A recent surge in warehouse construction in New Castle County is likely to continue for months or years as distribution companies scramble for space to meet strong demand from online merchants, according to recent data.
A quarterly report from the commercial real estate firm Newmark shows that about 3 million square feet of warehouse and other industrial space was added to the county’s inventory in the third quarter of 2021, and that there’s no sign of a letup in demand.
“Expect an increase in construction activity for warehouse and distribution space over the next several quarters due to the limited number of big-box warehouse and distribution options currently in the market, as most of the available space is smaller, older buildings,” the report said.
The data, which is included in the Greater Philadelphia market, is believed to be the first to systematically count the area covered by new warehouses and other industrial space; the rents they are charging, and their vacancy rates. It provides statistical evidence for many earlier anecdotal reports that have indicated strong and sustained demand for warehouse space.
Like neighboring Philadelphia and southern New Jersey, Delaware’s New Castle County is seeing continued strong growth in demand for all kinds of industrial space, including warehousing, which accounts for about three-quarters of the total.
The county’s inventory of industrial space grew to 31.8 million square feet in the June-September quarter from 28 million square feet in the previous three months, the report said. In a sign of more strong demand, asking rents for warehouses specifically rose to $7.11 per square foot from $6.54, and the vacancy rate plunged to 1.8% from 6.6% as supply struggled to keep up with demand.
The rate at which New Castle’s industrial real estate was occupied – a measure known as “positive absorption” -- soared when Amazon completed its 3.8 million square-foot distribution center – its largest in the region -- in the former GM plant at Boxwood Road in Newport. Amazon also signed the largest lease in the county, taking all 578,000 square feet in a new warehouse on South Dupont Highway.
The report offers the latest evidence for a profound shift in consumers’ shopping habits away from brick-and-mortar stores to online ordering and the consequent shipping to distribution hubs for quick delivery. The trend was already underway before the COVID-19 pandemic and has been sharply accelerated by it, experts say.
“The pandemic has changed things,” said James Butkiewicz, a professor of economics at the University of Delaware. “A lot more people have become comfortable with buying things online and having them delivered to your house. You need these logistics facilities.” There’s no sign that the warehouse boom will let up any time soon, as underlined by the report, he said.
The economy will benefit from the construction and permanent jobs brought by the giant new buildings, although the boost won’t be as big as it was when the GM and Chrysler plants were at their peak, simply because their workers were paid more than those at Amazon and other logistics companies, Butkiewicz said.
“These aren’t comparable in terms of compensation to the jobs the autoworkers had but they are jobs,” he said. “The hourly wages are going up and they do get some benefits depending on the company. A lot of people are happy to have these jobs, and it certainly is creating employment.”
He predicted that the warehouse construction boom will last “a year or two.”
New warehouses are also springing up in Kent and Sussex counties but they are not part of the Greater Philadelphia market covered by the Newmark report. Butkiewicz argued that the southern counties are less well located for warehouse development than New Castle because they don’t have comparable access to the national highway network that’s demanded by distribution companies.
Jeff Flynn, director of economic development for the City of Wilmington, said the city hasn’t seen much in the way of big new warehouses, simply because it doesn’t have much land available for construction of buildings that meet the requirements of today’s logistics companies.
But demand for so-called flex space – warehouses for smaller companies, typically covering up to 5,000 square feet – remains strong in the city, Flynn said. Smaller companies may be able to adapt the city’s stock of pre-Second World War industrial space that typically has columns and lower ceilings – features that are usually avoided by modern logistics companies.
But any new warehouses are less desirable for economic development than, for example, manufacturing because the latter creates more jobs, he said.
“As economic development people, we are not really excited about warehouses,” Flynn said. “We want to measure jobs per square foot or jobs per acre. If you build a one-acre building and all you are doing is storing goods in it versus if you start manufacturing in it, what’s going to add more value to your local economy? “
So far in the warehouse boom, it looks like Delaware is avoiding community protests prompted by runaway warehouse development in other states including New Jersey. There, some communities have opposed warehouse projects, saying they eat up scarce open space and choke local roads with new truck traffic.
But Delawareans seem more accepting of new warehouses, especially those built on existing industrial sites, notably the huge Amazon plant at Boxwood Road.
Sherri Evans-Stanton, director of Delaware’s Sierra Club, said the environmental group strongly encourages the reuse of existing buildings rather the creation of new spaces on open space.
But she said Delaware hasn’t seen the kind of pushback against warehouse development as in some other states, especially given the creation of a vast new Amazon building on the old GM site.
“I don't think that Delaware is experiencing the same issues as the other states in terms of converting open space to warehouses,” she said. “The Amazon building was built on the site of an old GM plant that had been abandoned for some time, and the area was zoned for industrial use.”
And any resistance to new warehousing will inevitably run up against the tide of consumer demand, argued UD’s Butkiewicz.
“It certainly does take some open space,” he said. “But it’s where consumers go and what they want. It’s the usual thing that people don’t like to see the nice open space around them taken up but if you’re going to grow, what are you going to do?”
