Colliers Report: Charleston industrial market continues to expand

Research & Forecast Report
Q1-2018 Charleston | Industrial

Key Takeaways

• Charleston’s industrial market will take time to reach equilibrium.
• The passage of steel, aluminum and solar cell tariffs should not significantly impact Charleston’s industrial market.

To download the complete report: 2018 Q1 Industrial Charleston Report

Charleston’s global economy

Global trade is rapidly expanding within the Charleston market due to positive changes, such as:

• South Carolina imports setting records with the Port of Charleston moving more cargo boxes last year through the port than ever before in its 75-year history;
• The Inland port in Greer, SC reporting a record number of shipments, a 20.4% increase over the shipments during 2016;
• South Carolina exports at a record high of $32 billion in 2017, a 2.9% increase over 2016;
• The Port of Charleston deepening currently underway; and
• Larger cranes delivered to the Wando Welch Terminal, expanding the stacking capacity of shipping containers to 155 feet in a higher and tighter configuration.

While these factors are creating a positive environment for global trade, the world is abuzz about the passing of Section 232 of the Trade Expansion Act: the steel, aluminum and solar cell tariffs. While the motivation for the tariffs stems from the shipping regulation of lesser-quality materials lacking the high quality necessary for the U.S. military and limiting our manufacturing capabilities, businesses fear it will cause a spike in prices for all steel and aluminum products. This tariff will also affect the construction industry by possibly causing delays and building material shortages. In addition, many American businesses are worried about retaliation from U.S. trading partners.

Despite the fear of a negative impact, the Coalition for a Prosperous America (CPA) states the tariffs will have a minimal effect on the U.S. economy in the following ways:

• The domestic price increase will be less than the level of the tariffs;
• In the long term, the tariffs will likely boost the economy once the domestic production of steel and aluminum is underway;
• Creation of new jobs within steel and aluminum upstream industries will likely offset job losses within downstream industries;
• Gross Domestic Product will only decline by eight one-thousandths of one percent.

While the full effects of the tariffs will not soon be fully realized and the debates will continue to surround them, one thing is certain: the industrial business climate is positive in Charleston, and there is  optimism for a successful industrial year.

Market Overview

Within the Charleston industrial market, 18 new buildings totaling 1.09 million square feet were delivered over the past year. Understandably, the market vacancy rate has risen from 4.79% during the fourth quarter of 2017 to 10.46% during this quarter. Largely due to the large amount of new deliveries, Charleston posted an annual net negative absorption of 460,892 square feet. The overall average triple net market rental rate has risen from $4.95 per square foot at this time last year to $5.05 per square foot during the first quarter of 2018.

Warehouse/Distribution

Seventy percent of the Charleston industrial market is considered warehouse/distribution space. The Charleston warehouse/distribution vacancy rate during the first quarter of 2018 was 9.94% up from 8.04% during the fourth quarter of 2017. The market posted a net absorption of 271,333 square feet, and 1.03 million square feet of warehouse/distribution space within four buildings has completed construction within this sector during the first quarter. The average triple net warehouse rental rate during the first quarter of 2018 is $5.13 per square feet, up from $4.96 per square foot at the end of the previous quarter.

Manufacturing

Manufacturing is primarily used to assemble goods for sale and distribution. The 2018 first quarter vacancy rates within the manufacturing sector were 12.90%, up from 11.03% during the fourth quarter of last year. The manufacturing sector also posted a net negative absorption of 195,953 square feet, and there are currently 1.28 million square feet of additional projects under construction within the Summerville and Ridgeville submarkets. While the Charleston manufacturing market is robust, it will take a while for the industrial demand to catch up with the product. The average triple net manufacturing market rental rate is $4.68 per square foot.

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 flex/R&D sector vacancy rate was 8.65% during the first quarter of 2018, up from 4.36% during the fourth quarter of 2017, and there was a 17,500-square-foot flex building added to the Clements Ferry submarket. This sector posted a net negative absorption of 147,004 square feet during the first quarter of 2018, and the average triple net flex rental rate was $6.67 per square foot, down from last quarter, when it was $7.73 per square foot.

Capital Investment & Employment

During the first quarter of 2018, there were $50.78 million in capital investment within the Charleston industrial market. The capital investment will be associated with 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 March of 2018,  industrial employment accounts for 10.3% of the total Charleston employment, a 3.1% increase over the past 12 months. There have also been 1,100 industrial jobs added from March 2017 through March 2018.

Significant Transactions

Sale activity remained steady, with the sale of a large industrial park, a portfolio sale and several sales varying from 10,000 square feet to 65,000 square feet. Leasing activity rose above that of last quarter and, according to CoStar, there were 58 industrial leases signed during the first quarter of 2018.

Sales

• In January, a 201,500-square-foot manufacturing building located at 2550 Highway 52 in Moncks Corner, SC was purchased for $9 million by Continental Capital Partners LLC.
• A five-property portfolio located in the Palmetto Park in North Charleston and totaling 83,120 square feet sold for $1.19 million.
• AvenEx Coating Technologies Inc. purchased 10,000 square feet within an industrial warehouse located at 3360 Business Circle for $1.03 million.

Leases

• IFA chose the Charleston Trade Center to open a 234,000-square-foot manufacturing facility.
• Geneva Supply leased 60,000 square feet within 3245 Benchmark Drive in Ladson, SC.
• Idea, LLC leased 43,855 square feet of an industrial warehouse building located at 4450 Goer Drive.
• A 31,220-square-foot warehouse was leased by Kontane Logistics at 2310 Charleston Regional Parkway.
• Hydro Rents Carolina, Inc. executed a 10,400-square-foot lease for a distribution building located at 3450 Buffalo Avenue in North Charleston.

Construction Pipeline

Construction activity continues to rise in the Charleston market, with 4.6 million square feet under construction.

Delivered

• Clarius Building 1, located at 537 Omni Industrial Boulevard, completed a 587,720-square-foot Class A industrial warehouse.  This construction is within the Omni Industrial Campus, which is completing construction in phases.
• Crosspoint Building 6, located at 4279 Crosspoint Drive in Ladson, was completed and is a 273,000-square-foot Class A industrial building.

Under Construction

• Volvo continues construction of its 2.1 million-square-foot automotive manufacturing facility in Ridgeville.
• Mercedes Sprinter Van continued construction of its 1.2 million-square-foot manufacturing facility in North Charleston.
• Omni Industrial Campus has 437,568 square feet currently under construction. The two remaining buildings will deliver in stages, but both are expected to be completed by the fall of 2018.
• Sundarum Clayton is constructing a 660,000-square-foot manufacturing building in the Summerville market.
• 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.
• 7054 Weber Drive in Ladson is the future site of a 173,000-square-foot Class A industrial warehouse.

Market Forecast

The Charleston market rental rates are projected to slowly climb for the next couple of quarters. The demand remains high for industrial property in Charleston, despite the rise in vacancy rates due to new construction. The market is performing strongly and is still absorbing space within the warehouse and manufacturing sectors; however, the manufacturing sector is not absorbing space at the same rate it is being built. As the global economy continues to positively affect Charleston and increase employment and investor interest within the market, the industrial market demand will catch up to the supply.

For additional commercial real estate news, check out our market reports here.

To download the complete report: 2018 Q1 Industrial Charleston Report

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