Landlords Continue to Push Rates While Absorption Slows

Key Takeaways

  • Average Industrial Rental Rate for Q1 2016 was $5.14 PSF for Warehouse
  • Net Absorption for Q1 2016 was 545,683 SF for Mecklenburg County
  • The South Submarket Made Up the Largest Portion of Absorption with 492,895 SF
  • The Largest Transactions in Q1 2016 Included: Domtar Leasing 210,000 SF, Frito Lay Leasing 115,000 SF and Pilot Freight Leasing 100,800 SF

Market Conditions

The Charlotte Regional industrial market remains strong with landlords continuing to push rates higher with an average rental rate of $5.14 per square foot. Net absorption for Mecklenburg County during the quarter was negative 545,683 SF. This compares to fourth quarter of 2015, which had a positive absorption of 268,510 SF. The South submarket made up the largest percentage of the negative absorption with 492,895 SF. Newly constructed buildings that became available in Q1 2016 consisted of Gateway II, Ridge Creek West and Shopton Ridge’s newest building. The absorption for the Charlotte region, including Cabarrus and York Counties was a positive 119,408 SF. The larger deals in the first quarter were Domtar leasing 210,000 SF, Frito Lay leasing 115,000 SF and Pilot Freight leasing 100,800 SF in Southwest submarket. The first quarter vacancy rate was 6.90%, compared to 6.40% in the prior quarter. The average industrial rental rate was $5.14 per square foot, which increased 7.5% from the previous quarter’s rate of $4.78 per square foot.

Industrial demand throughout the area remains strong. The common theme in the market is the lack of supply of buildings in the 20,000 to 50,000 square feet range and lack of outside storage / trailer parking. One developer is in the planning stage for stand-alone buildings in the South submarket which could absorb the demand for the smaller single-tenant buildings. The larger bulk warehouses in the 100,000 square feet range and greater have been slower to absorb.