Colliers Report: Construction slows amid COVID-19 outbreak

Research & Forecast Report
Q1-2020 COLUMBIA | INDUSTRIAL

Key Takeaways

  • Several industrial businesses remain open in order to manufacture and deliver necessities throughout the nation during the Coronavirus pandemic.
  • Due to the outbreak of COVID-19 construction is predicted to slow during the second quarter due to lack of materials and several temporary business closings. Overall demand is strong enough to expect construction completions on a delayed schedule.
  • The actual effects of the outbreak of COVID-19 on the industrial real estate sectors will not be realized for several quarters.

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

Activity was positive, but minimal

Columbia industrial market activity was positive, but nominal throughout the first quarter of 2020. However, at the end of the first quarter the COVID-19 outbreak began altering the supply/demand chain on a daily basis. While many businesses switched to remote work environments, companies involved in the logistics chain were deemed essential. They continued to operate at an accelerated pace in order to deliver goods where they were needed throughout the nation. In addition, some industrial properties are being used for medical supplies or temporarily repurposed in order to make essential medical equipment when possible. While the industrial sectors of commercial real estate may fare better than others due to continued demand, the true effects of the Coronavirus will not be known for several quarters.

Market Overview

Overall Columbia 

The Columbia industrial market is comprised of 72.78 million square feet. During the first quarter of 2020 the market absorbed 450,203 square feet. Northeast Columbia was the submarket with the highest absorption of 105,059 square feet, followed by Cayce/West Columbia with 82,312 square feet of absorption. One 67,000-square-foot warehouse was delivered to the market within the Lexington submarket during the first quarter of 2020. There are also two buildings under construction which, upon completion, will add 245,000 square feet to the market. Due to the outbreak of COVID-1 construction is predicted to slow due to lack of materials and several temporary business closings; however, the overall demand is strong enough to expect construction completions on a delayed schedule. No new buildings completed construction this quarter in the Columbia industrial market. The quarterly vacancy rate dropped from 5.17% at year end to 4.64% during the first quarter of 2020. The overall average market rental rate for available industrial space rose to $4.32 per square foot this quarter.

Warehouse/Distribution

The warehouse/distribution sector comprises the largest portion of the Midlands industrial market, with approximately 45.49 million square feet. The fully-leased, 67,000-square-foot Domino’s processing facility was delivered to the market this quarter in the Lexington County Industrial Park. This sector absorbed 224,671 square feet during the first quarter of 2020, led by the Cayce/West Columbia warehouses absorbing 82,312 square feet. The quarterly warehouse vacancy rate was 4.21% and there are seven submarkets with a vacancy rate of less than 2%. The overall average weighted rent for warehouses rose from $4.05 per square foot at the end of last year to $4.62 per square foot during the first quarter of this year. The rate increase was due to average warehouse rental rates beginning at $1.95 per square foot in Saluda County and topping off at $10.00 per square foot in the Northwest Columbia submarket.

Manufacturing

The manufacturing sector in the Midlands has 24.96 million square feet and there are currently two manufacturing facilities under construction that, upon completion, will add 245,000 square feet to the inventory. The manufacturing sector absorbed 211,995 square feet during the first quarter of 2020, mostly within the Newberry County and Northwest Columbia submarkets. The overall manufacturing vacancy rate decreased from 5.44% last quarter to 4.59% during the first quarter of 2020. The weighted rental rate for available manufacturing space averaged $3.02 per square foot to begin the year.

Flex/R&D

The flex/R&D sector in the Midlands has 2.32 million square feet within its submarkets and no new flex/R&D buildings were delivered to the Columbia market this quarter. This sector absorbed 13,537 square feet and the quarterly vacancy rate dropped to 13.72% during the first quarter of 2020. Flex/R&D average weighted rental rate for the remaining availabilities decreased from $7.67 per square foot during the fourth quarter of 2019 to $7.44 per square foot at the beginning of the year.

Capital Investment & Employment

Over the past twelve months ending March 2020, there have been $227.90 million in new capital investments and $96.08 million in capital investment expansions, accounting for 1,316 jobs announced within the Columbia region. The types of investors include chemical manufacturing, advanced manufacturing | fabrication, energy production, marine manufacturing and health care. According to the Federal Reserve data through February 2020, industrial employment comprises 11.50% of Columbia’s total employment, or about 47,000 jobs in the Midlands region. There were 6,400 non-farm jobs added to the market during the past 12 months ending February 2020, and industrial employment made up approximately 14.56% of the total jobs added or 932 jobs.

Significant Transactions

According to CoStar, there were 37 industrial sale transactions, many of which were part of a 37-property portfolio sale. There were also 14 industrial leases signed during the first quarter of 2020.

Sales

  • For $184 million, Weston, Inc. purchased 37 industrial properties across North and South Carolina, including approximately 24 properties within Columbia submarkets.

Leases

  • Sumter Nutritionals, LLC leased 81,295 square feet at the 172,863-square-foot warehouse located at 2630 Highway 15 South in Sumter.
  • Shiry Electronics USA, LLC leased 54,312 square feet within the 170,195-square-foot distribution center located at 128 McQueen Street in West Columbia.
  • NG Bostic Enterprises LLC leased 24,235 square feet within the 26,735-square foot warehouse located at 739 Old Clemson Road in Northeast Columbia.

Market Forecast

Industrial activity in the Columbia market was steady during the first quarter of 2020. Despite possible construction progress delays during the COVID-19 outbreak and temporary business closings-demand is strong and construction is expected to eventually complete. Many essential businesses which are staying open across the nation are using the logistics chain to deliver necessary goods and services throughout the country; therefore, many industrial properties have remained open. While this seems positive for the industrial sector, the true effects of the Coronavirus will not be evident for several quarters.

A Note Regarding COVID-19 

As we publish this report, the U.S. and the world at large are facing a tremendous challenge, the scale of which is unprecedented in recent history. The spread of the novel Coronavirus (COVID-19) is significantly altering day-to-day life, impacting society, the economy and, by extension, commercial real estate.

The extent, length and severity of this pandemic is unknown and continues to evolve at a rapid pace. The scale of the impact and its timing varies between locations. To better understand trends and emerging adjustments, please subscribe to Colliers’ COVID-19 Knowledge Leader page for resources and recent updates.

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