Richmond's Industrial Market Faces Supply Crunch as Small Developers Fill Critical Gaps

Written by:

Steve Marcinuk

Date:

02 Dec 2025

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The Richmond industrial real estate market is facing a persistent supply-demand imbalance, creating opportunities for smaller developers to address needs overlooked by institutional players focused on large-scale distribution centers. This shortage has lasted more than two decades and shows no sign of easing, as evidenced by recent projects such as the Pony Farm Industrial Park in Goochland County, west of Richmond. This development, the first new industrial park of its kind in the region in over 20 years, highlights both the challenges and potential for growth in Richmond’s industrial sector.

The Institutional Developer Dilemma

Large institutional developers have largely abandoned small-scale industrial projects, choosing instead to invest in major distribution centers. This shift is driven by the fact that development timelines are similar regardless of project size. Michael Mayhew, Vice President at Commonwealth Commercial Partners, explains: “If you’re a large developer and you put a lot of time into developing a site, you want the highest return for your investment of time. Small industrial sites and large industrial sites take about the same time battling through county approvals, permits, and citizen opposition. So for a large institutional developer, if the same two projects are going to take you the same amount of time, why not swing for the big one?”

As a result, smaller industrial users – such as contractors, service businesses, and regional companies – have been left with limited options. The focus on large distribution centers has created an underserved market segment, especially as Richmond’s population and residential base have expanded.

Meeting Local Business Needs

Richmond’s population growth over the past decade has increased demand for industrial space from businesses serving the area’s expanding residential neighborhoods. Mayhew notes, “That increased population base, increased number of houses, also means an increased number of industrial businesses that service those homes – the roofers, the siders, the windows, the paving, everything associated with a home is serviced by some type of industrial contractor.”

Many of these businesses are small, regional contractors that have operated in the same areas for decades but have not had the opportunity to buy or develop their own facilities. “Those folks have been operating in the same areas for the last 30 years, and a lot of them haven’t been able to have the opportunity to buy and develop their own piece,” Mayhew says.

The Pony Farm project has revealed significant pent-up demand in this segment. Even before completion, approximately 75% of the available parcels have sold. “That tells a story in itself of the demand-supply imbalance,” Mayhew observes, highlighting the urgency for more small-scale industrial development.

Development Challenges and Timelines

The process of bringing new industrial parks to market remains lengthy and complex. The Pony Farm project took three and a half years from its conception in July 2022 to its expected delivery in late 2025. Mayhew notes, “Any groups out there that are potentially going down the path of building a new industrial park or bringing industrial parcels to market, if they have to rezone them, they’re looking at a very long lead time. It’s challenging to find industrial land. It’s challenging to get through the development process with the counties.”

Municipal attitudes toward industrial development have also become less accommodating. During the early stages of the COVID-19 pandemic, approvals were easier to obtain, but increased community pushback has since made the process more difficult. “Industrial developers are a victim of their own success,” Mayhew says, as counties have grown more selective about which projects to approve.

Financing and Market Conditions

Access to financing varies widely depending on the project type and the borrower’s financial strength. Owner-occupied properties with strong balance sheets continue to secure financing with relative ease. “Speaking specifically on the industrial side, there’s really no lack of supply from lending. The banks still really like to lend on that type of stuff,” Mayhew says.

Speculative development, however, is subject to greater scrutiny from lenders. While conditions have improved since the uncertainty of 2023 and early 2024, banks remain cautious. “If you’re building something industrial spec in Richmond, the banks want to be here, and they want to lend on industrial development,” he notes, but developers still face rigorous due diligence and underwriting standards.

Geographic Expansion and Emerging Corridors

With industrial-zoned land in Richmond proper becoming scarce, development is expanding along key transportation routes. The I-95 corridor both north and south of Richmond is seeing increased activity, as is the I-64 corridor between Richmond and Hampton Roads. These areas offer access to major highways and logistics networks, making them attractive for new industrial projects.

Another factor influencing land prices is data center development, particularly in areas like White Oak Industrial Park east of Richmond. Data centers can pay more for industrial land because, as Mayhew explains, “when you look at the scope of an industrial data center project, the land is a very minuscule part of the actual total development cost.” This drives up land values, making it harder for traditional industrial users to compete.

However, power supply constraints limit data center expansion. Mayhew recounts a recent experience: “Dominion Energy came back to us and said, ‘We can get you power, but it might be four to seven years.’ That’s a long time to wait if you’re a developer.” Delays in securing adequate power can make or break a project, further complicating the development landscape.

The Small Developer Advantage

Smaller, local developers have found success by targeting sites that do not meet the criteria of institutional investors. The Pony Farm site, for example, does not have access to public utilities and instead relies on well and septic systems. This makes it unattractive to large developers but suitable for businesses that prioritize functional space and yard storage over sophisticated infrastructure.

“Institutional developers would have never looked at the site,” Mayhew says. “Our guys can look at that site and say, ‘I understand the industrial market. I know that there are a lot of groups in the market that want to build and own a small industrial building with a large yard to store their equipment, and that works for what we’re building at Pony Farm.’”

By focusing on the needs of local contractors and service businesses, these developers are filling a critical gap in the market. Their ability to navigate local regulations and tailor projects to the specific requirements of small industrial users gives them a distinct advantage.

Market Outlook

Looking ahead, Commonwealth Commercial Partners remains confident in the strength of Richmond’s industrial market. The ongoing supply-demand imbalance, combined with continued population growth and business expansion, is expected to sustain demand for new industrial space. “We really don’t see a pressure release valve going online,” Mayhew says. “The same challenges that we ran into on the development of Pony Farm are going to happen with any industrial development. It’s time, and it’s cost, and that’s the equation.”

This persistent constraint means that developers willing to navigate the lengthy approval processes and serve underserved market segments are likely to find continued opportunities. The Richmond industrial market illustrates broader trends affecting secondary markets across the country. Institutional capital remains focused on major distribution facilities, while local businesses struggle to secure suitable space. Projects like Pony Farm show that smaller developers can successfully address these gaps, provided they understand local market dynamics and regulatory requirements.

In summary, Richmond’s industrial sector is defined by a chronic lack of supply, a growing population driving demand, and a financing environment that favors well-capitalized owner-users. As large developers concentrate on massive projects, smaller players are stepping in to meet the needs of local businesses, ensuring the market continues to evolve to meet the region’s economic growth.