Retailers’ appetite for big-box warehouse space in the Charleston area is unabated despite shifting trends that show more consumers jumping off the internet and back into brick-and-mortar stores.
In the end, the tenants best able to withstand the changing shopping landscape could be those that can successfully straddle the line between e-commerce and an in-store experience.
Construction of Walmart’s 3 million-square-foot import distribution center in Ridgeville has been a major catalyst for retail warehouse development in the Charleston region, with the amount of new space coming online during just the first quarter of this year outpacing all of 2021, according to a report by the commercial real estate firm JLL.
“Additionally, there is no expected slowing of momentum as almost every square foot that was delivered last quarter was replaced with new projects in the construction pipeline,” the report states.
Another study by Avison Young shows about 10 million square feet of warehouse space is underway, with “the economy’s shift to e-commerce and the accessibility provided by the Port of Charleston” aiding in that expansion.
But while speculative projects — meaning no tenants have been lined up — are going up in the hopes of attracting more online retailers looking to set up distribution centers, data suggests consumers aren’t hitting the “buy” button on their computers as often as they did during the pandemic.
More balanced spending
The April Mastercard Spending Pulse showed a continuing rebalance between online and in-store sales during the previous month, the most recent data available. And spending on goods and services, like air travel and restaurant meals, is ticking back up after steep declines when lockdowns kept consumers homebound.
While online sales are still up almost 84 percent from their pre-pandemic levels, March was the first month since the pandemic started that they showed a decline — even as brick-and-mortar shopping increased 9.4 percent since pre-coronavirus days.
“Retail sales remain strong but are stabilizing as consumers resume spending on passion areas like travel, live entertainment, indoor dining and other in-person activities,” Steve Sadove, senior adviser for Mastercard and former chairman and CEO of Saks Inc., said in a written statement. “After nearly two years of cautious optimism around the broader reopening, it’s a healthy sign that consumers are returning to a balanced level of spending across retail sectors and services.”
The owner of the Tanger Outlets shopping center in North Charleston said it is seeing a growing number o consumers returning to its brick-and-mortar locations across the country. File/Staff
Stephen Yalof, president and CEO of Tanger Outlets, said traffic at the retailer’s malls — which include a sprawling center in North Charleston — has been strong this year.
“I think people like shopping live … that’s an important part of the omnichannel experience of shopping,” Yalof said in March during the Citi 2022 Global Property Conference. “I think that people are spending a lot of time online looking at product, window shopping. And when they actually come to the shopping center, they know exactly what they’re going to buy.”
Yalof said traffic at Tanger’s shopping centers is now outpacing pre-pandemic levels.
Walmart’s year-over-year e-commerce sales rose just 1 percent during the fourth quarter of 2021, the most recent for which the retailer has reported. That compares to 69 percent growth during the final three months of 2020 and is the smallest growth rate since the pandemic.
To be certain, maintaining double-digit increases gets more difficult the longer sales are on an upward trajectory, and the fourth-quarter growth rate since before the pandemic clocked in at 70 percent. But Walmart is seeing a greater number of customers going back to its stores in recent months.
“We saw (online) demand hit a high during the pandemic and then it sustained, and there are more people getting back to brick-and-mortar now,” said Scott Pope, Walmart’s senior director of global communications. “We were able to keep our stores open during the pandemic as an essential business, so we always had customers going in (to brick-and-mortar locations). But there was this expedited demand online for us specifically.”
Online retail giant Amazon took a beating on Wall Street as first-quarter sales growth slowed and the company warned of a bigger revenue decline in the current quarter. Brian Olsavsky, Amazon’s chief financial officer, told analysts higher inflation, fuel prices and labor shortages added $2 billion to costs compared in 2021.
“Amazon prospered during the COVID-19 pandemic as homebound people eager to limit human contact turned online to purchase what they need,” according to a report by ABC News. “But growth has slowed as vaccinated Americans feel more comfortable going out. According to the e-commerce research firm MarketPlace Pulse, the value of goods sold on Amazon last year grew by half the rate compared to 2020.”
Best of both worlds
Walmart’s Ridgeville distribution hub is set up to meet demand from both online and in-person shoppers, ultimately shipping goods to 850 Walmart and Sam’s Club stores and supporting its Walmart-plus service that lets customers order online for free delivery to their home or closest store.
Jeff Holzbauer, general manager of Walmart’s import distribution center in Ridgeville, speaks during the facility’s April 22, 2022, grand opening. Brad Nettles/Staff
“Probably 99 percent of our freight will follow the traditional supply chain network of going through a regional distribution center and then to the store,” said Jeff Holzbauer, the distribution center’s general manager. “But during those peak times, when people care about getting it as quickly as possible, we’ll have a hand in helping supply e-commerce orders.”
Dallas developer Dalfen Industrial is making one of the biggest bets on e-commerce’s continued allure with plans to build a 1.32 million-square-foot speculative warehouse — the biggest of its type yet in the Charleston area — at Palmetto Commerce Park in North Charleston.
“Is the market oversaturated? I don’t think so,” said Kevin Caille, Dalfen’s Southeast market manager. “I think we still have a long runway ahead of us because of events like COVID and what’s happening in Eastern Europe. Companies are warehousing more product than they ever have.”
Dallas-based Dalfen Industrial plans to build a 1.32 million-square-foot distribution site at Palmetto Commerce Park in North Charleston, the largest speculative construction project in the region. It will be marketed to a growing number of e-commerce retailers looking for space near the Port of Charleston. Colliers/Provided
The need to get those products to customers quickly drove Sagebrook Home to open a 500,000-square-foot distribution center at the Charleston Trade Center off Interstate 26 near Summerville. The new site adds to the furniture retailer’s existing distribution center in Los Angeles.
“As Sagebrook Home continues to grow, the decision to distribute from both the East and West coasts seemed a natural evolution,” said Justin Kachan, the company’s co-CEO. “With the rising cost of shipping, there was no better time to add bi-coastal distribution.”
Omnichannel is the future
The Colliers commercial real estate group said in a report that “scarce supply and insatiable demand” for Charleston-area warehouses has pushed vacancy rates down to 2.93 percent — the lowest in decades.
“Charleston lacks ready-to-occupy industrial space larger than 25,000 square feet,” Colliers wrote. “The space that is available has a number of tenants competing for it, creating the urge for tenants to make decisions quickly. … With such a quick increase in demand, rental rates are also increasing exponentially.”
Ultimately, according to some analysts, the most successful tenants will be those, like Walmart, that can both fulfill e-commerce sales and restock brick-and-mortar shelves — called omnichannel retail.
“Omnichannel is going to continue to grow,” said Holzbauer, manager of Walmart’s Ridgeville center. “So we always have to look to get product to the customers as fast as we possibly can.”
