Colliers Report: New industrial inventory in Charleston stabilizes rent

Research & Forecast Report: Q4-2017 CHARLESTON | INDUSTRIAL

 

Key Takeaways

• Vacancy is expected to rise as more new product is delivered.
• Deliveries of speculative buildings are causing rents to stabilize.

For statewide commercial real estate news check out our market reports at: www.colliers.com/southcarolina/insights.

Market Overview

There is no doubt Charleston has an increasingly positive outlook for its industrial market. The Port of Charleston annual cargo shipment totals have set a record during 2017, moving more cargo boxes last year through the port than ever before in its 75-year history. The Inland Port in Greer, SC is also reporting a record number of shipments, a 20.4% increase over the shipments during 2016. Global trade growth is expected to continue expanding through next year with the influential presence of Boeing, Volvo and Mercedes-Benz Vans campuses fulfilling their import/export needs. In addition, the tourism business is booming and, according to a study conducted by the Charleston Daily, Charleston ranks “#4 for Best Mid-Sized Cities for Job Growth in 2018.”

With all the positive accolades, it is difficult to believe there could be a downside. However, Charleston construction may have reached an inflection point in late 2017. There were 244,032 square feet of industrial buildings delivered during the fourth quarter of 2017 to the Charleston market. In addition, another 3,667,622 square feet of industrial buildings are currently under construction, with another 4,400,020 square feet proposed but not yet started. While Charleston has a positive business environment and a propensity for growth, it may not be able to fill the vast amount of industrial buildings as quickly as they are being delivered, and this is causing an oversupply of inventory.

2017 Market Recap

The Charleston market vacancy has risen steadily over the past year, from 4.2% during the fourth quarter of last year up to 8.34% this quarter. Meanwhile, the triple net average weighted market rental rate rose from last year and has now reached a plateau at $5.00 per square foot. The overall market absorption year-over-year was a net negative 13,352 square feet.

Warehouse/Distribution

Seventy percent of the industrial market is considered warehouse/ distribution space. Vacancy in warehouse space increased this quarter to 8.04% and there was a net negative absorption of 348,650 square feet. There were 244,032 square feet of warehouse space delivered this quarter in three submarkets. There are another 14 facilities totaling 2,107,445 square feet currently under construction, of which, approximately 1.7 million square feet will deliver during the first quarter of 2018. The triple net average market warehouse/distribution rental rate is $4.96 per square foot, but the addition of so much speculative space may create downward pressure on rent.

Manufacturing

Manufacturing is primarily used to assemble goods for sale and distribution. Vacancy in the manufacturing sector dropped slightly from last quarter to 10.66%, however, there was a net negative absorption of 3,151 square feet and there are currently 1,282,677 square feet of additional manufacturing space under construction in the Charleston market. The triple net average market manufacturing rental rate is $4.76 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. Vacancy in the Flex/R&D property sector rose to 4.70,% with 175,583 square feet of flex space available in the Charleston market. This sector posted a net positive absorption of 9,552 square feet during the fourth quarter, and the triple net average market Flex/R&D rental rate is $7.53 per square foot.

Capital Investments

In 2017, $1.6 billion in capital investments and at least 2,754 new industrial jobs were announced in the Charleston market. The largest of these was the Volvo facility, followed by many manufacturing plants who will supply auto components to the larger manufacturing companies.

Significant Transactions

Sale activity was moderate during the fourth quarter of 2017, with a few large warehouse transactions and several multi-property trades. Leasing activity was slow during the fourth quarter of this year despite the actual industrial development in the Charleston market. According to CoStar, there were 27 industrial leases signed this quarter.

Sales

• In November, three North Charleston industrial buildings located at 4500 Leeds Avenue were purchased by LRC-Leeds, LLC for $42 million.
• A FedEx distribution center located at 1892 Anfield Road in North Charleston was purchased for $21.8 million.
• In October, 3350 Meeting Street, a 23,000-square-foot manufacturing building, was purchased for $1.45 million.

Leases

• 120,200 square feet were leased at the Airport Commerce Park, located at 2650 Fasitt Road in North Charleston.
• Continental Terminals Inc. leased 101,750 square feet of an industrial warehouse in Goose Creek at 201 Luken Road.
• Wyse Logistics, Inc. leased 62,221 square feet at 4400 Arco Lane.
• PackIQ leased a 40,000-square-foot warehouse located at 324 Deming Way in Summerville.

Construction Pipeline

Construction activity remains high in the Charleston market, with 3.6 million square feet under construction and 4.4 million square feet proposed to be built.

Delivered

• The Fed Ex Distribution Center, located at 1892 Anfield Road in North Charleston, completed its 123,500-square-foot facility in the fourth quarter of 2017.
• Building 2 of the Atlas Commerce Center, located at 8351 Palmetto Commerce Parkway, completed construction.
• A 100,500-square-foot warehouse was completed in Dorchester County at 4756 Highway 78.
• 1182 Main Street, a 10,000-square-foot warehouse in the South Islands submarket finished construction this quarter.
• A North Charleston 10,032-square-foot warehouse located at 7587 Sandlapper Parkway was completed.

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.
• The Omni Industrial Campus has over 1,025,288 square feet currently under construction. These buildings will deliver in stages, but all 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.

Market Forecast

The Charleston market is buzzing with excitement over the Port of Charleston expansion, the booming automotive manufacturing sector and the anticipation of increased global trade growth. However, the industrial market construction has grown so rapidly in anticipation of this boom, it will cause rents to stabilize and vacancy rates will rise over the next year. As the market is saturated with vacant speculative buildings, the ability to sell or lease these industrial properties will become increasingly difficult until the demand catches up with the supply.

For statewide commercial real estate news check out our market reports at: www.colliers.com/southcarolina/insights.

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