🔒Hartford’s distribution real estate market is red hot; get a peek inside a modern logistics warehouse

Major distribution centers have been popping up along Connecticut’s I-91 corridor in recent years, but to the average passerby, the buildings appear to be nothing more than giant, mundane storage facilities.

But inside these modern warehouses, workers and machines weave a complex web of inventory control, delivery routes and incoming and outgoing orders.

At Veritiv Corp.’s 458,000-square-foot Bacon Road distribution center in Enfield, forklifts beep as they whip around the floor, bringing pallets of products to storage shelves that reach toward the top of the building. Warehouse workers scan items into inventory and others pick products off shelves for delivery, while employees in the back of the facility map out delivery routes, and where to place products based on how fast they sell.

The cacophony of scanner beeps, forklift horns and machinery whirring play over a background of classic rock radio 24 hours a day. Veritiv uses the massive facility to sell its printing, packaging and other products to businesses, and it represents just a small slice of the 76 million square feet of industrial space in the Greater Hartford market.

Demand for such facilities is booming as the pre-existing trend of customers expecting faster delivery has collided with a pandemic-era surge in e-commerce, experts say. Amazon has grabbed many of the headlines for its growing distribution footprint in central Connecticut and beyond, but demand for such space is coming from retailers and distributors of all stripes, making industrial properties the hottest segment of the state’s commercial real estate market.

“I’ve been doing this for 35 years, and this is as hot a market as I’ve ever experienced,” said Mark Duclos, president of Sentry Commercial in Hartford, which specializes in brokerage and consulting of industrial, office and investment real estate. “The whole logistics, e-commerce market was there before the pandemic, but the pandemic accelerated this — it put it on steroids.”

The distribution market has been hot in all facets, including lease and sales activity as well as new construction.

During the final three months of 2020 alone, for example, Amazon signed new leases for 403,000 square feet in Cromwell and 184,875 square feet in Wallingford, according to commercial real estate investment firm CBRE. The e-commerce giant, which leases millions of square feet in Connecticut, also recently announced it was opening a 104,000-square-foot logistics facility in Glastonbury in a former Nabisco warehouse.

And construction continues on its new $200 million, 3.6 million-square-foot facility in Windsor on Kennedy Road.

Plenty of other companies are in on the action as well, including Massachusetts-based dairy supplier Agri-Mark, which is opening a 500,000-square-foot distribution facility in Enfield.

Distribution properties have also seen some of the biggest Greater Hartford commercial real estate sales of 2021. For example, New York-based real estate investment firm Metropolitan Realty Associates in February purchased a massive FedEx distribution center in South Windsor for $50 million.

And all eyes are on a 300-acre plot of land adjacent to Rentschler Field and Pratt & Whitney’s East Hartford headquarters that has been listed for sale as a potential logistics hub.

Meantime, rents for industrial space in the Northeast rose significantly in the first quarter of 2021, with tenants paying 60 cents per-square-foot higher than the previous quarter, CBRE reported.

The upward trend in distribution and logistics space isn’t brand new, but has become more visible, said Adam Winstanley, co-principal of Massachusetts-based Winstanley Enterprises, which owns 8 million square feet of distribution and logistics space in Connecticut, including the Enfield Veritiv facility.

“It’s been going on since 2015, but it’s only getting on peoples’ radar screens in the last 24 months with the pandemic and the growth in e-commerce,” Winstanley said.

Additionally, Amazon offering two-day or less deliveries has increased online shoppers’ expectations, Winstanley said. For the last four decades companies delivering to customers in the Northeast primarily worked out of distribution centers in Pennsylvania and parts of New Jersey, Winstanley said. To meet customers’ increasing desires for quick delivery, these businesses are leasing space in Connecticut and Massachusetts to reduce travel time.

Duclos pointed out that more people are also ordering groceries online, and companies are responding to that with projects like the 12-story, 250,000-square-foot Stop & Shop frozen foods warehouse under construction in Plainville.

Stop & Shop’s parent company, Ahold Delhaize, also signed a 975,000-square-foot lease last year at a sprawling Manchester warehouse — known as the Winstanley Logistics Hub at 1339 Tolland Turnpike — as part of a $480-million investment to broaden its supply chain into a fully-integrated, self-distribution model.

High bays

As customers’ expectations for quick delivery have risen, companies renting distribution space have new needs, Duclos said. For example, buildings charging the highest rents need more and taller delivery bays and enough space outside to facilitate multiple trucks arriving and leaving at the same time.

Prospective tenants are looking for ceiling heights between 32 and 40 feet, higher than in the past, he said.

“That’s what we’re generally seeing; [demand for] higher bays, deeper buildings, and much more loading capacity,” Duclos said.

Ceilings at the forthcoming Agri-Mark facility, which Winstanley Enterprises is building, will be 33 feet high, Winstanley said. It will also have a loading dock area with no columns, LED lighting and electric vehicle chargers, Winstanley said.

But even though the market is hot now, Winstanley said he predicts demand will peter out over the next three years.

“Companies … are building out their [distribution] networks, and once those networks are built out, the opportunities are going to start to sunset,” Winstanley said. “They’re just not going to have a need for more space.”

For the time being, though, demand for distribution property is in full swing, as is work within the occupied buildings.

Warehouse to doorstep

To get a package from a warehouse to a customer’s front door or office, requires many steps and a well-organized logistics operation often intertwined with technology, and sometimes even robots and artificial intelligence.

When an inventory order arrives at the Enfield Veritiv facility, warehouse employee Bill Scagliarini scans a barcode to see what’s supposed to be included. After he verifies all the toilet paper, cardboard boxes, cleaning chemicals and whatever else Veritiv ordered is there, Scagliarini uses his scanner gun to enter everything into the inventory database, and create a “license plate” barcode.

Later on, John Cultrera drives up on a forklift and scans the license plate, which tells him what products are on the pallets, and where they should be stored. Fast-selling products go in the front, slower items toward the back.

During the night shift other workers prepare orders that get shipped to Veritiv’s customers by placing outgoing products by specific loading bays. Barcodes in the staging areas identify where products should be placed and where pickers can find them.

“We’re running 24 hours a day,” said Veritiv Operations Manager Scott High.