Manufacturing and Export Growth to Drive SC Industrial Market

Key Takeaways

• Capital investments continue to strengthen the South Carolina economy with investments from both national and international companies.
• Manufacturing employment is on the rise, but remains below pre-recession levels.
• 2014 exports set records and maintain ranking.  Activity is up at the Port of Charleston and South Carolina Inland Port.
• The vacancy rate is holding steady given the tight market.
• Industrial market conditions mirror those seen in neighboring markets and across the nation.
• Speculative and build-to-suit construction is gaining momentum in response to growing demand for quality industrial space.

 

To download the complete report: Q1 2015 SC Industrial Market Report.

 

Strengthening Economy Supports Industrial Growth

Real GDP growth in the United States was reported at 2.2% for the fourth quarter of 2014, expanding 14 out of the past 15 quarters.  The most recent South Carolina real GDP reportedly grew at 1.2% in 2013, expanding since 2010.  Manufacturing made up 17.5% of real GDP in 2013, largely contributing to the South Carolina economy.  Expansion is forecasted to continue.

Manufacturing employment is growing in South Carolina, with 232,400 employed in February 2015, the highest employment level since November 2008 when employment was 234,900.  Although manufacturing jobs are increasing, growth is occurring at a slower pace than it was in 2011 when 10 months showed year-over-year changes greater than 4.0%.  As of February 2015, employment was up 2.4% over the previous year.

Hourly wage rates are higher than they were in the past, averaging $23.50 in February 2015.  Although wage rates are increasing, they remain below the national average of $25.00.  South Carolina’s right-to-work status, skilled labor force and low labor costs make it attractive to both manufacturers planning a new facility and employees benefiting from the state’s low cost of living and inviting environment.

Strong capital investments over recent years are largely contributing to the growing employment base.  2014 investments totaled approximately $5.1 billion and will create over 19,000 jobs.  More than half of the monetary value of capital investments came from foreign firms with Germany in the lead, investing $1.3 billion and creating 1,797 jobs.  2015 investments are likely to be on pace with 2014.  As of April 2015, over $937 million worth of investments and over 3,800 jobs were announced throughout South Carolina.

 

A Leading Exporter

A strong manufacturing presence throughout South Carolina is demonstrated by the state’s 2014 ranking of 17th exporter overall in the United States with China being the state’s top exporting partner. Approximately $29.7 billion worth of goods were exported in 2014, posting a fifth consecutive record year and 13.1% increase over 2013.  South Carolina ranked first for export of tires and passenger automobiles, among other goods, and accounts for nearly 30% of total U.S.-made exported tires.    The presence of the Port of Charleston and South Carolina Inland Port (SCIP) support the state’s growing exports.

In March 2015, the Port of Charleston handled 171,113 twenty-foot equivalent units (TEUs), an increase of 13.7% over March 2014.  1.8 million TEUs were handled at the port in 2014, 11.9% more than 2013.

SCIP, which opened in November 2013 in Greer, offers daily service to the Port of Charleston via Norfolk Southern rail lines.  The inland port exceeded expectations during its first full year of operations, moving 42,555 containers in 2014.  August 2014 was the most active month with 4,770 lifts.  BMW manufacturing and Adidas are among more than 10 port users.  Last year, BMW Manufacturing relocated its export operations to a new 413,000 square-foot building on property owned by the Greenville-Spartanburg International Airport.  Land remains available and is expected to attract other users and distributors.

The Port of Charleston and SCIP are likely to bring new manufacturers and distributors, which are looking to benefit from efficient logistics and cost effectiveness, to the state.

 

Market Conditions

The industrial market in South Carolina consists of 325 million square feet of industrial space across 4,353 buildings.  The market can be thought of as four major industrial regions, the Upstate, Midlands, Low Country and I-77 corridor in the northern part of the state.

Activity in 2014 was strong among all regions with a total net absorption of almost 9 million square feet.  The South Carolina industrial vacancy rate was 8.3% at the end of the first quarter of 2015, holding steady over year-end 2014.  Transactions were limited during the quarter given the high occupancy and limited options throughout the state.  Vacancy has been on a decline in recent quarters, mirroring national conditions of tightening industrial markets and growing demand for industrial space.  Factors fueling the manufacturing renaissance include increasing wage rates in China, a stronger US economy, growth in domestic consumer spending, recovering European markets, lower energy costs and innovative manufacturing efficiencies.

Despite little change in vacancy during the first quarter of 2015, interest in the market is strong as evidenced by growing speculative and build-to-suit construction.   Speculative construction had been absent from the market for years, but picked up in 2014 with early projects mostly in the Upstate and along the I-77 corridor, but have since spread to other regions of the state.

 

 

Highlighted Speculative Developments

• Scannell Properties is set to break ground on a 155,000 square-foot speculative facility to be located off Highway 290 at Hillside Enterprise Park in Spartanburg County.  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 in Greenville County.  The $20 million project 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.
• Two Class A speculative industrial buildings, 70,000 square feet and 62,500 square feet, remain under construction at Shop Grove Industrial Park in Richland County.
• Lexington County is working with Landmark Builders to develop a 120,000 square-foot speculative industrial building in Saxe Gotha Industrial Park.
• MeadWestvaco is breaking ground in May 2015 on North Pointe Building C, a 350,760 square-foot cross dock speculative building at the North Pointe Business Campus on North Rhett Avenue in Berkeley County.
• Childress Klein and Jamestown recently completed construction on Building 4 at Crosspoint at Palmetto Commerce Park, a 273,000 square-foot, rear loaded, multi-tenant building in North Charleston.  The speculative building delivered with over 50% occupancy.  Future plans include up to 10 industrial facilities on 75 acres.
• York County recently welcomed a new 275,000 square-foot speculative building to Riverwalk Business Park.  The building is expected to be fully occupied by an existing company.
• York County plans to break ground this summer on a 40,000 square-foot speculative facility expandable to 100,000 square feet at East York Industrial Park.

 

Increasing Rental Rates

Declining vacancy and new construction are driving up rental rates around the state.  In Charleston, tenants are seeing rates as high as $4.65 per square foot (PSF) for 200,000 square feet leases in newer buildings.  Additionally, newly completed speculative buildings are seeing rates at $5.00 PSF.  Similarly, new building leases in the Upstate are being signed in the $4.35 to $5.00 PSF range.  Rates are significantly higher than they were in recent years, attributable to increasing construction costs, high demand for space and limited options.  To be feasible, new construction requires higher rental rates with longer term leases, further pushing up market rates as new buildings deliver.

 

Sales Transactions

Sales activity remains healthy throughout the market given the current low interest rates, high occupancy and top rental rates.  Conditions provide the opportunity for investors to renovate and reposition older industrial facilities, bringing new life to the buildings and attracting tenants.

• Reger Holdings expanded their South Carolina portfolio with the acquisition of three properties totaling $10.4 million.  The properties acquired were in Gaffney, Bishopville and Columbia.  1400 Atlas Road in Columbia, a 35-acre industrial complex consisting of 7 buildings with a total size of 230,000 square feet, was acquired for $4.8 million.  225 Browntown Road, a 117,000 square-foot industrial facility in Bishopville was acquired for $2.3 million.  Reger Holdings’ portfolio consists of 3.8 million square feet in 29 buildings across 13 counties in South Carolina.
• The 41,624 square-foot industrial facility at 2413 Leaphart Road in Cayce was acquired for $1 million early in 2015.  The facility has easy access to I-26, I-77 and major thoroughfares through Lexington and Richland counties.

 

Investments & Expansions

Major investments are a common occurrence throughout the market, supported by the success of major manufacturers in the region.

• A significant announcement was made by Mercedes-Benz Vans, a division of Daimler, which plans to invest $500 million in a new Sprinter van plant in Charleston.  Construction on the new plant is expected to begin in 2016.  The manufacturer is expanding its facility at 8501 Palmetto Commerce Parkway and will use the new plant to manufacture next-generation Sprinter vans to supply the North American market.
• Boeing’s new propulsion facility is open at 8795 Palmetto Commerce Parkway, where it designs, engineers and assembles parts for Boeing 737 Max and 777X.  Last 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.
• Rite Aid Corp. recently announced plans to relocate its distribution facility from Charlotte to Spartanburg County.  The $90 million investment is expected to create 600 jobs.  Rite Aid plans to start operations at the new distribution center in March 2016.
• Wire Mesh Companies, a manufacturer of high-quality welded wire products, plans to invest $13.9 million to open a new manufacturing facility in Calhoun County.  The company acquired a 143,000 square-foot facility for its new operations.
• PecTec Corp., a supplier of metal products to the automotive industry, plans to enter the market and invest $2 million in an 11,600 square-foot facility at 130 Corporate Drive in Spartanburg County.

 

Automotive and aerospace manufacturing sectors have a noteworthy footprint in South Carolina.  The presence of BMW Manufacturing, Boeing, Michelin, Bridgestone Americas Tire, among other industry leaders, has successfully attracted suppliers to the region and will likely attract more as a localization trend continues.  Both suppliers and customers benefit from locating in close proximity to one another, increasing the ease to transfer manufactured goods amongst one another while decreasing production time and transportation costs.

 

Market Outlook

The remainder of 2015 looks promising for South Carolina’s industrial market.  Rental rates will continue to climb as vacancy further declines and new industrial space delivers to the market.  Interest in the market is prolonged as the state continues to offer tax incentives, a skilled labor force, low unionization and a pro-business environment.  New speculative and build-to-suit construction is expected with the positive effect of construction beginning to show in 2016 upon the completion of several projects.  At least five build-to-suit developments, each over 200,000 square feet, are expected to break ground within the year. Tenants will likely be suppliers to the automotive and aviation sectors.  Sales will continue as long as interest rates remain low and lending conditions favorable.

 

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

 

To download the complete report: Q1 2015 SC Industrial Market Report.

 

 

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