Flex Space in Short Supply
- A shortage of flex space in the market highlights the need for new construction.
- The Cowpens submarket has room to grow.
Shortage of Quality Flex Space
The Greenville-Spartanburg-Anderson industrial market is home to nearly 4.1 million square feet of flex space. Flex buildings, as defined by the National Association for Industrial and Office Parks, are a subtype of industrial buildings designed to be used in a variety of ways, with office space comprising 30 percent or more of the total building. Flex buildings are usually located in industrial park settings and can include service centers, showrooms, offices and warehouses. As occupancy for flex space continues to increase, the quality of the buildings remaining continues to diminish, creating a need for new, quality spaces in the market.
The annual absorption for flex space between the first quarter of 2017 and first quarter of 2016 was more than 387,497 square feet in the Greenville-Spartanburg-Anderson market. This has significantly impacted the vacancy rate for flex space, which was 8.56% at the end of the first quarter of 2017, down from 11.24% a year ago. Most remaining flex availabilities are in buildings ten years or older, of lower quality and not in desirable industrial areas. Demand for these spaces has driven the average rental rate in the market up 20.4% over the last two years to $8.80 triple net per square foot per year (NNN PSF/YR).
Flex users are generally distribution, industrial and business services providers or companies assembling products. It is important for these types of tenants to be centrally located, to reach their clients quickly and efficiently, as it is for large industrial users. This means developers looking to build flex buildings are often competing with industrial developers, making it difficult to secure land for the project. Additionally, industrial buildings, although larger projects, are often cheaper to build than comparable flex buildings due to the addition of office space. Although the occupancy rate for flex space is at an all-time high, the rental rates in the market are not high enough to offset the increasing land and construction costs.
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