South Carolina is Well-Positioned for Supply Chain Optimization and Logistics Efficiencies
November 16, 2015
Colliers International | South Carolina
Research & Forecast Report
South Carolina | Industrial
Q3 2015
Key Takeaways
- South Carolina’s tight industrial market will continue to strengthen as companies look for ways to improve their supply chains and productivity.
- Area Development Magazine ranked South Carolina the No. 3 State for Doing Business in 2015.
Rail service regains popularity.- Activity is strong at the Port of Charleston and South Carolina Inland Port.
- Rental rates are on the rise as construction costs increase and demand for space remains strong.
To download the complete report: Q3 2015 SC Industrial Market Report.
Accessibility is Key in Today’s Site Selection Process
South Carolina’s industrial market was traditionally driven by low real estate costs and the availability of skilled labor at affordable costs. In today’s transforming industrial market, manufacturers and distributors are attracted to South Carolina for its accessibility to and from other markets at a time when real estate costs are increasing. The trend is supported by recent site selection surveys by Area Development Magazine, which identified the top three site selection factors as highway accessibility, availability of skilled labor and labor costs. Transportation costs are making up a growing portion of operating expenses, and thus highway accessibility is outweighing real estate costs in site selection, specifically for distribution centers. Efficient logistics and supply chain optimization are growing increasingly important as firms look for ways to cut operating costs.
Area Development Magazine recently named South Carolina the No. 3 State for Doing Business in 2015, behind Georgia and Texas, which ranked first and second, respectively. South Carolina has ranked in the top three spots since 2012 when it ranked second place. The 2015 ranking was awarded due to South Carolina’s overall business environment and labor climate. According to the magazine, states that consistently rank at the top for business performance feature an attractive business environment and labor pool with quality infrastructure allowing for global access, all of which are among the top site selection factors.
Highway Accessibility
South Carolina’s highway accessibility allows distributors of consumer products to reduce delivery time to customers while enabling suppliers in the state’s various automotive and aviation supply chains to distribute goods to their customers in an efficient and timely manner.
- I-95 runs through the Midlands and southern region of the state, connecting Florence to Richmond, VA, Washington, D.C., New York City, NY and Boston, MA.
- The I-85 corridor connects the Upstate to major Southeastern markets as far as Montgomery, AL and directly reaches markets as north as Richmond, VA.
- I-77 connects Columbia to Charlotte, NC, passing through the growing industrial clusters in Rock Hill, SC along the way, and extends as far north as West Virginia.
- I-20 runs through the Midlands and extends west as far as Texas, passing through major markets such as Atlanta and Dallas and connects to I-95 in Florence.
- I-26 connects the Upstate, Midlands and Lowcountry allowing direct access from the Port of Charleston to the South Carolina Inland Port in Greer.
Availability of Skilled Labor & Labor Costs
South Carolina is home to one of the top-recognized state-run workforce training programs in the country. ReadySC, a division of the South Carolina Technical College System, recruits and provides the required training to meet the skills demanded by a company. The program trained nearly 4,700 individuals and served 92 companies in the 2014-2015 fiscal year.
Industrial employment, consisting of manufacturing and wholesale trade employment, is on the rise in South Carolina and makes up approximately 15.0% of total non-agricultural employment. Approximately 1,100 industrial jobs were added to the statewide labor force from September 2014 to September 2015. The Upstate is home to 36.1% of South Carolina’s industrial labor force. The Columbia and Charleston-North Charleston metropolitan statistical areas account for 15.3% and 11.2% of statewide industrial employment, respectively.
As labor costs continue to be among the top contributors of operating expenses, low labor costs are attractive for companies looking for new locations. A right-to-work status and low cost of living enable affordable labor costs in South Carolina. According to the Bureau of Labor Statistics, the median annual wage for all occupations in South Carolina was $30,660 in May 2014, below the national median annual wage of $35,540.
South Carolina Ports
South Carolina’s ports, the Port of Charleston and Inland Port in Greer, connect the state to both domestic and global markets. Activity at both ports is strong and expected to increase with the growing manufacturing and distribution industries throughout the state.
Port of Charleston
The Port of Charleston handled 167,549 twenty-foot equivalent units (TEUs) in September 2015, an increase of 11.1% over September 2014 and a 57.7% increase over September 2010. The port handled approximately 1.9 million TEUs during the 2015 fiscal year, an increase of 14% over the 2014 fiscal year. Port tonnage is expected to continue along its upwards trend. The 52-foot Charleston Harbor Deepening Project recently received final approval. The project involves deepening the Charleston Harbor channel to 52 feet and entrance channel to 54 feet as well as enlarging turning basins to accommodate post-Panamax vessels. Additionally, expansion at BMW in Greer, SC and future automotive production from Volvo and Mercedes-Benz Vans in Charleston will increase the number of vehicles handled at the port.
The cold storage industry, which is vital to the food and pharmaceutical sectors, is gaining popularity. To accommodate the growth in refrigerated cargo, the Ports Authority is investing $16.9 million and expanding its refrigerated cargo capacity by adding additional electric receptacles. The receptacles allow shippers to plug in refrigerated cargo boxes while waiting for transport to warehouses. Several cold storage facilities have been attracted to Charleston over the past year. Lineage Logistics’ new cold storage facility is nearing completion at Palmetto Commerce Parkway in North Charleston and is expected to increase exports at the port.
South Carolina Inland Port
The South Carolina Inland Port (SCIP) in Greer, which opened in October 2013, expands the Port of Charleston’s reach by 212 miles allowing access to more than 95 million consumers within a one-day drive. SCIP reported 7,214 rail moves in September 2015 for a total fiscal year-to-date volume of 22,103 moves. Activity at SCIP is exceeding expectations and will likely come close to the five-year goal of 100,000 lifts per year within just two years of beginning operations. The port has the capacity to handle 120,000 lifts, but plans are already underway to expand capacity to 200,000 lifts per year.
Rail Service Regains Popularity
Rail service has been gaining popularity across the United States and rail traffic volume is approaching pre-recession levels. South Carolina is serviced by two Class I railroads, CSX and Norfolk Southern. Norfolk Southern rail services the South Carolina Inland Port in Greer, SC offering direct routes for both imports and exports. Distributors and manufacturers have been showing greater demand for efficient, modern rail-serviced sites and facilities with excess land for storage and staging. The Association of American Railroads (AAR) reported year-over-year increases for 18 of the 20 commodity categories tracked in 2014.
Vacancy Continues to Decline. Rental Rates Climb.
South Carolina’s industrial market is strengthening as the state continues to make a name for itself in the automotive, aviation and consumer product industries. Companies are recognizing the benefits of the state’s prime location as well as its pro-business environment and skilled labor force. The vacancy rate for South Carolina’s industrial market, which consists of the Upstate, Midlands, Lowcountry and I-77 corridor, was down to 7.8% at the end of the third quarter of 2015. The vacancy rate is down from 8.5% at mid-year 2015 and 8.9% one year ago. Approximately 2.7 million square feet of industrial space was absorbed during the quarter, indicating robust leasing velocity. The greatest activity was experienced in the Upstate and Midlands regions which absorbed approximately 1.0 million square feet and 956,000 square feet, respectively. The Lowcountry is home to the tightest industrial market with a vacancy rate of 7.5% at the end of the third quarter.
Demand for industrial space is strong throughout the state with significant interest in manufacturing and warehouse space larger than 100,000 square feet. These large blocks of quality space remain in limited supply throughout the market. The Midlands region will soon offer two large blocks of Class A industrial space for lease, adding more than 1 million square feet to the available inventory. The region will experience an uptick in vacancy during the fourth quarter as the buildings are vacated. Bose will vacate its 470,000 square-foot manufacturing facility in Richland County. The plant is located on 104 acres in the Northeast Columbia submarket and is expandable to 1 million square feet. Knauf Insulations will soon vacate its approximately 680,000 square-foot facility in Fairfield County. The two buildings have the potential to attract major manufacturers, which could generate substantial capital investment and job growth.
Tight market conditions are being reflected in increasing rental rates throughout South Carolina. Strong demand for space and limited options allow landlords to raise rental rates for existing space. Increasing construction costs are driving higher rates for new industrial space. Desire to locate in the market is strong enough to support these historically-high rental rates. Rental rates in the Lowcountry range from $5.00 PSF NNN to $5.50 PSF NNN for new industrial space larger than 100,000 square feet. Older space of similar size is leasing for $4.15 PSF NNN to $4.25 PSF NNN in the region. Rental rates in the Midlands are also rising with existing space in the 10,000 to 40,000 square-foot size range seeing rates between $4.00 PSF NNN and $4.50 PSF NNN. Larger blocks of space over 200,000 square feet are leasing for over $4.00 PSF NNN depending on the quality of the space. Rental rates are expected to increase further as space is absorbed and construction costs increase.
Speculative Construction Update
Speculative construction is gaining momentum, but is largely concentrated in the Upstate and Lowcountry regions. The Upstate is home to the greatest amount of speculative industrial developments with approximately 1 million square feet under construction. The buildings have been receiving significant attention and pre-leasing successfully.
Under Construction
- Hillside Enterprise Park
Spartanburg County | Scannell Properties | 155,000 SF
- Logue Park
Greenville County | Cothran Properties
Building 1: 110,000 SF
Building 2 (Complete): 90,000 SF | 100% leased by Silvercote
- 545 Brookshire Road
Spartanburg County | Beacon Partners | 240,020 SF
- Flatwood Industrial Park
Spartanburg County | Johnson Development Associates | 363,000 SF
- Wingo Park
Spartanburg County | Becknell Industrial | 175,000 SF
- Lexington County Spec Building
Lexington County | Lexington County | 120,000 SF
- North Pointe Building I
Berkeley County | WestRock & SunCap Property Group | 350,856 SF
- Palmetto Commerce Park
Charleston County | Pattillo Industrial Real Estate | 142,000 SF
- Carolina Place
York County | Beacon Partners | 277,000 SF
Recently Completed
- Caliber Ridge Industrial Park
Spartanburg County | Liberty Property Trust
130 Caliber Ridge Drive: 156,000 SF
120 Caliber Ridge Drive: 156,000 SF
- Southchase One
Greenville County | Pattillo Industrial Real Estate | 205,000 SF
- White Horse Industrial Center
Greenville County | Brunham Partners LLC & Exeter Property Group | 306,000 SF
- Shop Grove Industrial Park
Richland County | Boyd Properties
121 Shop Grove: 60,300 SF
196 Shop Grove: 70,200 SF
- Building 4 at Charleston Regional Business Center
Berkeley County | Childress Klein & Amstar | 279,000 SF
Investments & Expansions
- Continental Tire recently broke ground on its Sumter Plant expansion, which is expected to double the plant’s annual production capacity and create 900 jobs. Approximately 720,000 square feet will be added to the plant, which is currently 1 million square feet.
- China-based Haier plans to invest $72 million to expand its Camden plant in Kershaw County. The manufacturer plans to build a new 250,000 square-foot distribution addition to its existing 365,000 square-foot facility. The company plans to create 410 new jobs over the next 5 years and expects to be operational by mid-year 2018.
- Honda of South Carolina Manufacturing Inc. recently announced plans to expand its Florence County operations. The $42 million expansion is expected to create 44 new jobs.
- Construction is nearing completion at Gerber Childrenswear’s new distribution center in Berkeley County. The 477,000 square-foot facility is being developed at Foreign Trade Zone, a joint-venture of The Rockefeller Group and WestRock Land Development.
- Dollar Tree announced plans earlier this year to invest $104.4 million in a new 1.5 million square-foot distribution center to be built at the Cherokee and Spartanburg counties border in Upstate Corportae park.
- ZF Transmissions, global supplier of driveline and chassis technology, is expanding its transmission manufacturing plant in Laurens County. The company is investing $22.5 million and creating 545 new jobs to expand its manufacturing capacity. The manufacturer and supplier acquired an existing 150,000 square-foot facility to house its manufacturing and warehousing operations, which will be operational early in 2016.
- Draxlmaier, a top automotive supplier, is expanding its existing Spartanburg County plant, investing more than $35 million and creating 94 new jobs over the next five years. The supplier is constructing a new 184,000 square-foot production and logistics facility.
- Mitsubishi Polyster Film Inc. plans to invest $100 million to expand its Greer, SC manufacturing facility in Greenville County.
Market Outlook
The remainder of 2015 and into 2016 will bring continued improvement and growth to South Carolina’s industrial market. Construction activity will pick up throughout the state as demand remains strong and quality space is absorbed. Increasing rental rates indicate a healthy market in which tenants are willing to pay the higher rents required for new construction. Activity at the Port of Charleston and Inland Port will remain strong as manufacturing output grows and cold storage facilities increase their presence in the region. South Carolina will continue to attract new manufacturers and distributors as companies look for ways to improve their supply chains and logistics. Companies will benefit from the presence of the ports, highway accessibility and skilled labor force.
For more statewide commercial real estate news check out our market reports at: www.colliers.com/southcarolina/insights
To download the complete report: Q3 2015 SC Industrial Market Report.
