Ending the Year with New Speculative Construction

CHARLESTON, SC – Colliers International | South Carolina – Q4-2014 Charleston Industrial Market Report

 

MARKET OVERVIEW

Activity was strong in 2014 for the Charleston, SC industrial market, which ended the year with a total vacancy rate of 7.5%, down from 8.7% at the end of the third quarter of 2014 and 8.4% at year-end 2013.  Leasing activity was healthy with approximately 2.4 million square feet leased throughout 2014, including both new direct leases and renewals.  New direct leases accounted for 1.8 million square feet.  The net absorption for the year was over 1.3 million square feet reflecting optimism and growth in the market.  Efficient logistics supported by the Port of Charleston, a talented workforce, and growing economy collectively attract new manufacturers and support the growth of existing ones in the region.  Charleston ranked #21 on the Urban Land Institute’s US Markets to Watch: Overall Real Estate Prospects in 2015.  Charleston ranked well in all commercial real estate property types, and the industrial sector is among the top performing.  Low unionization rates and labor costs coupled with available talent and the presence of companies such as Boeing puts Charleston on the map and in the minds of investors and manufacturers.

The industrial market has a limited supply of quality industrial space, leaving few options for new companies looking for space and restricting growth of existing companies, which are limited by the space they occupy.  With the vacancy rate continuing on a downward trend and rental rates climbing further, build-to-suit and speculative construction projects are beginning to break ground and will become more feasible options, adding supply to the existing inventory.  A current challenge is the higher rental rate and long-term lease required for new construction, but as the rental rate continues to increase, the gap between current rates and asking rates for new supply will diminish, motivating new speculative construction.

The first wave of speculative construction surfaced during the fourth quarter of 2014.  Jamestown and Childress Klein broke ground on a 274,000 square foot Class A speculative industrial building at Crosspoint at Palmetto Commerce Park, which is expected to deliver by mid-year 2015.  Childress Klein recently pre-leased space, leaving only 130,000 square feet available for lease.  Additionally, Pattillo Industrial Real Estate began clearing a site at Palmetto Commerce Park, which will be home to a new 142,000 square foot speculative industrial building that will be expandable to 400,000 square feet.  The buildings are anticipated to lease quickly and spur further speculative development.  Other projects are currently planned, including North Pointe Business Campus off North Rhett, a 350,000 cross-dock building, and Foreign Trade Zone Park in Jedburg.

 

INVESTMENTS & EXPANSIONS

The success of Boeing in Charleston, the Port of Charleston and the region’s diverse economic drivers continue to attract manufacturers to invest and expand in the market.  As imports and exports increase from the Port of Charleston, logistics companies are among the top growing companies in the region.

• Earlier this year, Boeing South Carolina announced that the Charleston plant will be the sole producer of the 787-10, the newest and largest member of the Dreamliner family.  The plant should be operational by 2018.  Boeing South Carolina was already expanding its campus and currently employs about 7,500 individuals.  This is a significant announcement for the region as it has the potential to attract suppliers to the region and support the growth of existing suppliers.
• MWV Chemical recently signed a long-term lease for 285,000 square feet at 300 Eagle Drive in North Rhett.
• Ability Tri-Modal leased 257,000 square feet at 3290 Benchmark Drive in Ladson.
• Anywhere Express, a logistics company, expanded into 78,000 square feet at Palmetto Commerce Park in North Charleston.  The company is occupying an additional 40,000 square feet than it was before to meet the increase in imports and exports from the Port of Charleston and the transfer of goods among companies in the Southeast.
• ATS Logistics opened a 140,000 square foot warehouse and distribution center in North Charleston.
• Zapp Precision Wire recently announced plans to invest $30 million to expand its Summerville plant at 475 International Circle by 30,000 square feet.

 

2014 RECAP

2014 was a significant year for the Charleston industrial market.  News of expansions and investments filled headlines.

• Agro Merchants Group opened a cold-storage facility in 124,000 square feet at the former Piggly Wiggly cold storage warehouse in Berkeley County to handle refrigerated cargo.
• Lineage Logistics broke ground on a 340,000 square foot cold storage distribution facility at Palmetto Commerce Park.
• Dupuy Storage and Forwarding, LLC opened its newest coffee warehouse and handling facility in North Charleston to serve the rising levels of imported coffee beans.  The company leased a 100,000 square foot facility in North Charleston.
• JBE Inc., a Boeing supplier, leased 100,000 square feet in North Rhett Commerce Park.
• Coastal Logistics Group, Savannah-based third-party logistics provider and warehouse operator, leased 200,000 square feet in an existing building in McQueen Park in Dorchester County.
• Innovative Machining Technology purchased 245 Deming Way to service area-wide manufacturers specializing in the power industry.
• The boating manufacturing industry is growing its footprint throughout the Charleston market.   Sportsman Boats Manufacturing, a manufacturer of saltwater fishing boats, plans to expand its facility in Summerville and more than double its size.  In the interim, they expanded into the nearby Thrace Linq facility.
• Intertex Transloading Services, Inc. leased 103,000 square feet at 164 Spring Grove Road to supply tire manufacturers.

 

PORT OF CHARLESTON UPDATE

In November 2014, the Port of Charleston handled 144,219 twenty-weight equivalent units (TEUs), an 8.04% increase over November 2013.  In 2013, South Carolina exported $26.3 billion worth of goods, 3.9% more than the previous year, to 202 countries.  South Carolina ranked first for tire exports in the United States and seventeenth for export growth in 2013.

 

IN THE MONTHS AHEAD

2015 is likely to bring higher occupancy rates and rental rates; however, leasing velocity will be low given the lack of available space in the market.  As rental rates increase and space tightens, the market will continue to demand more construction, both build-to-suit and speculative developments.

Speculative construction will become imperative for future growth of the industrial and manufacturing industry in the region.  Rising labor costs abroad are bringing jobs back to the United States.  Given the low labor costs and efficient logistics in South Carolina, it is likely that international firms will choose the region as a new home generating new jobs, capital investment and economic growth.

 

AROUND THE STATE

COLUMBIA, SOUTH CAROLINA

Speculative construction has been absent from the market since 2008, but several projects are currently in the works.

• Earlier this year, the first speculative industrial building delivered, 100% pre-leased to Trane USA.  The 38,500 square foot industrial building was the first of three buildings to be developed by Boyd Development.  Two buildings, 70,000 square feet and 62,500 square feet, remain under construction at Shop Grove Industrial Park.
• Lexington County is working with Landmark Builders to develop at 120,000 square foot speculative industrial building in Saxe Gotha Industrial Park.

 

GREENVILLE, SOUTH CAROLINA

The greatest amount of speculative construction projects are in the Upstate of South Carolina.

• Logue Park recently delivered a 90,000 square feet of Class A industrial space under construction in Greenville County with another 110,000 square foot planned for the park.
• Two speculative industrial buildings are under construction at White Horse Industrial Center.  The buildings will be 306,000 square feet and 234,000 square feet and expected to deliver in 2015.

 

FOR MORE STATEWIDE COMMERCIAL REAL ESTATE NEWS CHECK OUT OUR MARKET REPORTS HERE.

 

 

To download the complete report click the link: Q4:2014 Charleston Industrial Market Report.