Colliers Report: Charleston’s absorption is positive despite new construction deliveries

Key Takeaways

  • The overall market vacancy rate has fluctuated over the past year while new industrial construction was underway, and is now 8.87% during the fourth quarter of 2019.
  • The Charleston industrial market absorbed 2.5 million square feet from the fourth quarter of 2018 through the fourth quarter of 2019, 453,503 square feet were absorbed during the fourth quarter of 2019.
  • There were five new buildings delivered to the market during the fourth quarter of 2019 which added 867,783 square feet to the Charleston industrial inventory.

2019 Industrial Recap

The Charleston industrial market has increased by 17 buildings over the past 12 months adding 2.60 million square feet. The industrial market absorbed 2.5 million square feet from the fourth quarter of 2018 through the fourth quarter of 2019. The overall market vacancy rate has fluctuated over the past year while new industrial construction was underway. The vacancy rate was 9.00% during the fourth quarter of 2018 and then decreased from the first through the third quarters and ended up at 8.87% during the fourth quarter of 2019 after new industrial buildings were delivered to the market. Average weighted rental rates for remaining industrial space increased 5.24%, from $5.73 per square foot during the fourth quarter of 2018 to $6.03 per square foot during the fourth quarter of 2019.

Market Overview

Overall Charleston industrial market

The Charleston industrial market has 57.20 million square feet of industrial inventory with approximately 2.82 million square feet under construction within 13 buildings. In addition, there are approximately 13 buildings proposed to be built within the Charleston market which would add an additional 3.84 million square feet to the industrial inventory. There were five new buildings delivered to the market this quarter which added 867,783 square feet to the Charleston industrial inventory. The Charleston industrial market absorbed 453,503 square feet during the fourth quarter of 2019. Due to the large amount of construction delivery during the fourth quarter of 2019, the overall Charleston vacancy rate increased from 8.25% during the third quarter of 2019 to 8.87% this quarter. The overall market average triple net weighted rental rate increased this quarter to $6.03 per square foot.

Warehouse/Distribution

The Charleston industrial market warehouse/distribution sector is comprised of 41.73 million square feet within 845 buildings and comprises 72.95% of the Charleston industrial market. There are 11 warehouses totaling 1.97 million square feet under construction throughout the Charleston market, and an additional 11 warehouses totaling 3.30 million square feet are proposed to be built. During the fourth quarter of 2019, four of the five new industrial buildings delivered to the Charleston market were warehouses. Throughout Charleston, warehouses absorbed 350,075 square feet this quarter; the Summerville submarket led the way and absorbed 332,700 square feet this quarter followed by North Charleston’s absorption of 311,635 square feet. Most of the negative absorption occurred within the Hanahan/North Rhett submarket in one building: TVS | Frontier located at 5801 North Rhett Avenue. The warehouse/distribution sector vacancy rate increased to 10.29% this quarter due to 857,000 square feet of warehouses delivering to the market. The average triple net weighted warehouse rental rate increased from $5.64 per square foot last quarter to $5.77 per square foot this quarter.

Manufacturing

Manufacturing is primarily used to assemble goods for sale and distribution. There are approximately 11.07 million square feet of manufacturing space within the Charleston market. There are two buildings under construction which, upon completion, will add 851,997 square feet of inventory to the market. In addition, there is one 520,000-square-foot building proposed to be built within the Summerville submarket. There are few available manufacturing spaces left within the Charleston market and, because of this, absorption occurred in only one building-at 4280 Pace Street 144,400 square feet of manufacturing space was absorbed. The overall manufacturing vacancy rate dropped to 4.76%. Average triple net weighted rental rate during the fourth quarter of this year is $6.85 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 Charleston flex/ R&D market is comprised of approximately 4.40 million square feet. One 10,783-square-foot flex building was delivered to the Charleston market and is located at 2467 Charleston Highway. Also, one 17,500-square-foot flex building is currently proposed to be built within the Clements Ferry submarket. The flex/R&D sector posted a negative absorption of 40,972 square feet this quarter largely due to 32,000 square feet becoming available at 5809 North Rhett Avenue and Arcadia located at 420 Wando Park Boulevard posting negative absorption totaling 43,027 square feet. Due to the negative absorption, the vacancy rate increased from 4.32% during the third quarter of 2019 to 5.73% during the fourth quarter of 2019. The average triple net weighted rental rate was $9.60 per square foot this quarter.

Capital Investment & Employment

There have been $250.08 million of new capital investments within the Charleston industrial market during 2019. The capital investments produced 1,756 jobs, with the types of investors including brewing and distilleries of craft beers, general and medical manufacturing, information technology and logistics. Also, according to the Federal Reserve data through November of 2019, there have been 2,300 jobs added in the Charleston metropolitan statistical area, 303 of which were industrial jobs- 65.28% of those were manufacturing jobs. Overall non-farm employment totals 371.800 and while the total number of jobs have decreased over the past eight months, the employment rate is still strong at 98.2%.

Significant Transactions

There were 12 Charleston industrial sales reported by CoStar during the fourth quarter of 2019, including a $73 million, 14-property portfolio including a 1.1 million-square-foot Summerville industrial building located at 400 Trade Zone Boulevard. Leasing activity increased from the third quarter to the fourth quarter. According to CoStar, there were 23 industrial leases executed this quarter, eight of which were over 50,000 square feet and two of those leases were at 4289 Crosspoint Drive in Ladson.

Sales

  • For $2.7 million, 620 Dobbin Rd LLC purchased a 69,132-square-foot warehouse located at 620 Dobbin Road in Charleston.

Leases

  • PanaSystem US, LLC leased 157,698 square feet of warehouse space located at 4280 Pace Street in North Charleston.
  • JAS Forwarding (USA), Inc. leased 156,000 square feet at 4289 Crosspoint Drive in Ladson.
  • Philadelphia Truck Lines leased 110,000 square feet at4597 Appian Way in North Charleston.
  • W.W. Williams Company leased 109,857 square feet at5801 North Rhett Avenue in Hanahan.
  • Tri-Modal Distribution leased 94,500 square feet at 320 Deming Way in Summerville.
  • Chadwell Supply South Carolina, Inc. leased 65,000 square feet at 4289 Crosspoint Drive in Ladson.

Market Forecast

The South Carolina industrial markets will benefit from the recently negotiated U.S.-China Trade Deal. The two most pertinent aspects of the deal affecting South Carolina industrial markets promote increased purchases of American products and tariff relief on Chinese products. These changes will lead to an increase in imports and exports and the Port of Charleston is already performing exceedingly well, reporting record-breaking numbers in 2019.

Thus, the Charleston industrial market is primed for continued expansion and positive activity into the next few quarters. Capital investments in the areas of manufacturing and logistics are enhancing industrial opportunities and continually attracting interest from outside of the market. Despite the flex/R&D sector posting negative absorption and rising vacancy rates over the past few quarters, the warehouse and manufacturing sectors are expected to have positive growth throughout the Charleston submarkets. There is an immense industrial pipeline expecting many 2020 deliveries – they are predicted to be absorbed relatively quickly due to high demand and an ongoing influx of new industrial businesses to the market. Due to the high-quality new construction deliveries, the average weighted rental rates for warehouse and manufacturing spaces will rise in the next few quarters until all of the new industrial space is absorbed.

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