Shortage of Quality Industrial Space Creates Demand for New Construction
Activity continued to pick up during the first half of 2013 for the industrial and flex markets in the Upstate of South Carolina. The combined markets ended the second quarter with a fifth consecutive quarter of positive absorption, absorbing over 1.4 million square feet of space and achieving the low vacancy rate of 9.0%, down 90 basis points from the first quarter vacancy rate. Despite the high occupancy and limited supply of available space, average asking rental rates declined slightly to $3.02 NNN from the first quarter average of $3.06 NNN largely due to the quality of available space. Upstate counties, which include Anderson, Cherokee, Greenville, Laurens, Pickens and Spartanburg County, all experienced positive absorption during the second quarter of 2013 with Anderson improving the most during the quarter dropping 3.3 percentage points to a vacancy rate of 4.6%.
The upstate region is continuously motivating companies to locate and expand in the area by providing a skilled labor force, growing economy and county tax incentives. Demand for space from businesses looking to locate in the region is present, however, until the end of the second quarter, new construction was still absent from the market, resulting in supply falling short of demand. Many developers are reluctant to invest in speculative construction, and banks are hesitant to lend. To be profitable, developers look for long term leases with higher than average rental rates which they fear tenants will not want to pay. Liberty Property Trust broke ground in June on a 156,000 square foot Class A speculative industrial building at Caliber Ridge Industrial Park in Greer, SC. The development is the first speculative building to develop in the area since 2008 and is anticipated to deliver during the fourth quarter of 2013. Pre-leasing is underway with A.L. Industries, Inc., a manufacturer of filters for the automotive and heavy duty industry, signing a 52,000 square foot lease at the multi-tenant building. The manufacturer plans to invest $3.6 million and create 80 jobs in Spartanburg County. Successful leasing of the newly developed building is promising to the market as it will likely spur further interest in the construction of Class A speculative buildings which will attract new manufacturers to the area yielding capital investments and promoting economic growth.
The industrial and flex market in the Upstate of South Carolina did well over the past year, ending the second quarter of 2013 at an occupancy rate of 91%, 160 basis points higher than that of a year ago. Rental rates declined slightly through the year, down 6 cents from the mid-year 2012 average of $3.08 NNN.
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