Increase in Vacancy to Prove Beneficial for Midlands Industrial Market in 2016

Research & Forecast Report

Q4-2015 COLUMBIA, SC | INDUSTRIAL

 

Key Takeaways

• The vacancy rate for the Midlands, South Carolina industrial market increased at year-end 2015 due to two large manufacturers leaving the market.  The additional availability provides a competitive advantage for the region as the vacancy in surrounding markets tightens.
• Manufacturers and distribution companies are showing significant interest in the area.
• Capital investments continue as companies establish new facilities and expand within the market.
• Industrial employment is on the rise as the Southeastern United States experiences a manufacturing renaissance.
• Activity is up over recent years at South Carolina’s ports.

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

 

Greater Vacancy Creates Additional Opportunities

The presence of available buildings ranked among the top 5 location factors in 2015 according to a corporate site selection survey by Area Development Magazine.  This is good news for the Midlands, SC industrial market which experienced an increase in vacancy at year-end 2015 over the previous quarter.  Two large manufacturers, Bose and Knauf Insulations, collectively vacated more than 1.1 million square feet, adding quality, in-demand industrial space to the market’s vacant inventory.  Bose vacated its 470,000-square-foot manufacturing facility in Northeast Columbia.  The plant is located on 104 acres in Richland County and is expandable to 1 million square feet.  Knauf Insulations vacated approximately 680,000-square-feet at One Guardian Way in Fairfield County.  The properties are already receiving significant attention from domestic and international firms.

Manufacturers and distributors are seeking large blocks of move-in ready space as production and delivery become increasingly time-sensitive.  Additionally, asking rental rates for existing industrial space are lower than those required for new industrial buildings due to rising construction costs.  The recently vacated buildings create unique opportunities for substantial capital investments and job creation.  As industrial markets across South Carolina report declining vacancy rates and limited options for space larger than 250,000 square feet, the Midlands finds itself with a competitive advantage.  Efficient logistics provided by major interstates, rail service and South Carolina’s ports will also help attract companies to the Midlands.

The vacancy rate was up to 9.0% at year-end 2015, increasing from 7.9% the previous quarter but remains below the vacancy rates of 9.7% one year ago and 10.3% two years ago.  The increase in vacancy at year-end is solely the result of two large vacancies and is no indication of true market conditions and sentiment.  Robust demand for space contributed to a positive net absorption of 1 million square feet in 2015 despite a large negative net absorption during the fourth quarter.  Positive leasing velocity is expected to continue into 2016. Rental rates are steadily increasing as space is absorbed, but significant spikes in rental rates will remain absent until additional space is absorbed and new construction gains momentum.

Construction Activity Remains Limited

Construction activity has been gaining momentum throughout South Carolina industrial markets but remains limited to a few projects in the Midlands.  Interest in the region is strong and in contrast to other markets, much of the existing, vacant supply is high quality, functional space that meets the current demand and thus delays the need for significant construction.

• Lexington County completed construction on a new 120,000-square-foot speculative industrial building late in 2015.  The building, located at Saxe Gotha Industrial Park in the Cayce/West Columbia submarket, is fully vacant.
• Earlier this year, construction completed on two Class A speculative industrial buildings at Shop Grove Industrial Park in the Southeast Columbia submarket in Richland County.  121 Shop Grove is a 60,300-square-foot industrial facility with 18,000 square feet remaining available for lease.  Party Reflections occupies 42,000 square feet in the building.  196 Shop Grove is a 70,200-square-foot industrial building that delivered 50% occupied.

As the existing supply of Class A and B industrial space is absorbed, the market will begin to see new build-to-suit and speculative construction.  The next speculative and build-to-suit developments will likely cater to distribution centers as several manufacturing facilities are currently vacant.  The majority of current construction involves the expansion of existing facilities.

Investments & Expansions

Capital investments continue to flow into the region from both domestic and foreign firms.  New firms are attracted to the region and existing companies are expanding.  More than $370 million were invested in the region during 2015.  The investments are expected to create more than 1,200 jobs over the next five years.

• Advanta Industries, Inc. is investing $2.6 million to expand its current Clarendon County facility.  The company is construction a 30,000-square-foot addition and will create 26 new jobs over the next five years.
• The Okonite Company plans to invest $19.5 million and expand its Orangeburg County facility by a total of 61,600 square feet.
• Akebono Brake Corporation is expanding its operations at 201 Metropolitan Drive in Lexington County.  The company is investing more than $40 million and creating 100 new jobs over the next five years.
• Construction is underway on Continental Tire’s Sumter plant expansion.  The expansion is expected to double the plant’s annual capacity and create 900 new jobs.  Approximately 720,000 square feet will be added to the plant which is currently 1 million square feet.
• China-based Haier is investing $72 million to expand its Camden plant in Kershaw County.  The manufacturer is building a new 250,000-square-foot addition to its existing 365,000-square-foot facility and plans to create 410 new jobs over the next five years.  The facility is expected to be operational by mid-year 2018.
• Honda of South Carolina Manufacturing Inc. is expanding its Florence County operations.  The $42 million expansion is expected to create 44 new jobs.
• Wire Mesh Companies, manufacturer of high-quality welded wire products, is investing $13.9 million to open a new manufacturing facility in Calhoun County.
• GKN Aerospace is expanding its operations in Orangeburg County.  The aerospace supplier is investing $20 million and occupying a new 126,000-square-foot facility adjacent to its facility at 348 Millennium Drive.

Industrial Employment

A manufacturing renaissance in the southeastern United States has been contributing to a growth in industrial employment.  Rising labor costs abroad and a demand for more advanced technical skills are driving industrial employment in the United States.  Industrial employment, comprised of manufacturing and wholesale trade employment sectors, is increasing in the Columbia, SC metropolitan statistical area but remains below pre-recession levels.  As of November 2015, approximately 46,000 individuals were employed in the industrial employment sector according to the Bureau of Labor Statistics.  Roughly 500 jobs were added to the sector from November 2014 to November 2015 accounting for 4.3% of all non-farm jobs created over the year.

South Carolina Ports

Activity is on the rise at South Carolina’s Port of Charleston and Inland Port in Greer, South Carolina.  The Port of Charleston handled 153,594 twenty-foot equivalent units (TEUs) in November 2015, a 6.5% increase over November 2014.  Activity is up 38.7% over November 2010.  Port activity is expected to continue its trend as demand from BMW, Mercedes-Benz, and Volvo, among other users, grows.  The completion of the Panama Canal expansion in 2016 will further contribute to greater port tonnage.

The South Carolina Inland Port reported 6,076 rail moves in November 2015.  According to the South Carolina Ports Authority, as of fiscal year to date, the facility handled 34,307 rail moves, a 58.2% increase over the same period the previous year.  Intermodal freight is gaining popularity and has been the fastest growing transportation mode in the United States for the past decade.

2016 Outlook

The market is poised for continued growth and improvement in 2016.  With a healthy supply of buildings larger than 250,000 square feet, the market has the potential for robust leasing velocity through the next 12 months.  Capital investments will come from various types of users including but not limited to the automotive, aerospace, plastics and food-related industries.  South Carolina’s growing automotive cluster has the potential to attract automotive-related manufacturers and distributors to the region, which is centrally located between the Port of Charleston and South Carolina Inland Port.  Vacancy is expected to decline throughout the year, and the space recently vacated by Bose and Knauf Insulation is likely backfill quickly.

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.  Investments continue to be made throughout the state.

Charleston, South Carolina

• Construction activity was strong through 2015.  Approximately 984,000 square feet of industrial space was added to the existing inventory in 2015 and an additional 1.5 million square feet will deliver during the first quarter of 2016.
• Gerber Childrenswear plans to occupy their new distribution facility during the first quarter of 2016.  The 477,000-square-foot facility is located at Foreign Trade Zone, a joint-venture between The Rockefeller Group and WestRock Land Development.
• Construction is nearing completion at North Point Business Campus on North Rhett Avenue in Hanahan.  The 350,856-square-foot speculative industrial building is being developed by WestRock Land Development and SunCap Property Group.

Greenville, South Carolina

• Hillside Enterprise Park recently delivered in Spartanburg County.  The 155,000-square-foot speculative building is available and was developed by Scannell Properties.
• Construction recently completed on a 306,000-square-foot speculative warehouse at White Horse Industrial Center.  Colgate-Palmolive plans to establish a new distribution center at the facility, which was developed by Exeter Property Group and Burnham Partners.
• Some of the largest investments of 2015 came from automotive-related manufacturers and suppliers as the region’s automotive cluster grows.  Mitsubishi Polyster Film Inc. announced plans earlier this year to invest $100 million and expand its Greer, SC manufacturing facility in Greenville County.

 

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