Your online clicking is fueling a hidden construction boom: Retailers and shippers racing to deliver goods faster and faster are building millions more square feet of warehouse and distribution centers to accommodate a growing e-commerce appetite.
It’s the latest in a building boom that’s reshaping the Charlotte region, and an aspect of the real estate market that often doesn’t get as attention as flashier new office towers, apartments and restaurants.
But the industrial market is one of the hottest parts of Charlotte real estate, with rents shooting up and new construction from Huntersville to York County, S.C. The goal is simple: Get the things you order to your door faster.
Pete Pittroff, managing director at research and brokerage firm JLL for industrial capital markets, said companies are scrambling to keep up with Amazon.com and its ever-more-rapid shipping, which has gone from standard to two-day Prime to next-day or even same-day on some.
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“The speed with which we want things to show up to our homes keeps increasing,” said Pittroff.
Metrolina Park, on the site of the former Metrolina Expo fairgrounds north of uptown.
Courtesy Beacon Partners
Vacancy rates for industrial space in Charlotte have plummeted, from 12.4 percent in 2013 down to 4.3 percent in the first quarter this year. According to Cushman & Wakefield, average asking rents jumped 21 percent over that same time, to $4.77 per square foot. And rents are likely to keep rising, experts said.
“That’s really driven by the fact that demand has continued to outpace supply,” said Pittroff. “We don’t see any reason why that trend is going to go away.”
Across Charlotte, there’s about 4.5 million square feet of industrial space under construction, according to JLL.
He said Charlotte has a few things in its favor that make it attractive for logistics: Access to a major airport, Interstates 77 and 85, and a fast-growing population.
That’s led out-of-market companies to sink a lot of money into Charlotte warehouses, such as Florida-based McCraney Property. The company spent $4.6 million in December to buy land near Charlotte’s airport for a new “last-mile” order fulfillment center.
Another building site at Metrolina Park, where Beacon Partners is building more industrial space to keep up with the growing demands of e-commerce.
Courtesy Beacon Partners
“When you talk with institutional investors, every single one of them wants to be in the Charlotte market,” said Pittroff.
Charlotte-based Beacon Partners bought the former Metrolina Expo fairgrounds for $11 million, and is building a new warehouse, distribution and light manufacturing project on the site that will total 1.2 million square feet. It has leased briskly so far, with shipping company Bonded Logistics signing up for 500,000 square feet.
“E-commerce is without question a huge tailwind,” said Jon Morris, who oversees industrial development for Beacon. “As there’s less retail demand for bricks and mortar, that gets translated into warehouse space.”
Industrial buildings are often seen as drab, uninspiring boxes, just concrete shells that 18-wheelers drive up to for loading and unloading.
But that means they’re simpler and quicker to build, and the surging demand from companies that need to ship goods faster means industrial buildings are easier and quicker to fill than offices or apartments.
“The part that makes it un-sexy actually makes it sexy” for developers, said Brian Leary, president of commercial and mixed-use development at Crescent Communities, a company better known for splashy new apartment buildings and office high-rises that actually develops industrial buildings as well.
Amazon.com is, of course, the dominant player when it comes to online shopping.
Last month, the company disclosed that the number of Prime subscribers has passed the 100-million mark in the U.S. In the Charlotte region, Amazon has leased about 2 million square feet in recent years for its distribution centers, including on Old Dowd Road, in Concord and an $85 million facility in Kannapolis expected to open next year.
It’s not only the boom in shipping that’s driving industrial growth, Leary said.
At Crescent’s Lakemont Business Park, just over the state line in York County, the company is developing new industrial buildings that include a 345,000 square-foot manufacturing and distribution center for toolmaker Stanley Black & Decker.
“That’s really a manufacturing facility where they’ll be able to assemble tools and distribute them close to consumers in the Southeast,” Leary said. Increasing uncertainty around international trade and tariffs, as well as rising costs to manufacture goods in Asia are making it more attractive for companies to build things here.
And the pace of building isn’t slowing down. On Wednesday, Crescent announced a new joint venture with national real estate firm Gramercy Property Trust to build more than 500,000 square feet of additional industrial space at Lakemont, opening in 2019.
Morris said the pace of construction is dramatically higher than when he started in Charlotte two decades ago and 500,000 to 1 million square feet of new industrial building a year was common. Now, the building boom could lead to a glut of new space if there’s a slowdown in the economy.
“One year of bad demand or a pullback from the existing user market could leave Charlotte exposed,” he said.
Others think Charlotte still isn’t building enough, especially in the close-in markets near the city’s core.
“Charlotte lacks such modern inventory and tenants are forced to find space in Concord and Rock Hill,” wrote John Culbertson, founder of Cardinal Real Estate Partners, in a recent essay on development. When Amazon and other retailers start one-hour delivery and other near-instant services, they might find it hard to get goods from far-flung suburban warehouses to customers in Charlotte.
Culbertson suggests more industrial construction should be considered in places such as Camp North End, just north of uptown, and South End. Both are historically industrial areas being transformed into oases of breweries, restaurants, upscale apartments and creative office buildings.
In an interview, Culbertson predicted that our desire for speedier deliveries will spur more development inside city limits.
“Everyone wants it delivered today,” he said.