Distribution companies that cater to growing customers on the Gulf Coast are discovering that there aren't many large blocks of warehouse space to choose from.
The warehouse market is at a difficult point in the cycle, when the recovery is beginning and space is getting tight, but developers are unwilling to deliver new buildings to market because rents haven't caught up.
Instead, companies that need large warehouses are building their own. For example, food distributor Cheney Brothers is building a 250,000-square-foot distribution center in Charlotte County, and medical distributor LeeSar recently opened a 205,000-square-foot facility it built in Fort Myers.
With low land and construction costs, many companies choose to build their own facilities rather than lease space. “The smart developers are going to tie up the well-located properties and wait for build-to-suits to come, because they're coming,” says Bob Johnston, a principal with Lee & Associates in Fort Myers.
It's a similar situation in the Tampa Bay region, especially in east Hillsborough County, Plant City and Lakeland. “There comes a point — and I think we're there — that there's just no space,” says Bruce Erhardt, executive director of land brokerage with Cushman & Wakefield of Florida in Tampa.
Erhardt estimates that developers are poised to start building 1 million square feet of warehouse-distribution space in the Tampa Bay region next year. Such speculative construction has not occurred since the start of the real estate downturn.
“We do not have enough large distribution facilities with the 20-foot ceilings and the dock high so the big rigs can come in,” says Ron Struthers, a broker with Coldwell Banker Commercial in Punta Gorda. “If somebody could spec a 60,000-square-foot building, they could lease it up.”
While vacancies may be declining, rents haven't yet started to rise to the point that a developer could make a profit on a new warehouse. “We've got vacancy saying 'build' but we have rents that say 'don't build',” says Erhardt.
While warehouse buildings are generally less costly to build than offices or shops, that's starting to change. For example, Cheney Brothers estimates the computer technology in the new Charlotte warehouse will cost $2 million. LeeSar's building cost $40 million to build. That's because computers now monitor every step of the “just-in-time” distribution process so there's no waste.
Sometimes, the challenge is geography. “There's never been big industrial buildings in Southwest Florida,” says Randy Mercer, founding partner of CRE Commercial and the developer of the original 70,000-square-foot LeeSar building in Lehigh Acres. “We're at the end of the distribution line.”
Cheney expands to Charlotte Cheney Brothers, a privately held food distributor headquartered in Riviera Beach, is a growing operation that hit $1 billion in sales this year. The company has been seeking locations on the Gulf Coast, and it picked a site near the Charlotte County Airport and Interstate 75. “This is really a central point for us,” says Bill Foley, Cheney's president and chief operating officer.
From Charlotte County, Foley says it can distribute more than 15,000 products to restaurants and other customers south of the Tampa Bay region. Its trucks can cut across the state using State Road 70 and from Charlotte County it can supply customers in Lee and Collier as well as Sarasota. It already has another distribution center in Ocala that supplies Hillsborough and Pinellas.
Cheney plans to build 250,000 square feet of space in Charlotte County initially, but the site could accommodate 400,000 square feet and employ nearly 400 people. That's enough to fill seven football fields.
What's more, a host of ancillary services may follow Cheney. For example, the company leases a fleet of trucks and it's likely that a truck-repair facility will locate nearby, says Bruce Laishley, the Charlotte developer who persuaded Cheney to locate there.
Laishley says he's working with nine or 10 other businesses to locate nearby. “We expect to see many others,” he says. A road that's being built to the Cheney site will open up other sites for development.
LeeSar grows in Lee LeeSar, a nonprofit cooperative established by Lee Memorial and Sarasota Memorial, recently moved into a 205,000-square-foot distribution facility it built in Fort Myers.
In addition to medical supplies, the facility includes a 38,000-square-foot, $7 million kitchen that can make 15,000 meals a day, and a 40,000-square-foot sterile processing center where it cleans and packs surgical equipment. “HCA Columbia was here last week with their executives and their jaws dropped,” says Simpson.
Besides Lee Memorial and Sarasota Memorial hospitals, LeeSar also supplies Central Florida Health Alliance in Leesburg and Huntsville Hospital in Alabama. For the year ended September 2011, LeeSar reported net income of $5.2 million on sales of $158 million.
Simpson says the new facility will allow LeeSar to grow and add more capacity because the new facility is nearly three times bigger than the previous space. He also says LeeSar could set up similar distribution facilities in other locations.