High Demand and Rising Rents to Support Speculative Construction

Market Overview

Charleston’s industrial market saw improved market fundamentals as it ended the first quarter of 2014 with decreased vacancy rates and increased activity by tenants and buyers. The total vacancy rate declined to 8.0% in the first quarter of 2014 from 8.4% in the fourth quarter of 2013. This is the fifth consecutive year that the vacancy rate has declined in the region dropping from 13.04% in 2009 to 8.4% in 2013.  Industrial expansion, strong demand for space and the lack of new speculative buildings ready for move-in resulted in a positive net absorption of 120,251 square feet during the first quarter of 2014.

Sales dominated the first quarter as they did in the fourth quarter of 2013. Demand for industrial acquisitions continued to be strong as available supply of inventory and interest rates remained low. Sales are forecasted to remain strong through year-end 2014 with buyers consisting of both users and investors.  One driver is that large, out of market manufacturers are seeking to acquire large facilities for purchase for their own use.  Currently, Charleston has such a dearth of buildings that manufacturers that prefer Charleston for operational reasons are considering alternative cities within the region to satisfy their space needs.

Two developers are making the moves to go spec with 150,000 to 275,000 square foot facilities. With extremely limited speculative construction in approximately five years, side effects such as lower vacancy rates and increasing rental rates can be seen throughout the region.  As the market continues to tighten, many tenants are having difficulty finding space to suit their needs, especially if they require more than 100,000 square feet.   While there is the potential for major leases to expire thus bringing existing warehouse space to the market, the current demand would quickly absorb any quality space that would become vacant.

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