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Charlotte’s Industrial Market Rides Wave of Absorption, Development

Anne Johnson, CBRE

Anne Johnson, CBRE

The Charlotte industrial market is extremely well-regarded by most national investors, with consistent rent growth, strong occupancy and increasing values. The fourth quarter of 2014 revealed the third-highest annual net absorption ever recorded in the Charlotte industrial market, continuing a pattern of growth that began in the fourth quarter of 2010.

This continued recovery can be directly attributed to a combination of restrained development, expansions by existing space users, an influx of new companies and increased economic stability.

Due primarily to geographic constraints and a high demand for land by all types of developers, there is a limited supply of large tracts suitable for industrial developments, which protects the value of existing properties.

Air Support
Industrial tenants are drawn to Charlotte for its strategic location along I-85 between Atlanta and the Mid-Atlantic states, as well as proximity to the Carolinas, southern Virginia and eastern Tennessee. Quality buildings are available at competitive prices in the region. Charlotte Douglas International Airport (CLT) continues to be a significant economic development driver, and Charlotte’s distribution network will be further enhanced by Norfolk Southern’s intermodal terminal recently completed on 230 acres adjacent to CLT. The terminal will include two loading tracks totaling 9,056 feet, eight yard tracks that are each 3,000 feet, and 1,331 trailer parking spots.In early 2014, CLT executives presented a 20-year expansion plan. The top priorities include a fourth parallel runway to speed air traffic, expanded and renovated concourses and a makeover of the main terminal and entrance. The plan also includes a site for a fifth runway on the city-owned airport property. This rail and air transportation expansion is expected to increase overall demand for warehouse space and further enhance Charlotte’s transportation infrastructure.

E-Commerce, Logistics
In addition to the strategic location, tenants benefit from Charlotte’s pro-business environment and significant population growth, leading to an increased demand for consumer goods. Many retailers with e-commerce companies are expanding their operations within the Charlotte area to accommodate the demand.

As consumers have grown accustomed to having faster access to goods and products, retailers and e-commerce firms have begun to change their distribution patterns, which has increased demand in the Charlotte market. In the past, many large companies would operate a giant regional warehouse in Atlanta or in the Northeast. Today, to ensure the products will be within closer proximity to the consumers, that regional warehouse is now smaller and the same company has a hub to service the Carolinas, most often in the Charlotte region. Simultaneously, prices for materials are increasing, which increase lease rates and sale prices. This catches the eye of investors, causing values to increase significantly.

Breaking Ground
The upward momentum on all fronts led to the development of more than 2 million square feet of new space in 2014. Another 1.5 million square feet will be delivered by mid-2015. Childress Klein recently completed two large buildings, at Afton Ridge in Concord and at Ridge Creek West in southwest Charlotte. Beacon Partners recently completed buildings at InnerLoop North in North Charlotte and another building at River Walk in Rock Hill, S.C., a suburb of Charlotte. Additionally, The Silverman Group and Trinity Partners both recently completed large buildings in Concord.

Michelin consolidated and expanded its aviation tire operations into a 346,545-square-foot warehouse, which will serve as its primary North American distribution center. Over the last 24 months, Ross Stores Inc. has expanded into additional warehouse space totaling over 1.5 million square feet. In 2014, Exel completed a new 1 million-square-foot distribution center for Energizer Holdings (Energizer Batteries, Hawaiian Tropic, Playtex, Schick), and leased an additional 300,000 square feet in early 2015. In recent months, McKesson and FedEx SmartPost completed large build-to-suit projects, while Ashley Furniture recently broke ground on a new regional headquarters and distribution center.

Given the amount of bulk space development, we anticipate that the next wave of development will be smaller, more traditional multi-tenant warehouse space. Liberty Property Trust’s Shopton Ridge, SunLife’s AirPark West, EastGroup’s Steele Creek Commerce and Exeter’s Gateway are all underway. Due to the scarcity of large tracts within the Charlotte city limits, most bulk space is being built immediately outside the city in Concord, which offers excellent access to I-85, or in South Carolina’s York County, where there are aggressive tax incentives.

Sales activity for most types of properties (single-tenants new leased, multi-tenant warehouse, office/warehouse and office/flex) has been extremely strong.

Institutional owners and large private investors are buying a majority of the assets, and many groups that already own assets in Charlotte are adding to their portfolios. Some of the most active buyers have been NewYorkLife/LRC, Exeter, Beacon, Invesco and Hartz Mountain.

Over the past several years, there have been numerous announcements of international companies opening or moving their U.S. headquarters operations to Charlotte — a testament of the area’s desirability to the national and international business community. Charlotte is in a great place to continue the momentum.

— By Anne Johnson, Senior Vice President, CBRE. This article originally appeared in the June 2015 issue of Southeast Real Estate Business.

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