A Growing Demand for Speculative Development

QUICK UPDATES

>    Rental rates are on the rise

>    Class B industrial buildings benefit from high Class A occupancy

>    Speculative development essential for future growth

>    Investments and expansions continue throughout the market

>    Skills demanded by employers are changing

>    Activity is up at the Port of Charleston

 

To download the complete report click the link: Colliers International | South Carolina: Q3-2014 Charleston Industrial Market Report

 

MARKET OVERVIEW

The third quarter of 2014 was accompanied by further tightening of the Charleston, SC industrial market. With almost no Class A space available in the market, buildings of lesser quality experienced the greatest activity through the quarter. The market’s direct vacancy rate was down to 7.1% at the end of the third quarter of 2014, down from 8.2% at mid-year 2014 and 9.0% at the end of the third quarter of 2013. The direct vacancy rate for Class A industrial buildings larger than 100,000 square feet is just 4.7% with less than 600,000 square feet of industrial space available in a handful of buildings. Industrial spaces in the 75,000 to 150,000 square foot range are in the highest demand but shortest supply. Investments and expansions continued despite the high occupancy and limited availability of quality space. Speculative development is crucial for future growth and investment.

Without completed speculative Class A industrial buildings, the market may lose prospects that have a short lead time and aren’t willing to wait for new space to deliver. This demand for space is being met by some developers, which have several projects in the pipeline.

Rental rates are on the rise throughout every building class in the market. Some tenants are relocating to Class C space or Class B space which is further away from the port terminals due the increased costs of Class B industrial space. The higher rental rates should prompt the construction of the speculative industrial buildings.

 

A CHANGING WORKFORCE

As industry grows and changes, the skills demanded by employers are also changing. A recent study by Avalanche Consulting, based in Austin, and the Council for Adult and Experimental Learning, based in Chicago, revealed gaps in the local existing workforce. While many people hold degrees in business, finance and design, the study discovered that shortages exist in software, engineering and production professions. The growing aerospace, technology and manufacturing sectors are recruiting employees from outside of South Carolina due to a lack of these skills in the local labor pool. Many of the degrees required for available positions are not offered at local colleges and universities. Curriculum needs to focus more on science, technology, engineering and math related programs and certificates to meet the needs to the growing manufacturing industry. Several Charleston manufacturers offered apprenticeships to a few select high school students, which receive on the job training while attending high school and taking Trident Technical College industrial mechanics courses. Other solutions are being developed by the local academic community in concert with business interests.

INVESTMENTS AND EXPANSIONS

Boeing’s success in Charleston, the Port of Charleston and the region’s diverse economic drivers continue to attract manufacturers to invest and expand in the market.

>    Boeing South Carolina recently announced that the Charleston plant will be the sole producer of the 787-10, the newest and largest member of the Dreamliner family. The plant should be operational by 2018. Boeing South Carolina was already expanding its campus and currently employs about 7,500 individuals. This is a significant announcement for the region as it has the potential to attract suppliers to the region and support the growth of existing suppliers.

>    JBE, Inc., a supplier for Boeing, plans to grow its aerospace industry and expand into Hanahan. The company leased 100,000 square feet in North Rhett Commerce Park.

>    TorqTek Design and Manufacturing plans to expand its North Charleston facility at 4500 Leeds Avenue to meet the demand of customers, such as BMW and Harley Davidson. The $12 million investment is expected to create 50 new jobs.

>    SpecChem LLC is opening a new manufacturing facility in Dorchester County. The investment of over $5.5 million includes the acquisition of a 65,000 square foot facility and the creation of 50 new jobs.

>    Agility Trimodal, leased a facility at 3290 Benchmark Drive in Ladson. They will assemble and distribute bicycles among other products out of this facility. They are new to Charleston.

>    Frontier Logistics also leased 100,000 SF at North Rhett Commerce Park. This is CSX rail served. One of Frontier’s primary business lines is the storage and distribution of plastic PET pellets. This requires the use of rail.

>    The boating manufacturing industry is growing its footprint through the Charleston market. The most recent announcement came from Sportsman Boats Manufacturing, a manufacturer of saltwater fishing boats, which plans to expand its facility and more than double its size. The $3.5 million investment is expected to create 150 new jobs. The facility at 113 Isaac Way in Summerville will be expanded by approximately 116,000 square feet, bringing the total building size to 190,000 square feet.

 

PORT OF CHARLESTON UPDATE

In August 2014, the Port of Charleston handled 163,970 twenty-weight equivalent units (TEUs), a 13.4% increase over August 2013. In 2013, South Carolina exported $26.3 billion worth of goods, 3.9% more than the previous year, to 202 countries. South Carolina ranked first for tire exports in the United States and seventeenth for export growth in 2013. Currently the ports authority is seeking approval from the US Army Corps of Engineers to dredge to 52’. This would give the Port a decided advantage.

 

IN THE MONTHS AHEAD

The remainder of 2014 and into 2015 is anticipated to bring decreased vacancy rates and higher rental rates; however leasing velocity will be slow given the lack of availability in the market. Several large renewals, greater than 250,000 square feet, are expected to be signed before year-end 2014. At least two large build-to-suits of 200,000 square feet and greater will be signed by year-end 2014. Speculative construction will likely gain momentum as developers see an interest from companies with limited options of existing space. Speculative construction will likely become imperative for future growth of the industrial and manufacturing industry in the region.

 

AROUND THE STATE

COLUMBIA, SOUTH CAROLINA 

Speculative construction has been absent from the market since 2008, but several projects are currently in the works.

>    The first of such projects is a 38,500 square foot industrial building at 1510 Key Road which pre-leased to Trane USA just weeks after being announced.

>    Two speculative buildings, 60,000 and 70,000 square foot, are under construction in the Shop Grove Industrial Park with 35,000 square feet pre-leased to T&C Metals.

 

GREENVILLE, SOUTH CAROLINA 

The greatest amount of speculative construction projects are in the Upstate of South Carolina.

>    Logue Park currently has 90,000 square feet of Class A industrial space under construction in Greenville County with another 110,000 square foot planned for the park.

>    Southchase One involves a $12 million planned 250,000 square foot industrial building in Greenville County.

>    Hillside Industrial Park currently has 108,000 square foot industrial building under construction. The building, being developed by Pattillo Industrial Real Estate, is 100% pre-leased.

 

To download the complete report click the link: Colliers International | South Carolina: Q3-2014 Charleston Industrial Market Report