Colliers Industrial Report: Strong Market Leads to Further Expansion

Key Takeaways

• A resurgence of manufacturing in Charleston is leading to utilization of formerly empty facilities and new developments designed to meet the needs of 20,000-50,000 square-foot tenants.
• Planned Infrastructure improvements will improve Charleston’s logistics. Industrial development in the market will begin to stretch to Ridgeville near Volvo. Construction has already begun on several of the infrastructure projects.
• Uncertainty in global and national economies will cause tenants to be more cautious when making decisions in the market.

To download the complete report: Q2 2016 Charleston Industrial Market Report.

Competition In A Tightening Market

The Charleston Industrial market is growing quickly with interest from companies outside of the market intensifying. Not only are external companies looking to enter the Charleston industrial market, existing companies are expanding their operations. Labor migration to Charleston and logistics infrastructure supports a growing market but growth is outpacing supply encouraging developers to deliver large buildings to the market as quickly as possible. In the meantime, older, vacant buildings are being absorbed.

Demand for space is not limited to large users. Smaller warehouse users are absorbing spaces in multi-tenant buildings while flex space users are struggling to find leasable spaces due to competition with office users whom are avoiding the historically high rental rates for traditional office space. Projects of all size ranges are under construction to deliver inventory to the market quickly. The second quarter of 2016 saw no change in the 6.9% vacancy rate from last quarter due to the delivery of several buildings to the market, however vacancy is down from 7.3 % a year ago. Charleston industrial rental rates have consistently ranked among the highest in the state, reaching $5.18 NNN per square foot per year (PSF/YR), up from $4.98 NNN PSF/YR at the end of the first quarter of 2016.

Although there was no change in market vacancy from last quarter North Charleston’s vacancy rate dropped 10 Basis Points from the first quarter of 2016. North Charleston is the tightest sector in the Charleston Industrial market, dropping from a 4.4% vacancy rate a year ago to 2.4% this quarter.

Activity over the last few years has expanded the market to parts of Charleston previously inconceivable for development. New interstate developments are adding interchanges at Sheep Island Road between SC-17 and Jedburg Road. These new roads will connect this area to other parts of the market, facilitating the quick absorption of space at the new developments in Jedburg.

Construction Activity

Speculative development  is underway in many existing industrial parks including the Charleston Regional Business Center and the North Pointe Business Center. Successful leasing of recently completed speculative buildings holds promise for development of future speculative space. 212,000 square feet of industrial space delivered this quarter and four speculative buildings are expected to deliver in the next 18 months. Combined these buildings will add nearly 673,000 square feet to the market.

Delivered

• The 351,000 square-foot Building 1 at the North Pointe Business Campus delivered this quarter.
• A 142,000 square foot speculative building, developed in Palmetto Commerce Park on Cross Point Drive delivered at the end of Q2 2016 and was leased to AHT Cooling Systems.
• Buildings A and B located at 7593 Sandlapper Parkway, delivered this quarter. Both buildings are 10,000 square-foot warehouse spaces.
• A 50,000 square-foot flex building in  the Banks Commerce Park on Industrial Center Drive delivered this quarter.

Under Construction

• The first building of the Charleston Trade Center is expected to deliver by the end of 2016. Once complete the building will be 307,350 square feet, providing the leaser future expansion to 923,000 square feet.
• Brookwood Capital Partners are developing two speculative buildings and one 100,000 square-foot build-to-suit space in the new Airport Commerce Center. Speculative Building 100 will be 144,000 square feet and Speculative Building 200 will be 154,000 square feet.
• Construction of Building Two at Atlas Commerce Center is underway. The speculative building will be 67,500 square feet expected to deliver by Q3 2017.

Efficient Logistics

Industrial users producing high volumes of product spend large portions of their budgets on transportation of these goods. Lower transportation costs due to Charleston’s central location along the United States Eastern coast and efficient transportation network is one of the key factors drawing companies to the market.  Activity at the Port of Charleston continues to grow each year and is expected to continue the trend. The recent completion of the Panama Canal expansion is spurring a shift in shipments from the West coast to the East coast through the Panama Canal and is expected to increase the amount of shipments moving through Charleston. Additionally, the Port of Charleston expects to deepen the harbor to 52 feet by 2019 allowing the port to service post-Panamax ships. The Port of Charleston recently added a direct service route by Maersk and MSC to Vietnam that will provide companies direct and affordable access to global markets.

The Inland Port in Greer uses the Norfolk Southern rail lines to deliver goods from the Upstate region to the Port of Charleston for shipment worldwide. Companies are taking advantage of rail as it provides faster delivery times at a reduced cost, especially for companies regularly delivering multiple truckloads a day. Growing popularity of intermodal facilities has led to an increase in demand for industrial buildings with rail access.  Existing rail service buildings in Charleston are older, requiring substantial overhauls to support the manufacturing volume of today’s companies. Growing demand of these buildings will increase not only the number of buildings, but the volume of shipments along these railroads.

South Carolina is crossed by five major interstates linking South Carolina markets to the rest of the nation. After months of debate, the South Carolina Legislature approved a roads bill that will contribute $4 billion over the next ten years to fix key bottlenecks along heavily trafficked interstates. The improvements of these bottlenecks will ease travel along these roads, providing companies more efficient transport routes throughout the state. In addition, Berkeley County has developed a project to widen I-26 and install a new interchange at Sheep Island Parkway and State Road 16 (Jedburg Road). The project has been funded by the county, the South Carolina Transportation Bank, and a grant from the South Carolina Ports Authority. Once completed, the roads will serve as direct access for transport trucks to and from several industrial parks between North Charleston and Ridgeville, alleviating traffic along the main I-26 corridor.

Strong Industrial Employment

Industrial employment, those jobs related to the manufacturing and whole sale trade sectors, are growing in the Charleston- North Charleston Metropolitan Statistical Area (MSA), despite a slight drop in total Non-Farm employment in the MSA. According to the most recent data from the Bureau of Labor Statistics, since April of 2015, 1,600 industrial using jobs have been added to the MSA, 20.0% of the total number of jobs added over the same time period. Industrial using employment has seen a growth from 29,900 jobs in April 2011 to 35,200 jobs in April 2016, a 15.1% growth. Robust interest in the Charleston industrial market coupled with the planned transportation infrastructure improvements, industrial using employment is expected to continue this upward trend.

 

 

Market Outlook

The recent decision of the United Kingdom to leave the European Union, the upcoming United States presidential election, and an expected shift in interest rates are creating uncertainty in all markets. Despite uncertainty in global and national markets, the Charleston industrial market is growing and expected to continue to see this trend throughout 2016. Charleston industrial market will likely see further decline in vacancy and rising asking rental rates as the infrastructure improvement projects are completed.  Recent investments of new and existing companies leave Charleston well positioned for future expansions and investments.

Around the State

Expansion of South Carolina’s logistics and strong industrial employment will support further growth of the state’s industrial markets. Robust activity in Charleston and Greenville has created tight markets and higher asking rental rates. The state has seen several investments this quarter creating the need for new industrial development.

Columbia, South Carolina

• South Carolina’s road infrastructure has been a major concern for manufacturing and distribution companies. This quarter, the Senate passed a road bill committing $4 billion in improvements to the most congested segments and bridges of South Carolina’s interstates over the next ten years including the intersection of I-20 and I-26.
• The Midlands industrial market is seeing robust interest with investments from Husqvarna, Southeast Frozen Foods, and Jushi USA this quarter.
• The tightening market in Lexington County is spurring interest for speculative development as current construction is limited to build-to-suit developments.

Greenville, South Carolina

• The Greenville/ Spartanburg Industrial market has seen quick absorption of recently delivered speculative space. The large number of users moving to the market are expected to absorb the speculative space set to deliver by the end of the year.
• Brexit and the pending United States presidential election leave uncertainty in local, national, and global markets. Businesses will be more cautious when making decisions through the rest of 2016.
• Long term, the outlook is bright for the Greenville/ Spartanburg industrial market. Expansion and improvement of South Carolina’s ports and infrastructure, coupled with the expansion of the Panama Canal will continue to attract investment to the Upstate.

For more statewide commercial real estate news check out our market reports at: www.colliers.com/southcarolina/insights

 

To download the complete report: Q2 2016 Charleston Industrial Market Report.