Making it rain
Increased e-commerce fuels wave of distribution centers
For Hanover County Economic Development Director Linwood Thomas, things couldn’t get much better.
“It’s really been a perfect storm,” Thomas says.
That storm — the good type — is a deluge of distribution centers and warehouses that have opened recently or are currently in the pipeline for the county of about 108,000 residents, located about 20 miles north of Richmond.
Thomas says warehouse and distribution center development has insulated the county during the pandemic.
Over the past two years or so, Hanover has added about 1.5 million square feet of new space and about 80% of that has been leased.
“Then, we’ve got another almost 4 million square feet proposed in the next 24 months. These are tangible products that will put us over 5.5 million square feet of new space, which is huge,” says Thomas, noting that the new space will represent a nearly 40% increase over the county’s existing stock of 13.8 million square feet of industrial/warehouse space.
He forecasts the projects will employ about 2,000 workers at buildout, producing $3.3 million in new tax revenues.
Hanover’s “perfect storm” of warehouse and distribution center expansions is being repeated throughout Virginia, as the coronavirus pandemic has put e-commerce at the forefront of retail.
Nationwide, consumers spent $861.1 billion online with U.S. retailers in 2020, up 44% from $598 billion in 2019, according to an analysis by Digital Commerce 360, a media and research organization.
Online spending represented 21.3% of total retail sales last year, compared with 15.8% the prior year, according to Digital Commerce 360’s analysis.
Virginia has seen more than 10,000 new jobs and more than $1.15 billion in investment tied to distribution centers since 2016, according to the Virginia Economic Development Partnership.
Data from the Virginia Employment Commission indicates that average employment from warehousing and storage in Virginia increased at an average rate of 6.2% per year between the third quarter of 2015 and the third quarter of 2020, climbing to 32,954 employees statewide, according to VEDP.
Matt Anderson, executive vice president for the Virginia office of Colliers International, a real estate services and investment management firm, has seen it all unfold.
“We cover a lot of stuff between [Interstate] 95 and the Atlantic Ocean,” Anderson says. “Eighteen months ago, we were tracking a little over 5 million square feet of user demand,” the amount of warehouse space needed in the marketplace.
Today, Anderson says, user demand in the Richmond market has soared to more than 8 million square feet.
“We had a record year of 4.6 million square feet of industrial leasing last year. We’ve never seen that much before,” Anderson adds.
Down in Norfolk and the Hampton Roads area, it’s been much the same story, says Lang Williams, a Colliers senior vice president in Hampton Roads. “We’re at a 1.6% vacancy rate, which is at an all-time low since it’s been tracked over the past 30 years,” Williams says. “We have over 5 million square feet of new construction underway, which is an all-time high.”
Anderson, meanwhile, has seen a big shift in how the market is trending.
“Right now, we’re seeing more interest from speculative developers than we’ve ever seen,” he says. “It’s funny to think that 10 years ago, 100,000 square feet [of warehouse space] was a big deal in our market. Now, we’re beginning to see a lot of deals that are 500,000 square feet, a million square feet.”
If you’re looking for really big in Virginia, though, you should turn your gaze toward Suffolk, where Amazon.com Inc. is building a sprawling five-story, 3.8 million-square-foot robotic fulfillment center that will employ about 1,000 workers.
Gregory Byrd, Suffolk’s interim economic director, says Ace Hardware, Target and QVC all have distribution facilities in Suffolk, as do other companies.
“The activity is unreal,” Byrd says. “Our proximity to the Port [of Virginia] makes being in this area worthwhile for distribution. Our proximity to the port is one of the reasons we get looked at.”
Last year, the Port of Virginia completed a three-year, $800 million effort to increase capacity and productivity, and that has attracted developers of distribution centers and warehouses, says Russell Held, vice president of economic development for the port.
The American Journal of Transportation recently reported that the fourth quarter of 2020 was the most productive three-month period in the Port of Virginia’s history, with a year-over-year growth of more than 13%.
“During the pandemic, we’ve become an e-commerce gateway,” says Russell Young, director of economic development at the port.
Young, who lives in Suffolk, points to the ongoing construction of the Amazon robotics fulfillment center in his hometown as an example of how e-commerce has spurred economic development in the distribution sector.
Hanover County may never see a distribution center as large as the one Amazon is building in Suffolk.
But Thomas is still in awe of what’s coming out of the ground now in Hanover and what’s around the bend.
Wegman’s, the supermarket chain, is building a $175 million distribution center/regional headquarters near the intersection of Sliding Hill and Ashcake roads that will employ about 700 workers. The first three phases of the development are planned for a maximum of 1.3 million square feet, with a potential for an additional 400,000 square feet.
Several miles north, home improvement retailer Lowe’s Cos. Inc. has announced plans for a $50 million distribution center on a 200-acre site north of Hickory Hill Road, along the west side of Interstate 95, that will employ about 100 people. The 1.1 million-square-foot bulk distribution center will provide daily shipments of appliances, riding mowers, grills and other consumer goods.
The mix of groceries and home improvement goods illustrates the wide range of items that are filling warehouse and distribution centers across the state, bound for both retail stores and customers’ home.
“The trend of people shopping online is being compounded exponentially and there is a need to have distribution facilities to address those last-mile concerns,” Thomas says. “It’s been one heck of a run.”