Colliers Report: Charleston port system expands

Research & Forecast Report
Q2-2018 CHARLESTON | INDUSTRIAL

 

Key Takeaways

• Inland Port Dillon opened in April, enhancing Charleston’s efficient market logistic system.
• The industrial vacancy rate is expected to rise as more construction is delivered.

Inland Port Dillon is now open

The logistic capabilities within the Charleston region have a phenomenal reach. In addition to the Port of Charleston, the Inland Port in Greer, the International Charleston Airport and the extensive railway services provided by CSX and Norfolk Southern, the Inland Port Dillon opened on April 16, 2018, the second inland port to open in the last five years. According to Jim Newsome, the South Carolina Ports Authority president and CEO, “the addition of Inland Port Dillon to the Port’s network diversifies our reach and enables port users to gain logistics efficiencies through rail transportation of their cargo.” The additional inland port will expand the economy within the region as more employment opportunities expand and new businesses move into the area in order to utilize the convenient logistics system. Jim Newsome also expects that the opening of the Inland Port Dillon may prompt companies within the Carolinas, the Midwest and the Northeast to transport more of their cargo via the railways from the Port of Charleston. Container cargo shipments being transported to and from the Port of Charleston have increased 180% in the last seven years, and almost 25% of the Port of Charleston’s container volume is transported via the railway. The use of the rail system to and from the three South Carolina ports will increase as cargo volumes rise and truck driver shortages delay deliveries; the Inland Port Dillon will alleviate some of these delivery stresses with its increased reach and transport convenience. “Our ports system is one of the most important driving forces behind South Carolina’s recent economic success, and with the help of the Inland Port Dillon, it always will be,” said Governor Henry McMaster. “With two inland ports and the Port of Charleston soon to be the deepest on the East Coast, South Carolina has strategic advantages that no other state has, and that will continue to pay off for the people of our great state.”

Market Overview

The Charleston industrial market has 51 million square feet of industrial inventory within 1,039 buildings. Excluding the Volvo facility, which completed 1.5 million square feet during phase one of construction and continues to construct an additional 600,000 square feet, three buildings totaling 300,169 square feet were delivered to the Charleston market this quarter. There are also 21 buildings currently under construction totaling 3,250,485 square feet. The Charleston industrial market absorbed 801,162 square feet, and the market vacancy rate dropped from 10.24% during the first quarter of this year to 9.20% this quarter. The average triple net weighted rental rate increased slightly to $5.10 per square foot during the second quarter of 2018 from $5.06 per square foot during the first quarter of this year.

Warehouse/Distribution

Seventy-three percent of the Charleston industrial market is considered warehouse/distribution space and is comprised of 37.49 million square feet within 807 buildings. There are currently 16 warehouses totaling 1,587,808 square feet under construction. While this sector absorbed 146,869 square feet this quarter, the vacancy rose to 9.66% up from 9.33% last quarter. Warehouse sublease space increased 117,343 square feet from 219,429 square feet during the first quarter of this year to 336,772 square feet during the second quarter of 2018. The average triple net weighted warehouse rental rate rose marginally this quarter and was $5.15 per square foot.

Manufacturing

Manufacturing is primarily used to assemble goods for sale and distribution. There are approximately 9.55 million square feet of manufacturing space within the Charleston market. Currently, four manufacturing buildings totaling 1,977,677 square feet under construction, including the remaining square feet under construction at the Volvo manufacturing facility. There is also one 520,000-square-foot building proposed to be built. This sector absorbed 608,830 square feet this quarter; thus, the vacancy rate dropped significantly from 13.79% during the first quarter of this year to 7.41% during the second quarter of 2018. The average triple net industrial weighted rental rate dropped from $4.37 per square foot during the first quarter of 2018 to $3.44 per square foot this quarter for the remaining available square feet. Most likely this drop in rental rate is due to a lower quality of manufacturing space remaining in the tight Charleston manufacturing market.

 

 

Flex/R&D

Flex/R&D space is defined as industrial space where more than 30% of the building is utilized for office space. The Charleston flex/R&D market is comprised of approximately 3.99 million square feet with two buildings totaling 285,000 square feet under construction. This sector absorbed 45,463 square feet this quarter and the vacancy rate dropped from 10.23% during the first quarter to 9.09% during the second quarter of 2018. The average triple net weighted rental rate increased this quarter to $9.43 per square foot from $8.34 per square foot during the first quarter of 2018.

Capital Investment & Employment

During the second quarter of 2018, there were $50.78 million of new capital investments within the Charleston industrial market. The capital investments produced 461 jobs, with the types of investors including the automotive sector, federal government information technology integration, varied manufacturing and supply chain management. Also, according to the Federal Reserve data through April of 2018, industrial employment accounts for 10.3% of the total Charleston employment, a 2.2% increase over the past 12 months. There have also been 800 industrial jobs added from April 2017 through April 2018.

Significant Transactions

Sale activity was solid, with 18 sale transactions occurring during the second quarter. Leasing activity remained steady and, according to CoStar, there were 40 industrial leases signed during the second quarter of 2018.

Sales

• A 350,856-square-foot, Class A industrial building in Hanahan sold for $30.5 million within North Pointe Industrial Park, located at 1023-1025 Northpointe Industrial Boulevard.
• A portfolio sale, including two North Charleston industrial buildings, was sold for a total of $20.1 million. The two properties included in the sale were a 242,314-square-foot warehouse located at 4401 Piggly Wiggly Drive and a 183,535-square-foot warehouse located at 4531 Piggly Wiggly Drive.
• 1770 Hock Avenue is the site of a 88,288-square-foot warehouse which was purchased for $6 million.
• A 32,432-square-foot industrial building located at 211 Eagle Road in Goose Creek was purchased for $2 million.

Leases

• An industrial lease was signed by RPM at 180 Trade Center Parkway in Summerville for the entire building, totaling 307,353 square feet.
• Two leases were executed at 4500 Leeds Avenue in North Charleston. Mahle Behr USA, Inc. signed a lease for 165,000 square feet and Gear Design and Manufacturing signed a 120,238-square-foot lease.
• A tenant at 201 Luken Road in Hanahan renewed a 101,705-square-foot lease.
• The 58,860-square-foot industrial building located at 7450 Industry Drive in North Charleston was leased this quarter.

Construction Pipeline

Delivered

• Approximately 1.5 million square feet within the Volvo automotive facility was completed.
• 7054 Weber Drive in Ladson is the site of a 173,000-square-foot Class A industrial warehouse.
• In Ladson, within the Carolina Commerce Park, a 117,000-square-foot, Class A warehouse completed this quarter at 4136 Carolina Commerce Parkway.
• There was a 10,169-square-foot completion at 7581 Sandlapper Parkway.

Under Construction

• Volvo continues the second phase of construction. Approximately 600,000 square feet of its 2.1 million-square-foot facility is still under construction.
• Mercedes Sprinter Van continued construction of its 1.2 million-square-foot manufacturing facility in North Charleston.
• Sundarum Clayton continues construction a 660,000-square-foot manufacturing building in the Summerville market.
• The IFA Rotorion Building located at 479 Trade Center currently has 622,677 square feet under construction.
• Charleston Logistics Center in Summerville has a 343,150-square-foot Class A industrial warehouse currently under construction and it is expected to be completed during the spring of 2018.
• There is a 262,080-square-foot Class A industrial building under construction on Patriot Boulevard in Ladson.
• Within the Omni Industrial Campus a Class A, 260,000-square-foot industrial warehouse, known as the Thorne Research Building, is under construction at 330 Omni Drive.
• Hanahan is the site of a Class A, 247,000-square-foot warehouse located at 1017 Northpointe Industrial Boulevard and is expected to be delivered during the third quarter of 2018.

Market Forecast

The addition of the Inland Port Dillon will enhance the Charleston industrial market by furthering the outreaching capabilities and shipping potential, therefore causing the need for industrial space to rise. The vacancy rate will also rise in the next few quarters as new construction is delivered to the market; 3.25 million square feet of industrial buildings are currently under construction. Despite the improving logistics statewide and increasing demand for industrial space, construction is likely delivering at a faster pace than the rate of the rising demand. Rental rates will continue to increase as high quality buildings are delivered to the market.

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To download the complete report: 2018 Q2 Industrial Charleston Report