Commercial Mortgages: Richmond region has become a boom for new warehouse development

May 6, 2019

It is apparent to most commercial real estate professionals that there is an unusual amount of warehouse development activity taking place in the Richmond region from both local and national investors.

About 2.2 million square feet of industrial/warehouse space is currently under construction, according to first-quarter data from commercial real estate brokerage Cushman Wakefield | Thalhimer.

New announcements seem to come out each month.

In January, for instance, like a random answer to Joel and Ethan Coen’s movie “O Brother, Where Art Thou?,” the long-awaited announcement of a tenant for Panattoni Development Co.’s 461,000-square-foot speculative warehouse came to an end with Brother International Corp. signing on to relocate its East Coast distribution warehousing from New Jersey. The new warehouse is part of a 62-acre property near the Richmond Marine Terminal and Interstate 95.

California-based Panattoni now is building a second phase with a similarly sized building that will be ready in the third quarter.

In addition to the speculative development near the Richmond Marine Terminal, several other parts of the region are seeing development activity.

A new 238,000-square-foot speculative warehouse in Hanover County’s Northlake Business Park was made public in March. Space is available at Phase II of Becknell Industrial’s four-phase, 805,190-square-foot Airport Logistics Center in eastern Henrico County.

Richmond-based Hourigan is developing the 1.2 million-square-foot Deepwater Industrial Park that is being marketed for build-to-suit tenants.

Hourigan acquired the former Alleghany Warehouse Co. property in South Richmond in 2017 and has been razing the buildings for redevelopment as a new warehousing, distribution and manufacturing complex.

What is driving demand for these warehouses?

One big reason Amazon came to the Richmond region is because of the logistics talent flowing out of Fort Lee, where the Army Logistics University is located.

So one answer is Amazon is here.

Amazon also has changed everyone’s business model over the past two decades, creating a huge change in how industrial warehouses are used across the country.

To compete with Amazon and its efficient distribution, retailers and suppliers must be able to get to large city populations quickly. To do that, inventory needs to be stored in buildings close to these populations.

So another reason is Richmond has a large population and the new business model requires warehouses close to populations.

Another key consideration is the growth at the Port of Virginia and the Richmond Marine Terminal and the region’s proximity to Interstates 95, Interstate 64 and Interstate 85.

There is no disputing that the Richmond region has become attractive to industrial developers.

Richmond was in the top 20 areas in the U.S. with the highest industrial rental growth rates, according to a recent report from commercial real estate analytics company CoStar Group Inc. The rental growth rate locally is 7.2 percent.

The CoStar report also indicated that the Richmond area had the sixth-most industrial space under construction in the country, which is sure to put a lid on rental growth.