Charleston’s Industrial Market: Steady Sailing

November 20, 2013
Hagood Morrison, SIOR, MBA
Senior Vice President & Principal | Charleston

  Third Quarter 2013 Recap

Charleston’s industrial market was stable through the third quarter. This period was characterized by existing tenants consolidating and repositioning into more functional spaces and the continuance of the national trend of users purchasing their facility. As was noted in the second quarter report, the mix of tenants is realizing a fundamental change as existing manufacturers are growing and new manufacturers are considering the Charleston area.

Port users appear stable yet the existing prospects for the region are calling for larger facilities than in the past. The market continues to be constrained by the lack of class A industrial buildings. Although Charleston can meet the need for facilities of 150,000 SF and smaller, the area is challenged to compete with Savannah on offering ready larger facilities. However, the deep draft argument remains compelling with shippers giving Charleston the ultimate advantage. Regional suppliers continue to target the Charleston area resulting in a steady flow of leasing activity in the 15,000 – 50,000 SF range.

Several specialized manufacturers are seeking new facilities due to aggressive growth projections. These include auto-related manufacturers as well as firearm manufacturers. Several will require upfitting the building with a large investment in heavy power, a large office build-out, HVAC and compressed air systems, among other items.

Vacancy rates decreased from 9.8% in the second quarter to 9.54% at the end of the third quarter. The market absorbed 87,844 SF compared to last quarter’s 439,610 SF. Net absorption to date is 513,344 SF.

There are several sizeable prospects currently in the RFP process, which should significantly raise this absorption number by year-end.  The major sales transaction this quarter was the purchase of 1000 Charleston Regional Parkway by Kontane Logistics, who previously leased the facility. Kontane purchased the facility for $10,600,000 or approximately $53/SF.

PORT

The South Carolina Ports Authority handled 144,649 20-foot equivalent units, or TEU’s, in August, and recorded its highest monthly volume since October 2008. The Port of Charleston handled 280,808 TEU’s compared to 268,806 TEU’s during the same period last year, and year-to-date TEU volumes are ahead of the fiscal year 2014 plan by 1.8%.

Exports such as paper, pellets, grain and heavy equipment are steady and increasing. Bulk, breakbulk and energy-related project cargo activity is brisk. The intermodal center in Greer, SC is operational and has attracted an impressive flow of prospective users. In 2012, the S.C. General Assembly set aside $300 million in a Harbor Deepening Reserve Fund to cover the entire estimated construction cost of the harbor deepening project in case of any shortfall in federal dollars. The harbor deepening project complements the SCPA’s $1.3-billion, 10-year capital plan for infrastructure improvements and new land-side capacity, including the Inland Port. The 91-acre Inland Port offers overnight rail service to and from the Port of Charleston with initial utilization of approximately 40,000 container moves annually with the potential to expand to 100,000 moves annually.

Charleston’s non-container facilities handled 1.12 million tons of bulk and breakbulk cargo in fiscal year 2013, a 30% jump from the previous year. Grieg Star Shipping selected Charleston for its monthly service, which calls Union Pier Terminal.

BOEING

The 737 Max Inlet Engineering and Assembly Facility is under construction. It will be built to 225,000 SF and eventually expanded to 600,000 SF. Boeing is still working to improve construction processes in order to meet the three planes per month goal set for 2014. Even with the current order backlog, this goal is expected to increase to four planes per month.

The current discussions surround where the next 777X Production Plant will be located.  Charleston does not appear to be a finalist for this new project.  Washington State could have secured the plant without competition, yet the union soundly rejected the company’s contract extension proposal. Therefore, Charleston appears to be back in the running among a short list of other cities.

Boeing currently leases 241 acres under its existing 787 Dreamliner factory from the Aviation Authority. It has an option to buy the property but not before 2025. Boeing will double its footprint in North Charleston in a scaled-down land deal, but it has not closed the door on future land acquisitions.

DEFENSE

The defense sector is showing significant signs of consolidating. There is far less activity related to the integration of electronics into the armored vehicles. For the last five years, this has served as the catalyst for defense sector growth. Large users will look to consolidate and smaller users may be absorbed by the main players. The current level of work appears steady for the next 36-48 months, but little growth is expected.
 
OUTLOOK

• More user building purchases.

• Heightened demand for conditioned warehouse space.

• Limited supply remains for quality space will lead to build-to-suit activity.

• Two (2) 150,000-200,000 SF users will enter the market and commit to a lease.

• Large bulk DC in 2014 over 500,000 SF.

• At least 2-3 user building sales will occur.

• There will be a strong push to complete industrial transactions by year end.                     

• We predict that someone will go spec by Q2 2014 for a facility greater than 150,000 SF.

To download the complete report please click the link: Colliers International | Q3-2013 Charleston Industrial  Market Report