Charlotte has been in expansion mode for several years, due to population growth, excellent logistics infrastructure, low operating costs and low unionization rates. At the mid-point of 2019, the market continues to expand at a healthy rate and is growing outward into Cabarrus, York and Gaston counties.
This expansion follows a strong 12-month period ending first-quarter 2019 when nearly 6 million square feet of new product was delivered. Now encompassing 322 million square feet of space, Charlotte is the second largest industrial market in the Southeast.
Charlotte’s accessible location and low cost of doing business is attracting many e-commerce and logistics providers, as well as more traditional industrial businesses looking to expand or realign their space requirements. One common theme is consolidation of business units, which has been a significant benefit to the Charlotte market.
Chris Skibinski, Avison Young
Among the examples are J.J. Haines & Co. consolidating its Carolina warehousing operations from several Carolinas locations into a 500,000-square-foot distribution center in Cabarrus County and Staples consolidating from multiple Charlotte facilities into a 600,000-square-foot logistics center in south Charlotte.
Driven by available land and access to key transportation routes, a look at the market’s growth patterns shows that development and leasing are extending up Interstate 85 into Cabarrus County, down Interstate 77 into York County and along I-85 at Charlotte Douglas Airport and toward Gaston County.
York and Cabarrus counties led the market in 12-month net absorption with 1 million square feet and 1.3 million square feet absorbed, respectively. From a new construction standpoint, the Airport/West submarket is set to deliver 2.7 million square feet, which is equal to the activity seen in the last five years combined. This is due to the availability of land and a dearth of previous deliveries.
Most of the Airport product is quasi-small bay and designed for mid-sized users as opposed to the larger, bulk product seen in other submarkets. Cabarrus County will deliver 1.7 million square feet in 2019, which is slightly ahead of net absorption, leading to short-term equilibrium. The majority of that product is bulk.
Due to tightening of the North submarket, which has less than 5 percent vacancy and ongoing tenant demand, Cabarrus County may soon be supply constrained in 2020. While there is a healthy amount of construction in the market, there is a limit to this growth due to an ever-dwindling supply of good land sites. All speculative product is currently contained within a 20-mile ring around the central business district. Within the next 24 months, these projects will be considered infill locations as the market expands toward Rowan and Gaston counties.
The investment market is also seeing a shortage of supply and continued interest from investors looking for greater opportunities outside of more expensive core markets. This has led to creative ways of generating assets for the investment market.
Investors looking to enter the market have funded speculative development and, most recently, purchased completed or soon-to-be-completed speculative projects. A few recent examples include Hartz Mountain buying a vacant 203,000-square-foot speculative building and Invesco purchasing a vacant 370,000-square-foot speculative building. Both of these were located in the York County submarket and had pricing in the mid-to-high $60s per square foot.
A recent three-building, 1.3 million-square-foot portfolio for sale from Scannell Properties includes buildings that are a mix of existing, under construction and forward-sale assets. The portfolio includes a 600,000-square-foot building within Concord Industrial Center in Concord and two buildings within Legacy Park East in Rock Hill, South Carolina.
This creativity in bringing assets to market should continue, as developers try to satisfy investor demand in this strong Southeast market. Increasing investment activity, combined with an expanding geographic footprint, should keep the Charlotte industrial market moving at a steady pace for the foreseeable future.
— By Chris Skibinski, SIOR, principal and managing director, Avison Young. This article first appeared in the June 2019 issue of Southeast Real Estate Business magazine.