Strong Construction Activity and Major Investments Paved the Way for a Historic Year

Colliers Research & Forecast Report

Q4-2015 CHARLESTON, SC | INDUSTRIAL

 

Key Takeaways

• The Charleston, South Carolina industrial market is the tightest it has been in years as vacancy continues to decline and rental rates increase.
• Significant investments were announced throughout the year from major automotive manufacturers that will have both direct and indirect positive effects on the industrial market and overall economy.
• Construction activity is at its highest point in recent years with several buildings delivering in 2015 and others remaining under construction.
• Activity is up at the Port of Charleston, a trend which is expected to continue upon completion of the Panama Canal expansion in 2016.
• The market is poised for continued growth and improvements in 2016.

To download the complete report: Q4 2015 Charleston Industrial Market Report.

 

Industrial Market Continues to Tighten

The Charleston, South Carolina industrial market is embracing the tightest conditions seen in recent years.  Demand for space is strong as manufacturers and distributors aim to maximize efficiency and cut operating costs.  The total vacancy rate for the market was down to 6.5% at year-end 2015 from 8.6% the previous quarter and 9.1% one year ago.  Over 1.7 million square feet of industrial space was absorbed during the year with 1 million square feet absorbed during the fourth quarter alone as a result of several lease signings, expansions, and construction deliveries.

Robust leasing activity leaves few options for quality, large blocks of space in the market.  A strong demand exists for industrial space larger than 100,000 square feet, but only a handful of spaces remain available for lease.  Speculative industrial buildings will deliver early in 2016 and alleviate some of the demand for such space.  Demand also exists for larger buildings greater than 450,000 square feet which are currently not available in the market.

Tenants are competing for space and many are reluctantly accepting renewals rather than relocations and expansions.  Rental rates range from $5.00 NNN to $5.50 NNN for new industrial space larger than 100,000 square feet while older space of similar size is leasing for $4.15 NNN to $4.25 NNN.  As rental rates for older space climb, some tenants are opting to relocate to speculative space rather than renewing existing space.

Greatest Construction Activity in Recent Years

In response to significant increases in demand for space in the market, developers are turning to speculative construction while some companies are investing in build-to-suit construction.  2015 welcomed the greatest construction activity in several years.  Some projects began in 2014 and delivered in 2015 while others remain under construction and will deliver early 2016.  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.  The number of projects far exceeds historical trends.

• 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.
• Construction completed during the third quarter of 2015 on a 278,720-square-foot, front-loaded, speculative industrial building at the Charleston Regional Business Center in the Clements Ferry submarket.
• Building 4 at Crosspoint at Palmetto Commerce Park delivered early in 2015.  The 273,000-square-foot speculative industrial building was developed by Childress Klein and Jamestown and delivered with over 50% occupancy.
• A 142,000-square-foot speculative industrial building being developed by Pattillo Industrial Real Estate will deliver early 2016 at Palmetto Commerce Park.
• Lineage Logistics’ new cold storage facility will soon deliver 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.
• Construction is almost complete on a 402,000-square-foot expansion of Fruit of the Loom’s existing warehouse.

Upon delivery of these projects, there will be virtually no new speculative projects under construction in the market.  Once all the speculative space is absorbed, the market will likely see another wave of new development.

 

Game-Changing Investments

Early in 2015, major automotive manufacturers Mercedes-Benz and Volvo announced significant investments within two months of each other.  Mercedes-Benz Vans, a division of Daimler, is investing $500 million in a new manufacturing facility in Charleston.  Volvo selected South Carolina for its first American plant and is investing $500 million in a Berkeley County plant.  The facility is under construction and will be the sole producer of the new S60 sedan.  Collectively, the investments will create 5,300 new jobs in the Charleston region over the next decade.

The presence of Mercedes-Benz and Volvo in the Charleston area has the potential to grow automotive manufacturing in the region and throughout South Carolina.  In recent years, we have seen a trend of localization in which more suppliers are locating in closer proximity to their customers, thereby reducing transportation costs and delivery time.  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.

 

 

Market is Well Positioned for Investment Opportunities

The market’s high occupancy and strong rental rates provide an ideal environment for investment opportunities.  High sales prices and low yields in core markets are motivating investors to look at secondary and tertiary markets which offer higher returns.  Sales prices in Charleston are increasing, but remain substantially below those of gateway markets.  The market’s global connectivity, high occupancy, construction activity and current low interest rates make Charleston prime for investment sales.

 

South Carolina Ports Update

Activity continues to increase at South Carolina’s Port of Charleston and Inland Port in Greer.  According to the South Carolina Ports Authority, the Port of Charleston handled 153,594 twenty-foot equivalent units (TEUs) in November 2015, a 6.5% increase over November 2014.  The port handled 1,828,484 TEUs from January to November 2015, a 10.8% increase over the same period the previous year.  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.

 

Industrial Employment

Industrial employment, which consists of manufacturing and wholesale trade employment sectors, accounts for 10.0% of the Charleston-North Charleston, SC metropolitan statistical area’s total non-agricultural employment.  Employment in the sectors is on the rise, gaining 4,400 jobs from November 2010 to November 2015 according to the Bureau of Labor Statistics.  Industrial employment will continue to increase as manufacturers and distributors establish facilities and expand in the region.

 

2016 Outlook

The industrial market is poised for further improvement and strengthening in 2016 as interest remains strong and tight market conditions are maintained.  Speculative construction will likely make a reappearance in the second half of the year once recently delivered space becomes absorbed.  Investment sales activity will be solid as investors take advantage of high occupancy and low interest rates.  Build-to-suit construction will remain popular as available inventory falls short of demand and is smaller than the building sizes demanded.  Rental rates will continue to increase as vacancy declines and construction costs increase.

 

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

• Bose recently vacated its manufacturing plant in Northeast Columbia.  The 470,000 square-foot, Class A manufacturing facility is located on 104 acres and is expandable to one million square feet.  The facility has the potential to generate substantial capital investment and job growth for the region.
• Knauf Insulations recently vacated approximately 680,000 square feet of industrial space at One Guardian Way in Fairfield County.
• Lexington County and Landmark Builders recently completed construction  on a 120,000-square-foot speculative industrial building in Saxe Gotha Industrial Park.

 

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 publicly funded developments.

• 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

 

 

To download the complete report: Q4 2015 Charleston Industrial Market Report.

 

 

.