Massive Distribution Center Site Selection Projects Continue to Expand Across U.S.
by King White, on Apr 12, 2022 3:31:57 PM
The strong demand for distribution centers has been fueled by e-commerce, retail, third-party logistics providers, and other industries seeking to optimize their supply chains through site selection strategies. This momentum is expected to continue through 2022 or longer, which could be disrupted by labor shortages, unstable economic conditions, and tight real estate conditions. As a result, companies have become more strategic in their site selection tactics as they attempt to balance site selection factors such as logistics, labor, economic incentives, and real estate.
Massive distribution center projects announced
Site Selection Group identified over 35 distribution centers projects over one million square feet in area that were completed in the last year to illustrate the amount of demand in the market. Seventeen are Amazon facilities, averaging roughly $75-$100 million in capital investment and creating 400-1000 jobs per new location. Dallas-Fort Worth topped the nation for new warehouse construction. Other hot markets include Seattle, Kansas City, Phoenix, Salt Lake City, Las Vegas, Louisville, Miami, Houston, and Chicago. The following list identifies some of the largest distribution center projects recently announced:
|Company||Location||Square Feet||Capital Investment ($M)||Jobs|
|Ahold Delhaize||Hartford, CT||1,000,000||N/A||500|
|Amazon.com||Saint Lucie, FL||1,000,000||$100.00||500|
|Amazon.com||San Diego, CA||1,000,000||N/A||N/A|
|Bath & Body Works Direct||Pickaway, OH||1,000,000||$110.00||500|
|Bed Bath & Beyond||Schuylkill, PA||1,000,000||N/A||300|
|Bed Bath & Beyond||Riverside, CA||1,000,000||N/A||N/A|
|Broadrange Logistics||Jackson, GA||1,000,000||N/A||N/A|
|Ceva Logistics||Shelby, TN||1,000,000||$62.20||265|
|Cold Solutions||Jackson, MO||1,000,000||N/A||N/A|
|DSC Logistics||Will, IL||1,000,000||$5.30||N/A|
|Iron Ox||Caldwell, TX||1,000,000||N/A||N/A|
|Mason Companies||Chippewa, WI||1,000,000||N/A||N/A|
|Ryder Truck Rental||Schuylkill, PA||1,000,000||N/A||N/A|
|TTI, Inc.||Spartanburg, SC||1,000,000||N/A||N/A|
|Walmart||Salt Lake, UT||1,000,000||N/A||450|
Distribution center specifications are changing
Demand has increased for newer buildings with larger footprints and higher ceiling heights to maximize their utilization, reshaping the market. In addition, last-mile distribution centers that are closer to dense population clusters are in high demand as companies try to solve the on-demand delivery needs of consumers. As a result, smaller footprint distribution centers —such as dormant shopping malls and older industrial buildings—that are close to major population centers are being redeveloped for last-mile delivery operations.
Labor and supply chain challenges
The growth in demand is creating challenges for companies seeking to expand. Labor shortages are causing major issues with finding enough qualified workers to operate distribution centers, which in part is being offset by automation technologies. Wage inflation has grown dramatically as companies compete for workers. A shortage of trucks and drivers for transporting products from the warehouses to stores is also causing significant delays. Due to unstable supply chains, companies are stocking up on goods and supplies when they are available, creating more capacity demand on already-stressed distribution and warehouse facilities.
Real estate availability and costs are a problem
The combination of increased demand for capacity and record-low vacancy rates has companies needing distribution centers and warehouse facilities scrambling to find suitable buildings at reasonable rental rates. The vacancy rate hit a record low of 4.1% in 2002, with rental rates increasing by 9.9% to a national average of $9.25 per square foot according to the Costar Group. Rents will likely increase throughout the year as the already-low availability of space becomes even tighter. Another factor that will drive up rent is the continued rising cost of construction due to labor and material shortages.
With such massive demand for quality real estate spurring a great deal of fast-moving, speculative development, the safest way to find the best property is through a balanced site selection approach of logistics, labor, real estate, and economic incentives that can only be delivered by a site selection firm with deep experience in the distribution and warehousing industry.
Sources: Site Selection Group, Costar Group, and IncentivesFlow, A Service from WAVTEQ Limited