Welcoming the First Wave of Speculative Construction

COLUMBIA, SC – Colliers International, South Carolina – Q4-2014 Columbia Industrial Market Report

MARKET OVERVIEW

The Columbia, SC industrial market ended a significant year with a downward trending vacancy rate, increasing rental rates, sales transactions and new speculative construction.  2014 ended with a total vacancy rate of 5.95%, down from the third quarter 2014 vacancy rate of 6.29% and year-end 2013 vacancy rate of 7.28%.  The Northeast Columbia submarket, with a fourth quarter 2014 vacancy rate of 13.13%, remains home to the greatest amount of quality large blocks on contiguous industrial space despite showing the great improvement over the year.  Each quarter this year was accompanied by positive absorption and a declining vacancy rate bringing the total net absorption for 2014 to just over 1 million square feet.  With just 6 buildings offering over 100,000 square feet of industrial space for lease, a demand for new supply is apparent.

In an effort to meet the demand for new speculative industrial space, several projects are under construction and planned for the market for the first time since 2008.  Earlier this year, the first speculative industrial building delivered, 100% pre-leased to Trane USA.  The 38,500 square foot industrial building was the first of three buildings to be developed by Boyd Development.  Two buildings, 70,000 square feet and 62,500 square feet, remain under construction at Shop Grove Industrial Park.  Party Reflections recently pre-leased 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 during the third quarter of 2014.

Additionally, Lexington County is working with Landmark Builders to develop at 120,000 square foot speculative industrial building in Saxe Gotha Industrial Park.  Successful pre-leasing of the buildings is likely to spur further speculative development as the market vacancy rate continues to decline.  A challenge oftentimes faced is the gap in current rental rates and those required for new construction.  As rental rates increase as a result of diminishing supply, the gap will shrink making speculative and build-to-suit construction feasible options for investors and owners.

 

2014 – YEAR IN REVIEW

2014 welcomed the first speculative construction projects the market has seen in years, motivated investors to purchase several industrial buildings and saw new companies entering the market.

• Property sales were healthy as Reger Holdings acquired several buildings throughout the year.  During the first quarter, the company purchased a 174,000 square foot building on 11.85 acres at 3130 Bluff Road in the Southeast Columbia submarket during the first quarter.  Reger Holdings increased their South Carolina portfolio during the second quarter with the purchase of industrial buildings in Lugoff, Sumter and Greenville.  Later in the year, Reger Holdings acquired a 122,100 square foot facility located at 2050 American Italian Way from Del Monte Foods which was subsequently leased by Avantech Inc. to accommodate a major expansion for the Columbia-based company. Reger also acquired a 264,000 square foot Class A manufacturing building at 375 Metropolitan Drive in the CAE Enterprise Industrial Park from Pella Corporation, a 122,000 square foot building at 209 Flintlake Road in Richland County from H.T. Hackney Co and a vacant 453,000 square foot facility in Aiken that has been partially leased to RBW Logistics.
• Johnston Development completed a 450,000 SF Class Distribution Center for Mars Pet Food and the facility went into full operation in the first quarter of 2014 .
• Construction on Nephron Pharmaceuticals, which broke ground in March 2012, completed in June 2014.  The 408,000 square foot plant is located on a 60 acre complex next to Amazon’s Fulfillment Center in Saxe Gotha Industrial Park in the Cayce/West Columbia submarket.
• Interstate Container expanded its West Columbia operations during the second quarter to a total of 163,250 square feet at 3601 Sunset Boulevard, the site of former Dillard’s distribution center.
• JTEKT Corp. completed a $130 million expansion of its Blythewood manufacturing facility during the third quarter.  The manufacturer expanded its facility by 250,000 square feet, doubling its size to more than 500,000 square feet.

 

IN THE MONTHS AHEAD

The vacancy rate should continue to decline and landlords should be able to continue a moderate gain in lease rates.   Any substantial industrial speculative development will depend on the success of the 120,000 SF spec building currently under construction at Saxe-Gotha Industrial Park.  The rural market will continue to be positively affected by manufacturing growth.  Also, service providers and suppliers to manufacturers will continue expanding in all market segments throughout South Carolina. Sales activity will remain strong as long as interest rates remain attractive to users and investors in 2015. There is a large appetite for industrial investment properties throughout South Carolina as the state continues to get many accolades for its business friendly government, capable labor force and quality of life.

 

ECONOMIC UPDATE – COLUMBIA, SC

The unemployment rate in Columbia, SC was 5.9% in November 2014, holding steady over the previous year.  The South Carolina unemployment rate was 6.7% in November 2014. Charleston and Greenville MSAs had unemployment rates of 5.6% and 5.4%, respectively.

Manufacturing employment in Columbia, SC was up to 29,400 jobs in November 2014, gaining 2,000 jobs over the year. South Carolina reported 235,900 manufacturing jobs in November 2014. Charleston and Greenville employed 25,100 and 42,900 people, respectively, in manufacturing jobs.

 

AROUND THE STATE

Quality industrial space is becoming increasingly scarce throughout South Carolina motivating speculative construction to begin throughout the state.

 

CHARLESTON, SOUTH CAROLINA 

• Jamestown and Childress Klein broke ground on a 274,000 square foot Class A speculative industrial building at Crosspoint at Palmetto Commerce Park, which is expected to deliver by mid-year 2015. Childress Klein recently pre-leased space, leaving only 130,000 square feet available for lease.
• Additionally, Pattillo Industrial Real Estate began clearing a site at Palmetto Commerce Park, which will be home to a new 142,000 square foot speculative industrial building that will be expandable to 400,000 square feet.

 

GREENVILLE, SOUTH CAROLINA 

The greatest amount of speculative construction projects are in the Upstate of South Carolina.

• Logue Park recently delivered a 90,000 square foot Class A industrial building in Greenville County with another 110,000 square foot planned for the park.
• Two speculative industrial buildings are under construction at White Horse Industrial Center.  The buildings will be 306,000 square feet and 234,000 square feet and are expected to deliver in 2015.

 

FOR MORE STATEWIDE COMMERCIAL REAL ESTATE NEWS CHECK OUT OUR MARKET REPORTS HERE.

 

To download the complete report click the link: Q4:2014 Columbia Industrial Market Report.