Speculative development continues to find success in the Lowcountry as the industrial market expands, CBRE reported in its first-quarter market report.
A 273,000-square-foot speculative building was delivered during the first quarter, and an additional 3.8 million square feet are under construction in the region, according to the firm.
“With more Class A construction expected to deliver in the next several quarters, asking rates are expected to continue their ascent,” CBRE said.
The North Charleston, Ladson and Interstate 26 submarkets continue to be a hotbed for industrial activity, attracting more than 300,000 square feet of speculative space under construction in the area.
“Fueled by port-related activity and expansion in petroleum, automotive and aerospace sectors, speculative space is being leased at a rapid pace,” CBRE said. “Indicative of this trend, the 273,000-square-foot Crosspoint 5 building (in Palmetto Commerce Park) achieved 75% occupancy upon delivery.”
Avison Young also reported a rise in speculative building, particularly from institutional investors entering the market.
The firm reported that Chicago-based Clarius Partners has a roughly 570,000-square-foot speculative building under construction in Summerville and an additional 100 acres that came under contract in the first quarter. Additionally, it said Samet Corp., which has an office in Charleston, is expected to break ground this year on a 100,000-square-foot speculative distribution facility, expandable to 200,000 square feet, in the region.
Dorchester County also stepped into the speculative construction market with its 100,000-square-foot facility that is under construction at Winding Woods Industrial Park in St. George.
“The demand has continued to be strong for the Charleston region, despite the fact that there is little to no quality inventory for smaller users or requirements in the 10,000- to 40,000-square-foot sizes,” Avison said. “This size requirement is just now receiving the attention it should have had two years ago.”
Demand rising for industrial space
Manufacturing companies, automotive suppliers and port-related businesses are driving much of the Lowcountry’s industrial activity, according to several commercial real estate firms.
Vacancy rates are declining while average asking rental rates are climbing for Class A industrial space, Cushman & Wakefield Thalhimer’s first-quarter industrial report said.
Most of the leasing transactions during the first quarter were for midsize projects ranging from 30,000 to 80,000 square feet. Looking ahead, more than 2 million square feet of speculative space is coming to the market, Cushman said.
“Interest in the region will remain strong and market conditions should strengthen,” Cushman reported for the year ahead. “In addition, investment sales will continue to be strong as investors take into consideration higher occupancy and low interest rates in the open market. Rental rates should increase as vacancy rates drop and the costs of construction increase.”
Colliers International – Charleston said the region’s industrial market also needs larger warehouse and distribution facilities between 200,000 and 700,000 square feet.
Six buildings totaling 292,000 square feet were completed in the Charleston-North Charleston area in the first quarter, compared with four buildings totaling 504,000 square feet that were completed in the fourth quarter of 2016, Newmark Grubb Wilson Kibler reported in its first-quarter industrial report.
“Despite reporting lower numbers, there were still 6.8 million square feet of industrial space under construction at the end of first quarter 2017, so expect to see a healthy number of deliveries in the coming year,” Newmark said.
Continued industrial leasing activity, speculative construction and developer interest will continue to drive up rental rates and the demand for Class A facilities in the Charleston region, the reports said.
“The past success of speculative development proves that Charleston is in a strong place to absorb new construction and produce high returns for investors,” CBRE said. “With several large tracts of land in the market ready for new development, Charleston is well-positioned to meet the needs of a rapidly growing industrial market.”
Lowcountry industrial market update
56.8 million square feet
52.3 million square feet
Colliers International – Charleston*
35.5 million square feet
Cushman & Wakefield - Thalhimer
63.9 million square feet
Lee & Associates - Charleston
64.7 million square feet
Newmark Grubb Wilson Kibler
72.3 million square feet
*Data from a fourth-quarter report, the most recent available.
Source: First-quarter market reports
This story originally appeared in the June 12, 2017, print edition of the Charleston Regional Business Journal.