Colliers Report: S.C. industrial trends include high-quality space and positive absorption

Colliers International, South Carolina Research & Forecast Report
Q4-2018 SOUTH CAROLINA | INDUSTRIAL

Key Takeaways

• Statewide industrial activity thrives; South Carolina industrial properties absorbed 15.56 million square feet throughout 2018.
• 13.09 million square feet of industrial properties are currently under construction; as quality space is delivered to the market, rental rates will increase.

2018 Market Recap

During 2018, the South Carolina industrial market grew considerably; there were 57 new industrial buildings delivered to the market, adding 9.05 million square feet, and there are currently 13,093,069 square feet of buildings under construction. In addition, another 6,046,920 square feet of industrial buildings are proposed to be built statewide. Demand has elevated as, over the past 12 months, the South Carolina industrial market absorbed 15.56 million square feet; therefore, the market vacancy rate dropped 170 basis points from the fourth quarter of 2017 down to 6.77% during this quarter. The overall average South Carolina industrial weighted rental rate rose from $3.48 per square foot during the fourth quarter of last year to $4.02 per square foot during the fourth quarter of 2018.

Market Overview

The South Carolina industrial market is comprised of 417.95 million square feet within 6,778 buildings. From the third to the fourth quarter of 2018, there were ten buildings, adding 638,780 square feet, delivered to the industrial market statewide. Despite the delivery of new industrial construction, the South Carolina industrial markets absorbed approximately 3.84 million square feet this quarter, and the overall South Carolina market vacancy rate dropped from 7.54% during the third quarter of 2018 to 6.77% during the fourth quarter of this year. The average triple net South Carolina market rental rate for the remaining available industrial space increased from $3.82 per square foot last quarter to $4.02 per square foot during the fourth quarter of 2018.

Augusta | Aiken (South Carolina portion)

The South Carolina portion of the Augusta | Aiken market consists of 10.46 million square feet, half of which is manufacturing space. No new industrial buildings were delivered to this market; however, there is a 40,000-square-foot manufacturing building currently under construction. This Augusta | Aiken market absorbed 208,404 square feet this quarter, most of which was within two warehouses. Due to the warehouse absorption, the Augusta | Aiken vacancy rate dropped from 12.84% during the third quarter of this year to 10.84% during the fourth quarter of 2018. The average weighted rental rate for the South Carolina portion of the Augusta | Aiken region dropped slightly, from $2.53 per square foot during the third quarter of 2018 down to $2.45 per square foot this quarter.

Charleston

The Charleston industrial market has 54.02 million square feet of industrial inventory within 1,062 buildings. There were three new buildings delivered to the Charleston market this quarter, which added 157,000 square feet. There are also 18 buildings currently under construction totaling 2,970,758 square feet. The Charleston industrial market absorbed 17,783 square feet during the fourth quarter of 2018, and the market vacancy rate rose from 8.97% during the third quarter of this year to 9.20% this quarter. The average triple net market weighted rental rate increased again this quarter to $5.73 per square foot up from $5.18 per square foot during the third quarter of this year.

Charlotte (South Carolina portion)

The South Carolina portion of the Charlotte submarket has a total industrial inventory totaling 37.08 million square feet, and two warehouses were delivered to this sector of the South Carolina market: Legacy Park, Phase 1 added 193,750 square feet, and the Rock Hill Commerce Center added 35,900 square feet. There are seven warehouses under construction in this region, which, upon completion, will add 1.67 million square feet to the South Carolina portion of the Charlotte market. This market absorbed 542,938 square feet this quarter; thus, the vacancy rate decreased from 8.76% during the third quarter of 2018 to 7.8% during the fourth quarter of 2018. The overall average weighted rental rate for the remaining industrial space in this region was $5.37 per square foot.

Columbia

The Columbia industrial market is comprised of 69.38 million square feet within 1,281 buildings throughout 17 submarkets. The overall Columbia industrial market absorbed 239,031 square feet this quarter; Northeast Columbia posted the highest absorption of 128,512 square feet, followed by the Cayce/West Columbia submarket absorption of 86,706 square feet. There were no new industrial buildings delivered to the Columbia market this quarter; however, construction continues on the 818,056-square-foot manufacturing facility in the Southeast Columbia submarket. The overall industrial market vacancy rate dropped 34 basis points from 8.43% during the third quarter of 2018 to 8.09% during the fourth quarter of 2018, and the average weighted rental rates increased from $3.68 per square foot last quarter to $3.73 per square foot this quarter.

Florence | Myrtle Beach

The Florence | Myrtle Beach market has 37.69 million square feet of industrial inventory, and two new warehouses totaling 135,302 square feet were delivered to the market during the fourth quarter of 2018. There is also one warehouse under construction in this region which, once completed, will increase the market by 109,200 square feet. This region absorbed 2,157,997 square feet during the fourth quarter of this year, and the vacancy rate was drastically reduced from 12.58% last quarter to 7.17% during the fourth quarter of 2018. The triple net average weighted rental rate decreased to $2.51 per square foot, most likely due to a lesser quality of space remaining within the market.

Greenville | Spartanburg | Anderson

The Greenville-Spartanburg-Anderson industrial market is comprised of 2,996 buildings totaling approximately 198.4 million square feet. During the fourth quarter of 2018, three buildings adding 116,828 square feet of new industrial space to the market were completed. In addition, there are currently eight proposed warehouses and two proposed flex/R&D buildings, which will add 1,708,040 square feet to the region if completed. During the fourth quarter of 2018, the industrial market absorbed 680,868 square feet, of which 509,518 square feet was absorbed in the Wingo submarket. In addition, the overall market vacancy rate dropped from 5.49% during the third quarter of 2018 to 5.21% during the fourth quarter of 2018. Average triple net weighted rent rose from $3.54 per square foot last quarter of $3.73 per square foot this quarter, continually rising quarter-over-quarter.

Savannah (South Carolina portion)

The Savannah market within South Carolina has 10.01 million square feet of industrial space, no new buildings were delivered to the market during the fourth quarter of 2018 and there is one 16,800-square-foot warehouse currently under construction. This market posted a net negative absorption of 80,992 square feet this quarter and the vacancy rate increased from 5.97% last quarter to 6.78% during the fourth quarter of 2018. While warehouse space absorbed 146,598 square feet, the positive warehouse absorption was offset by the manufacturing sector posting a net negative absorption of 241,175 square feet. In the South Carolina portion of the Savannah market, the triple net weighted rental rate dropped significantly to $1.70 per square foot; however, there were no recorded flex/R&D rental rates, which often raise the overall rental average.

Significant Transactions

There were 167 industrial sale transactions reported through CoStar during the fourth quarter of 2018. These sales included a 342-property multi-state portfolio sale, with 22 properties purchased in South Carolina, for a total portfolio sale of 77.72 million square feet at a purchase price of $7.6 billion. There were 89 lease transactions during the fourth quarter, several which were signed by undisclosed tenants.

Construction Pipeline

Under Construction (100,000 SF+)

• Construction continues for the 2.5 million-square-foot Michelin distribution center located on Highway 101 in Spartanburg County.
• The Omni Industrial Campus, in Berkeley County, has over 1,025,288 square feet currently under construction. These buildings will deliver in stages, but all are expected to be completed by early 2019.
• Construction at the 818,056-square-foot China Jushi manufacturing facility in southeast Columbia continues.
• Electrolux Additions is constructing an 800,000-square-foot manufacturing building in Anderson County.
• Keurig Green Mountain Plant is constructing a 708,067-square-foot manufacturing facility at 6135 Anderson Mill Road in Spartanburg County.
• 479 Trade Center continues construction on the 622,677-square-foot manufacturing building in Summerville.
• Silverman Group Foreign Trade Zone is the site of a 561,600-square-foot warehouse under construction at 479 Trade Center Drive in Charleston.
• Construction continues at the Inland 85 Logistic Center in Greer. The Logistic Center is the largest speculative building in the market, consisting of 500,028 square feet.
• Legacy Park East Phase II is the site of a 460,800-square-foot warehouse under construction in York County.
• There is a 436,800-square-foot warehouse under construction in Spartanburg at the Fort Prince Commerce Center.
• At Highway 78 in Summerville, there is a 425,000-square-foot warehouse under construction.
• Ladson Industrial Park is currently constructing a 420,888-square-foot warehouse.
• 7870 Reidville Road in Spartanburg will soon be the site of a new 396,073-square-foot warehouse.
• Augusta Grove, located at 1700 Old Grove Road in Greenville, currently has a 300,645-square-foot warehouse under construction.
• River Park at 77 on Celriver Road in York County currently has 275,963 square feet of warehouse space under construction.
• Apple Valley Phase II, which is a U.S. Lumber build-to-suit warehouse, is currently the construction site for a new 275,000-square-foot Spartanburg facility.
• Spartan Ridge Logistics Center at 2010 Nazareth Church Road in Spartanburg is adding a spec building comprised of 273,000 square feet, and the projected completion date is November of 2018.
• Spartan Exchange, located at 1021 Tyger Lake Road, is a 213,200-square-foot Class A distribution/manufacturing facility under construction in Spartanburg.
• Smith Farms, 11B located at 7870 Reidville Road in Spartanburg County, is a 210,821-square-foot warehouse under construction.
• There is a 196,450-square-foot warehouse under construction at 7770 Palmetto Commerce Parkway in Charleston.
• A 170,691-square-foot spec warehouse is being built within the Global Commerce Park in Spartanburg County.
• 385 Business Park has a 155,101-square-foot warehouse under construction at 130 Monroe Drive in the Simpsonville | Fountain Inn submarket.
• A 149,732-square-foot warehouse is under construction within the Lakemont Logistics Center I located at 3436 Stateview Boulevard in the South Carolina portion of the Charlotte market.
• Within the North Charleston submarket, there is a 142,700-square-foot warehouse being built within the Palmetto Trade Center located at 7755 Palmetto Commerce Parkway.
• Lakemont Logistics Center II located at 3437 Stateview Boulevard in York County is the site of a 142,089-square-foot warehouse currently under construction.
• Garlington North in the Greenville-Spartanburg-Anderson market has a new 136,500-square-foot warehouse being built.
• Within Summerville, at 180 Trade Center Parkway, a 136,500-square-foot warehouse is currently under construction.
• The Florence | Myrtle Beach market has 109,200 square feet under construction in a warehouse located at 250 Caldwell Drive.
• Omni Samet 5 has a 100,000-square-foot warehouse currently being built on Omni Industrial Drive in Summerville.

Completions

• A 193,750-square-foot warehouse was completed this quarter in York County at Legacy Park.
• Georgetown County Business Center located at 259 Technology Drive in the Florence | Myrtle Beach market is the site of a new 100,000-square-foot warehouse.
• A 95,000-square-foot manufacturing facility was completed at 1662 Bushy Park Road in the Charleston market – it is the Evonik Sodium Silicate Plant.
• An ACE Bakery Expansion is now a completed 80,000-square-foot manufacturing facility in the Gaffney submarket.
• Worldwide Equipment now has a completed 51,800-square-foot warehouse in Berkeley County located at 780 Jedburg Road.
• The Rock Hill Commerce Center completed a 35,900-square-foot warehouse in the Charlotte market.
• Within Horry County, at 1300-1310 Dividend Loop, there is a new 35,302-square-foot warehouse.
• 6100 Augusta Road, in the Greenville-Spartanburg-Anderson market, is now the site of an existing 22,578-square-foot warehouse.
• The Highway 101 Corridor submarket in Spartanburg County has a new 14,250-square-foot warehouse on Hammett Road.
• 218 Howle Avenue, in Charleston, has a completed 8,400-square-foot warehouse.

Market Forecast

Rental rates are predicted to rise into the middle of 2019 due to the high quality of new construction being delivered to the market. Positive absorption is expected into the second quarter of next year because many of the industrial buildings within the construction pipeline are speculative and will be absorbed immediately; in addition, new companies will be drawn to the South Carolina market due to convenient logistic systems, a vibrant business climate, positive capital investment and low unemployment rates. The vacancy rate may increase, depending on the rate of new construction delivery, but it is expected to be leased relatively quickly due to the high demand for construction within South Carolina.