Game-Changing Investments Will Help Grow Lowcountry Industrial Market

Key Takeaways

• Major investments from automotive manufacturers Volvo and Mercedes-Benz were announced during the first half of 2015.  Together, the manufacturers will be investing $1 billion and creating 5,300 jobs over the next decade.
• Speculative and build-to-suit construction is strong throughout the market.
• Industrial employment in the Charleston-North Charleston-Summerville, SC MSA is at record-high levels, surpassing pre-recession employment of 32,400 jobs.
• Activity is up at South Carolina’s ports.  Container volumes at the Port of Charleston increased 14% during the South Carolina Ports Authority’s 2015 fiscal year.

 

To download the complete report: Q2 2015 Charleston Industrial Market Report.

 

 

Region Helps Grow South Carolina Automotive Manufacturing Cluster

Just two months after Mercedes-Benz Vans, a division of Daimler, made an announcement to invest $500 million in a new manufacturing facility in Charleston, another major automotive manufacturer, Volvo selected South Carolina for its first American plant.  The $500 million facility will be located in Berkeley County and is expected to create 2,000 new direct jobs over the next decade and up to 4,000 jobs by 2030.  The facility will serve to manufacture the latest generation Volvo models for sale in the U.S. and other markets.  Volvo expects to complete the first vehicle at the plant in 2018.

Volvo Cars considered over 60 U.S. locations before selecting the Berkeley County site.  Several factors played a role in attracting the manufacturer.  The Port of Charleston’s strength and experience with automotive exports, the presence of other global automotive manufacturers, a skilled labor force and pro-business environment helped attract the manufacturer to the region.  The facility will be located on 2,880 acres at the Camp Hall Tract off exit 187 along I-26.  The approximately 4,000 acres of land remaining at the site will be prepped for future industrial projects, which will likely include automotive-related users.

The presence of Mercedes-Benz and Volvo in the Charleston region has the potential to grow automotive manufacturing in the region and throughout South Carolina.  In recent years, we have seen a growing trend of localization in which more suppliers are locating in closer proximity to their customers, thereby reducing transportation costs.   Automotive suppliers, as well as third-party logistics providers, are expected to flock to the region in an effort to better serve the new automotive manufacturers.  Given Charleston’s tight industrial market, a spur in construction activity is expected in both speculative and build-to-suit construction.

 

Market Conditions

The Charleston, SC industrial market continues to excel and ended the second quarter of 2015 with a vacancy rate of 6.8%, down from 7.9% at the end of the first quarter of 2015 and 9.8% one year ago.  Activity and interest in the market is strong with approximately 366,000 square feet of industrial space absorbed during the second quarter of 2015.

Demand for Class A, move-in ready industrial space is strong as companies are looking to begin operations as soon as possible.  As of mid-year 2015, approximately 825,000 square feet of industrial space had been absorbed throughout the market since year-end 2014.  Robust leasing is expected to continue and absorption could be as high as 2 million square feet for the year.  While an influx of automotive-related companies is expected as a result of recent announcements from Mercedes-Benz and Volvo, other user types are currently showing an interest in the market.  For example, light assembly operations, Boeing-related suppliers and third-party logistics providers are all showing significant interest in the market.

The tightening market coupled with high demand is pushing rental rates upwards as the market is in favor of landlords.  Tenants are paying over $4.50 NNN for build-to-suit and speculative space, while others are paying over $4.00 NNN for existing space.  Rental rates will climb further as vacancy continues to tighten and new construction delivers.

 

Investments & Expansions

Investments in the form of capital improvements, leases, expansions and sales are robust throughout the market.  Tenants are looking for efficient logistics and a talented workforce while investors are taking advantage of the current low interest rates.  It is a good time for new investors to enter the market as occupancy remains high.  Additionally, some tenants are finding it more feasible to own rather than lease given the increasing rental rates in the market.

• The 90,000 square-foot industrial building at 5802 North Rhett was acquired late in the first quarter by a family partnership and quickly signed a new tenant two months later.  The Tides Commodity Trading Group, Inc. recently signed a lease to occupy the entire building in Hanahan.
• Comact Equipment Inc. acquired the 41,816 square-foot industrial building at 5154 US Highway 78 for $850,000.
• Construction continues on Fruit of the Loom’s 402,000 square-foot addition to its 350,000 square-foot warehouse.  The expansion will more than double the company’s size and is expected to complete during the third quarter of 2015.

 

 

Planned & Under Construction

Construction activity is gaining momentum throughout Charleston with several build-to-suit and speculative buildings planned and under construction.  The new construction is an attempt to satisfy the growing demand for industrial space in the region, which currently exceeds the available inventory.  Tenants seeking space currently have limited options as few large blocks of contiguous space remain vacant.  With less than 10 industrial buildings offering more than 80,000 square feet of industrial space for lease, construction is the key to future growth.

• MeadWestvaco and SunCap Property Group recently broke ground on a 350,856 square-foot, Class A speculative industrial building at North Pointe Business Campus on North Rhett Avenue in Hanahan.  The building is designed for distribution or light manufacturing use.
• Childress Klein and Amstar broke ground earlier this year on a 278,720 square-foot, front-loaded, speculative industrial building at the Charleston Regional Business Center in the Clements Ferry submarket.  Construction is expected to complete early in the third quarter of 2015.
• Pattillo Industrial Real Estate recently broke ground on a 142,000 square-foot speculative facility at Palmetto Commerce Park, which will be expandable to 400,000 square feet.
• Childress Klein and Jamestown completed construction on Building 4 at Crosspoint at Palmetto Commerce Park, a 273,000 square-foot, rear-loaded, multi-tenant building in North Charleston.
• Gerber Childrenswear is investing $33 million and establishing a new distribution center in Berkeley County.  The 477,000 square-foot facility is under construction at Foreign Trade Zone, a joint-venture of The Rockefeller Group and WestRock Land Development.
• Lineage Logistics’ new cold storage facility remains under construction at Palmetto Commerce Parkway in North Charleston.  The 340,000 square-foot build-to-suit distribution facility is expected to create more than 80 new jobs.  Additionally, it should increase exports through the Port of Charleston.

While a significant need exists for new industrial space, a new challenge is beginning to surface in new construction.  Land is becoming more expensive and sometimes difficult to find in traditional industrial corridors.  As a result, the industrial market will begin to shift north along I-26 once prime locations are exhausted.  Developers are also finding that it is important to have pad-ready sites available for construction in an effort to reduce completion time.  Buildings constructed on pad-ready sites on average take 5 months less to complete than those on sites which need to be prepped for construction due to entitlements and permits, among other items.

 

South Carolina Ports

South Carolina’s Port of Charleston and South Carolina Inland Port have a lot to do with the success of the state’s industrial market and manufacturing reputation.  The ports offer a great service to manufacturers and distributors by providing efficient logistics and reducing transportation costs.

 

Port of Charleston

Activity at the Port of Charleston is up over previous years according to the South Carolina Ports Authority.  The port handled 169,914 twenty-foot equivalent units (TEUs) in June 2015, increasing 13.9% over June 2014.  Approximately 1.9 million TEUs were handled during the South Carolina Ports Authority’s 2015 fiscal year, 231,473 TEUs more than the 2014 fiscal year.  Port tonnage is greater than recent years and activity is expected to further increase as new manufacturers and distributors continue to open South Carolina locations.

 

South Carolina Inland Port

The South Carolina Inland Port (SCIP) in Greer is exceeding expectations.  SCIP posted a record in May 2015 with 5,845 rail lifts.  The port’s users include BMW and Adidas.  The inland port offers direct rail service to the Port of Charleston via Norfolk Southern.

 

Industrial Employment

Industrial employment, which is comprised of manufacturing and wholesale trade, is growing throughout the Charleston-N. Charleston, Summerville, SC MSA and surpassing pre-recession levels.  Peak pre-recession employment was 32,400 industrial jobs.  As of June 2015, there were 33,700 individuals employed in an industrial job, a gain of 1,300 jobs since the 2007 pre-recession peak.  Employment in the industrial sector will continue to increase as Volvo and Mercedes-Benz begin hiring and additional manufacturers and distributors enter the market.

 

Market Outlook

The Charleston, SC industrial market is poised for a positive second half of 2015.  Additional construction is necessary for future growth.  Sales will likely be strong in the upcoming months as investors take advantage of the low interest rate before the potential increase in rates by the Federal Reserve later this year.  Rental rates will climb further as the vacancy declines and demand remains high.

 

Around the State

A growing demand for industrial space throughout South Carolina is attributing to tightening markets and soaring rental rates, creating a need for new industrial construction.  Major markets around the state, such as Columbia and Greenville, are seeing build-to-suit and speculative industrial construction.

 

Columbia, South Carolina

• Chicago Bridge and Iron recently signed a 263,374 square-foot lease and will occupy 375 Metropolitan Drive in the Cayce/West Columbia submarket.
• Additionally, Husqvarna Outdoor Products leased 184,453 square feet at 1001 Carolina Pines Drive in the Northeast Columbia submarket.
• Lexington County’s speculative industrial building is under construction at Saxe Gotha Industrial Park. The 120,000 square-foot facility is expected to complete by year-end 2015. The building is being developed by Landmark Builders, and LCK is serving as project manager.
• Newberry County is developing a 50,000 square-foot speculative industrial building at Mid-Carolina Commerce Park in Newberry County. The building is being offered for sale or lease.
• Two Class A speculative industrial buildings, 70,000 square feet and 62,500 square feet, located at Shop Grove Industrial Park in Richland County, are nearing completion. Party Reflections preleased 42,000 square feet in the 62,500 square-foot building. T&C Metals pre-leased 35,000 square feet of the 70,000 square-foot speculative building.

 

Greenville, South Carolina

The Upstate was first to experience a new wave of construction and continues to be home to the greatest activity with both private and public funded developments.

• Scannell Properties and Strategic Capital Partners recently broke ground on a 155,000 square-foot speculative facility off Highway 290 in Hillside Enterprise Park.  This is the first of up to six buildings ranging from 100,000 to 500,000 square feet.
• Construction is complete at White Horse Industrial Center, which is home to two new industrial facilities.  The $20 million project being developed by Exeter Property Group and Burnham Partners adds 306,000 square feet of industrial space to the existing inventory with a graded building pad designed to accommodate 234,000 square feet.
• Cothran Properties recently completed construction on 25 Logue Park, the first building in a new industrial park, Logue Park at Pelham.  The 90,000 square-foot building delivered 100% pre-leased.  Colliers represented the tenant in the transaction.  Construction is underway on a second building in the park, a 110,000 square-foot Class A industrial building.

 

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

 

To download the complete report: Q2 2015 Charleston Industrial Market Report.