the last two or three years. It’s a good economic engine right now.”
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Biotech firm growth means warehouse expansion
As businesses grow, so does their need for warehouses in today’s economy.
Instant Systems, a biotechnology company in Norfolk, has grown tremendously since its founding in 1997.
The business now boasts three locations, including corporate offices and manufacturing on Robin Hood Road; research and development and manufacturing space on Denison Avenue; and a new central supply and regional fulfillment center on Miller Store Road in Virginia Beach. The 7,000-square-foot warehouse building on Miller Store Road was completed in January.
CEO Tara Ramsey said the work was previously split between the two other Norfolk locations. Four new positions were added with the new warehouse, which also has room for 10 supply chain professionals.
“Increasing demand for our products and services drove the need for more warehouse, production and R&D space,” Ramsey said. “Our new central supply center streamlines production, eliminates waste and ensures continued uninterrupted supply to our products to our customers.”
Sandra J. Pennecke, 757-652-5836, sandra.pennecke@insidebiz.com
