Shippers using Virginia port tap Richmond as distribution hub

Shippers using Virginia port tap Richmond as distribution hub

Virginia’s Port of Richmond is evolving from an underutilized riverport into an inland distribution hub, attracting shippers from meal kit provider Blue Apron to retail store outfitter Premier Fixtures that use the state’s nearby ocean terminals.

They are attracted not only to the ease of access — cargo can reach and depart Richmond via river barge, rail, or road — but also the lower cost of real estate. On average, warehouse space in the Richmond area leases for 25 cents less than similar property closer to Virginia’s waterfront in the Hampton Roads region. To meet the demand, roughly 1.5 million square feet of warehouse space will come online in the next year.

“We’re seeing the investments the port has made,” Bill Hudgins, senior development manager at real estate company Panattoni, told JOC.com. “We see how much work has been done there at the terminal to clean it up. There’s not a lot of volume going through there now, but we see prospects.”

Panattoni announced in August that it had acquired 62 acres for the development of a 1 million-square-foot spec distribution center directly across from Richmond Marine Terminal next door to Interstate 95, the primary north-south truck corridor on the East Coast. The project will proceed in two phases. Each phase will include a 461,700-square-foot, cross-dock warehouse with 36-foot clearances, LED lighting, and multiple trailer drops. Phase I is in permitting and has an anticipated completion date of late summer 2018.

A “lack of supply” and “healthy demand” is attracting more than just Panattoni to the Richmond market, said Matt Anderson, senior vice president with CBRE Richmond, who is representing Panattoni in the new project’s sale. “The Richmond industrial market has averaged about 2.2 million square feet of annual absorption for the last five years.”

In the second quarter of 2017, developer Becknell completed construction on 216,000 square feet of speculative distribution centers space, now leased to Premier Fixtures. Premier Fixtures also signed a lease for 116,449 square feet at another location in the second quarter as well. Meanwhile, developer Devon USA is nearing completion of a 320,853-square-foot spec distribution center and Becknell is underway on another 153,480-square-foot spec distribution building.

According to Richmond-based commercial real estate firm Cushman & Wakefield | Thalimer, the net absorption rate in Richmond in the second quarter of 2017 reached 572,959 square feet, outpacing the second quarter of 2016 by roughly 80 percent. Leasing activity totaled 364,856 square feet in the second quarter. As a result, the overall vacancy rate in Richmond reached an all-time low of 5.1 percent, a full 240 basis points below a year ago.

Despite vacancy rates at historic lows, Richmond’s average rental prices remain lower than nearby Hampton Roads closer to the port’s waterfront. Average annual rent per square foot in Richmond in the second quarters was $4.79, compared with $5.07 in Hampton Roads. Overall net absorption for 2017 in Hampton Roads reached almost 1.4 million square feet in the second quarter and seven of the eighteen submarkets reported vacancies below 5 percent. With vacancies declining, rents are expected to begin to climb even higher, Cushman & Wakefield | Thalimer said.

That development is only expected to increase as the need for logistics and distribution space remains steady and the demand for ever-faster delivery places greater emphasis on last-mile delivery for e-commerce fulfillment centers.

The port has been encouraging such development. In October 2014, Virginia Port Authority CEO John Reinhart unveiled his plans to revitalize its “underutilized” Richmond assets to ChamberRVA, the city’s chamber of commerce. His plans included regearing the Richmond barge service, increasing river traffic, renegotiating the terminal’s lease for “longer term investment,” beefing up refrigerated cargo services for the region’s burgeoning food industry, having ocean carriers begin making direct calls to the terminal, and bringing Norfolk Southern Railway to the Richmond terminal. So far, all but the NS rail connection has come to fruition. Both of the East’s Class I railroads can access the terminal, but presently, CSX offers on-dock service on an as-needed basis and NS has access to the terminal via local switch.

In February 2016, the Port of Virginia renegotiated its five-year lease and signed a new 40-year lease to operate the Richmond terminal. There are now 12 ocean carriers offering bills of lading to the terminal. Meanwhile, the Richmond barge service has grown from a once-a-week to thrice-weekly service that can reach Richmond from the port’s primary marine terminals in 12 hours. The port also replaced the barge operating on the service with a new model this past February. The new barge has roughly the same capacity as the one it replaces, with capacity for roughly 125 40-foot ocean containers, but is slightly wider so it can accommodate larger refrigerated containers.

Back in 2013, Reinhart said he had a vision of increasing river traffic via barge from just under 10,000 TEU a year to 15,000. The goal, at the time, seemed lofty, especially since the Richmond barge service takes nearly six times longer than simply driving cargo by truck via Interstate 64 from the docks in Norfolk to Richmond.

The goal was reached in slightly more than one year. In 2015, the barge service handled 14,760 TEU. In 2016, the service handled 19,602 TEU, up 32.8 percent over the prior year. And in the first half of 2017, the barge service handled 13,047 TEU, already up 29.7 percent over the same period last year.

As barged cargo has increased, so too has the variety of cargo that is moving on the barge, said port spokesperson Joe Harris.

“In the past, we have found that a lot of companies using the barge were companies that were using really heavy containers that may have required a heavy-weight permit on the roads,” Harris told JOC.com. Those heavyweight cargoes include Lumber Liquidators’ flooring, Philip Morris International’s tobacco, WestRock’s paper products, and the Scoular Company’s grain.

Discount German grocer Lidl is the latest to tap the barge service. Lidl opened its 46 first stores in the United States this past June, the majority in Virginia and North Carolina, and the company has said that 30 more stores are expected to come online by the year’s end. Those stores are supplied entirely by two distribution centers: one in Graham, North Carolina, which only came online this past June and another in Fredericksburg, Virginia, which was constructed two years ago.

Lidl is unique among the shippers using the barge in that its products are not considered heavyweight. In Lidl’s home country of Germany, and in the broader EU market it serves, barge services are regularly tapped to move goods inland from the Port of Rotterdam. According to a Lidl employee who spoke to JOC.com under the condition of anonymity, “It’s not surprising. Lidl saw something work in Europe and it imported it to the United States, the same way it’s importing its goods and its particularly European style of discount grocery business.”

Though it may be the exception to the rule today, Lidl’s success could serve as a proof of concept to other shippers that are not moving unique heavy-weight cargo. Investors in the Richmond market, like Panattoni, say the barge service, although not wildly popular, bolsters the east-west dynamic of Richmond’s predominantly north-south trade on I-95.

“The compelling thing about Richmond is it’s at a crossroads,” said Hudgins. “From the docks in Norfolk to the I-95 corridor, we see that now as one port market and we are seeing that now because of the investments the port has made.”

Contact Reynolds Hutchins at reynolds.hutchins@ihsmarkit.com and follow him on Twitter: @Hutchins_JOC.