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The largest challenge facing the Greenville/Spartanburg industrial market is the lack of quality industrial buildings. So, how did we go from the worst recession in recent memory to a shortage of available industrial space?
With the recession and the 2012 election behind us, the industrial sector has stabilized and continues to improve. Much like the rest of the country, the effects of the Great Recession were felt in the Greenville/Spartanburg market, which experienced higher-than-normal vacancy rates, lack of leasing activity and depressed rental rates.
Companies planning for expansion and growth during the recession — and that ultimately survived the tough years — have recovered to the point of near-normal business. In the past few years, these companies have been able to implement their growth plans, after being on hold for an extended period.
Many businesses experienced a delay in business growth, ultimately resulting in pent-up demand. The companies that were waiting to expand took advantage of the symptoms of a slowly recovering market, including depressed rental rates and high vacancy levels, to expand or enter the market at historically rental rates.
In conversations with prospective clients, often times I help provide clarification on the current status of the Greenville/Spartanburg industrial market. Companies either believe they will find distressed owners with a quality building who are willing to cut a below-market deal, or they are convinced there are plenty of buildings from which to choose.
This may have been true a few years ago, but the market has changed drastically. For example, a vacant 100,000-square-foot, Class A warehouse building simply does not exist in the Upstate South Carolina market. Additionally, Class A industrial facilities of any size are not available in the market.
What does this mean? 1) The Greenville/Spartanburg market will lose opportunities to attract companies to the area given the limited amount of available product and 2) some form of industrial development is imminent. So why are no buildings coming out of the ground? The answer is the difficulty in justifying the higher lease rates for new construction.
Justifying higher lease rates for speculative construction is challenging, especially because the market has seen very few lease-ups of spec buildings. Build-to-suit may be the answer to bridging the gap between lease rates for existing buildings, which have been increasing with limited availability, and justifying higher rates for new construction.
The market is likely to go in one of two directions: either growth will completely stop, which is very unlikely, if not impossible, or tenants will adapt to paying higher lease rates for new construction. Many investors who are looking to take advantage of current market conditions are evaluating or holding land positions for build-to-suit projects, while more aggressive investors are assessing sites for possible spec buildings.
The Upstate region of South Carolina is well positioned for dynamic growth in the coming years. Local and international companies with manufacturing operations in the region have continued to announce expansions and growth. This is a testament to the business climate in the Greenville/Spartanburg market, as well as other factors essential to attracting business, starting at the state level and filtering down to local agencies.
In the past few years, companies with offshore manufacturing operations have been reevaluating these locations due to logistics costs, stable labor and government and product quality. As a result, companies are considering more onshore or near-shore operations, thereby locating closer to suppliers or the end customer.
Recent announcements by the South Carolina Ports Authority and the Greenville-Spartanburg International Airport should help bolster the opportunity for continued growth in the market. More than 30 years after the ports authority purchased land in Greer, it is ready to develop the acreage into an inland port off Highway 290. The benefit will be twofold: it will help retain existing companies that utilize the port’s services and it will be an added benefit to any company anticipating the use of port services.
Additionally, the Greenville-Spartanburg International Airport has decided to begin development of some of its land holdings, which opens up enormous opportunity for further development of major companies currently in The Upstate, or the ability to attract a new significant manufacturing operation.
The market has come a long way in the past several years and has reached a critical point due to the lack of current building availability. As existing companies expand and new companies locate to Upstate South Carolina, their local suppliers will likely require expansions to support the growth of manufacturing.
As 2013 progresses, there will also likely be a combination of solutions to the lack of inventory, either through public-private partnerships, speculative construction or build-to-suit projects. The Greenville/Spartanburg market has a lot of momentum in the industrial sector, and we expect that growth will continue to strengthen.
— Grice Hunt, broker, industrial division, NAI Earle Furman