2015 to Be the Year of Build-to-Suits for Tightening Charleston Industrial Market
April 22, 2015
Colliers International, South Carolina – Research & Forecast Report: Charleston – Industrial
Key Takeaways
> Total vacancy rate for the market is the lowest it has been in years.
> Construction activity is gaining momentum throughout the market.
> Mercedes-Benz Vans announces major investment in Charleston County.
> Container volume is up at the Port of Charleston.
To download the complete report: Q1 2015 Charleston Industrial Market Report.
Market Conditions
The Charleston, South Carolina industrial market has experienced heightened activity in recent quarters brought upon by efficient logistics supported by the Port of Charleston, a talented workforce, and a growing economy. Large blocks of quality industrial space are running in low supply throughout the market, attributing to the low total vacancy rate of 6.2% at the end of the first quarter of 2015, the lowest rate seen in years. The vacancy rate was 7.3% at year-end 2014 and 8.0% one year ago. The highly occupied market leaves few options for new companies looking for space and restricts the growth of existing companies. Most of the vacant space in the market lies in older, less functional buildings. An opportunity exists for investors to reposition and re-purpose these older industrial facilities in an effort to attract new tenants.
Construction activity is picking up for the first time since the recent economic downtown with expansions by existing companies and the development of build-to-suit and speculative industrial buildings.
New Development
The existing available inventory is falling short of the significant demand for industrial space throughout the market leading to new construction, both build-to-suit and speculative. While companies are usually looking for move-in ready space, the Port of Charleston and favorable economic conditions make it feasible and worthwhile for some companies to undergo build-to-suit developments despite a longer wait to begin operations. At least five build-to-suit developments, each over 200,000 square feet, are expected to break ground within the year. Tenants will likely be suppliers to the automotive and aviation sectors. Speculative construction is gaining momentum and is likely to remain strong throughout the year as tenants continue to compete for quality large blocks of space. A challenge for speculative construction is the higher rental rate and long-term lease required for new construction. But since rental rates have increased, the gap between current rates and asking rates for new supply has closed, driving further speculative construction. Additionally the marketplace is calling for facilities which can accommodate the needs of light assembly and manufacturing, including heavy power, HVAC, crane systems and drive-in doors.
> MeadWestvaco is breaking ground in May 2015 on North Pointe Building C, a 350,760 square-foot cross dock building at the North Pointe Business Campus on North Rhett Avenue.
> Childress Klein and Jamestown recently completed construction on Building 4 at Crosspoint at Palmetto Commerce Park, a 273,000 square-foot, rear loaded, multi-tenant building in North Charleston. The speculative building delivered with over 50% occupancy. Future plans include up to 10 industrial facilities on 75 acres.
> Childress Klein and Amstar broke ground on a 278,720 square-foot, front loaded , speculative industrial building at the Charleston Regional Business Center in the Clements Ferry submarket. Construction is expected to complete in July 2015.
> Pattillo Industrial Real Estate is preparing to break ground on a 142,000 square-foot speculative facility at Palmetto Commerce Park, which will be expandable to 400,000 square feet.
Investments & Expansions
Major investments are a common occurrence throughout the market, supported by the success of major manufacturers in the region.
> Mercedes-Benz Vans, a division of Daimler, recently announced plans to invest $500 million in a new Sprinter van plant in Charleston. Construction on the new plant is expected to begin in 2016. The manufacturer is expanding its facility at 8501 Palmetto Commerce Parkway and will use the new plant to manufacture next-generation Sprinter vans to supply the North American market. This noteworthy investment will likely attract suppliers to the region.
> Boeing’s new propulsion facility is open at 8795 Palmetto Commerce Parkway, where it designs, engineers and assembles parts for Boeing 737 Max and 777X.
> AMT Senior Aerospace, a supplier to Boeing, opened a 39,000 square-foot assembly facility at the recently completed speculative building, Crosspoint Building 4.
Port of Charleston Update
In February 2015, the Port of Charleston handled 152,926 twenty-foot equivalent units (TEUs), an increase of 17.9% over February 2014. South Carolina reported a fifth consecutive record year in 2014, exporting $29.7 billion worth of goods, 13.1% more than 2013. China was South Carolina’s top exporting partner with more than $4.2 billion in exports. The Inland Port in Greer is exceeding container count expectations leading to more shipping traffic and economic development activity in the Upstate. South Carolina ranked first for exports of tires and completed passenger motor vehicles in the United States and ranked seventeenth in exports overall.
Improving Economy
The manufacturing industry is improving throughout the region, following a setback during the recent economic downturn. The manufacturing sector in the Charleston-N. Charleston-Summerville, SC MSA lost 2,800 jobs during the recent recession, but is steadily growing, recovering all jobs lost and reaching historically high manufacturing employment levels. As of February 2015, 25,300 individuals were employed in the manufacturing sector, an addition of 1,000 jobs over the previous year and 2,200 more jobs than the pre-recession peak.
Market Outlook
Tighter market conditions and historically high rental rates are expected for 2015. A demand for new space will continue to grow driving build-to-suit and speculative construction throughout the market. The positive effect of construction will begin to show in 2016 upon the completion of several projects. Boeing and Mercedes-Benz investments will draw aviation and automotive suppliers to the market, benefitting from efficient logistics and cost effectiveness.
Around the State
A growing demand for industrial space throughout South Carolina is attributing to tightening markets and soaring rental rates, creating a need for new industrial construction. Major markets around the state, such as Columbia and Greenville, are beginning to see build-to-suit and speculative office construction. Capital investment and sales continue to grow throughout the state.
Columbia, South Carolina
High occupancy and increasing rental rates in Columbia make new construction a feasible option for tenants looking for space in the market. As a result, the market is welcoming its first wave of new construction. Sales remain strong as investors benefit from low interest rates and a tight market.
> Two Class A speculative industrial buildings, 70,000 square feet and 62,500 square feet, remain under construction at Shop Grove Industrial Park in Richland County. Party Reflections pre-leased 42,000 square feet in the 62,500 square-foot building. T&C Metals pre-leased 35,000 square feet of the 70,000 square-foot speculative building.
> Lexington County is working with Landmark Builders to develop a 120,000 square-foot speculative industrial building in Saxe Gotha Industrial Park.
> Reger Holdings expanded their South Carolina portfolio with the acquisition of three properties totaling $10.4 million. The properties acquired were in Gaffney, Bishopville and Columbia.
Greenville, South Carolina
The Upstate was first to experience a new wave of construction and continues to be home to the greatest activity with both private and public funded developments.
> Scannell Properties is set to break ground on a 155,000 square-foot speculative facility to be located off Highway 290 in Hillside Enterprise Park. This is the first of up to six buildings ranging from 100,000 to 500,000 square feet.
> Construction is complete at White Horse Industrial Center, which is home to two new industrial facilities. The $20 million project being developed by Exeter Property Group and Burnham Partners adds 306,000 square feet of industrial space to the existing inventory with a graded building pad designed to accommodate 234,000 square feet.
> Cothran Properties recently completed construction on 25 Logue Park, the first building in a new industrial park, Logue Park at Pelham. The 90,000 square-foot building delivered 100% pre-leased. Colliers represented the tenant in the transaction. Construction is set to break ground soon on a second building in the park, a 110,000 square-foot Class A industrial building.
For more statewide commercial real estate news check out our market reports at: www.colliers.com/southcarolina/insights
To download the complete report: Q1 2015 Charleston Industrial Market Report.
