South Carolina’s Ports Are Major Drivers for the State’s Industrial Market
- The South Carolina industrial market continues to tighten with declining vacancy rates and limited options for quality, large blocks of space despite an increase in speculative construction.
- Manufacturers and distributors are investing in South Carolina and many are attributing their interest in the market to the presence of the Port of Charleston and Inland Port in Greer.
- Speculative construction is gaining momentum, but demand for space still exceeds existing supply.
- Industrial employment is on the rise in South Carolina and has surpassed pre-recession levels.
Robust Interest in the Market Contributes to Tightening Conditions
The strong momentum witnessed throughout South Carolina in 2015 has carried into 2016 and is paving the way for an active year. Approximately 2.4 million square feet of industrial space was absorbed during the first quarter of 2016 alone, almost half of the total net absorption for all of 2015. Activity is expected to continue its fast pace and exceed 2015 activity.
At the end of the first quarter of 2016, the total vacancy rate for the South Carolina industrial market was down to 7.9% from 8.3% one year ago. Despite robust leasing velocity and interest in the market, the vacancy rate remained flat over year-end 2015. The limited change in vacancy is the result of two factors. The first is the result of two large manufacturers, Bose and Knauf Insulations, vacating a combined 1.1 million square feet of industrial space during the fourth quarter of 2015. Although additional vacancy typically has adverse effects, it is actually beneficial to tight markets with limited vacancy, especially when the facilities are high quality, large buildings which are in high demand. Another factor that contributed to the flat vacancy rate was the completion of approximately 1.4 million square feet of industrial space that delivered in Charleston during the first quarter. Build-to-suit construction accounted for 657,000 square feet of the new industrial space and delivered at full occupancy. Charleston, which witnessed a very healthy quarter in terms of leasing and investments, fell victim to a misleading uptick in vacancy. Approximately 750,000 square feet of Class A, speculative industrial space was added to the existing inventory during the quarter with 500,000 square feet vacant upon delivery. The resulting first quarter 2016 vacancy rate was 6.9%, up from 5.8% at year-end 2015. A strong demand exists for industrial space in Charleston and is evident in the successful leasing of 250,000 square feet of newly delivered speculative industrial space.
Given the strong demand for space throughout South Carolina, the recently completed speculative buildings, mostly concentrated in Charleston and Greenville/Spartanburg, are expected to lease and become occupied in the upcoming quarters. Additionally, the former Bose and Knauf Insulations facilities, both located in the Midlands, provide an opportunity for significant capital investment and job creation.
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