Significant Year of Investments and Speculative Construction
The Greenville/Spartanburg industrial market ended a year full of significant sales and leasing activity, new speculative construction and noteworthy capital investments. Sales activity was robust as investors and occupiers took advantage of low interest rates and rising rental rates. The total vacancy rate for the industrial and flex space in the overall market was down to 7.1% at year-end 2014 from 7.7% the previous year. Over 1.5 million square feet of industrial and flex space were absorbed during the fourth quarter of 2014 bringing the total net absorption for the year to approximately 2.9 million square feet. Strong leasing volume along with several buildings delivering to the market fully occupied attributed to the large positive absorption.
Speculative construction, which was absent from the market for years, gained momentum throughout the year with several buildings delivering, others under construction, and more planned for 2015. Over recent years, the Greenville market underwent significant growth and attracted new manufacturers to the region growing the demand for industrial space, which has been rapidly diminishing in supply. This growing demand for industrial space along with a downward trending vacancy rate motived new construction, both build-to-suit and speculative, throughout the market. While new construction requires higher rental rates and longer lease terms due to rising construction and labor costs, increasing market rental rates are making new construction a feasible option.
Earlier this year, a 156,000 square foot Class A speculative building delivered at Caliber Ridge Industrial Park in Greer, SC. The building was developed by Liberty Property Trust and is 100% occupied. Most recently, a speculative building delivered at 25 Logue Court. The building offers up to 90,000 square feet and is expected to lease quickly. Several buildings remain under construction including two buildings at Caliber Ridge Industrial Park and two buildings at White Horse Industrial Center, all of which are scheduled to deliver in 2015. Upon completion, the buildings will add over 850,000 square feet of Class A industrial space to the market inventory. The added supply will help attract prospective tenants and give existing tenants options to grow; however, further construction is needed for continued market growth as demand far exceeds supply.
Speculative industrial buildings are successfully pre-leasing and attracting tenants to the market, which offers efficient logistics, a talented workforce and a thriving economy. According to the Upstate SC Alliance, 57 companies invested over $3.8 billion in new investments and expansions throughout 2014 in the Upstate region. The investments are more than three times those of 2013, which totaled $1.1 billion. Of the 2014 investments, the largest came from Toray Industries Inc. and BMW Manufacturing Co., both international companies, which announced investments of $1 billion each. Over $13.2 billion have been invested in the Upstate since 2007, 28% of the total was invested in 2014 alone. Capital investments from both foreign and domestic companies are expected to continue, bringing job growth and economic development to the region.
The overall vacancy rate for industrial space in the Greenville/Spartanburg market was down to 7.0% at the end of 2014 from 7.5% at the end of the third quarter of 2014 and 7.6% at year-end 2013. The Anderson, Greenville and Spartanburg industrial vacancy rates were 4.5%, 7.4% and 6.4%, respectively. Asking rates averaged $3.05 NNN for the market, up from the third quarter 2014 and year-end 2013 average rates of $2.91 NNN and $2.83 NNN, respectively. The highest rental rates were found in Greenville County, where rents averaged $3.19 NNN at year-end 2014, up from $3.00 the previous year. Limited supply, coupled with the delivery of new industrial buildings, is driving rental rates upwards, a trend which is anticipated to continue into 2015.
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