The Charlotte industrial market continues to see strong construction activity, as developers look to tap into demand for modern space. Approximately 12.7 million square feet has been delivered in the last two years, most notably in the Cabarrus County, Stateline and Airport/West submarkets. Overall construction in the pipeline jumped by 32 percent from third-quarter 2019 to fourth-quarter 2019, reaching 7.2 million square feet.
As the first quarter of 2020 takes shape, this development expansion should continue, with an expected 7 million square feet of additional deliveries by year-end. Overall leasing activity in Cabarrus County was strong in 2019, with vacancy declining from 15 percent to 11 percent, which is notable given the 4 million square feet of construction seen in that submarket in the past two years.
The Cabarrus County vacancy rate is set to decline significantly when two large deals, totaling more than 800,000 square feet, are factored into the statistics. Once Pactiv (441,000 square feet) and Reynolds (360,000 square feet) are incorporated into the research, the rate will decline to 5.7 percent, as we expected going into year-end. This activity will quickly tighten up the submarket and will open the door for new development. The recent high vacancy dissuaded developers but now that most of the large blocks have been leased, it should lead to future new spec projects for 2021 as we expect paltry deliveries in 2020.
Chris Skibinski
Principal and Managing Director,
Avison Young
The market is closely watching net absorption, however, given a significant slowdown to 2.7 million square feet for the 12-month period ending with fourth-quarter 2019. This is well off of the 2018 net absorption figures of 5.3 million square feet, a 49 percent decline year-over-year. It should be noted that the Charlotte market routinely has a seesaw year-over-year net absorption, with a strong year typically followed by a weak year.
Absorption figures vary across the submarkets, with some seeing declines and others, such as the Northwest, seeing significant gains. The Northwest submarket saw its largest absorption level in several quarters, perhaps due to tenants looking for inexpensive, Class B space after being displaced by infill adaptive reuse projects.
E-commerce has been a strong driver of activity in the Charlotte industrial market, with demand from tenants and the logistics firms that support them increasing development of larger and more sophisticated facilities. Amazon’s decision to bring an 855,000-square-foot, multi-story distribution center to the Airport/West submarket emphasizes the growing importance of Charlotte to the e-commerce sector. That project was delivered in November 2019.
The Airport/West submarket saw the largest increase in available space in the fourth quarter due to the recent deliveries at AirPark South, WestPark85 and Steele Creek Commerce Center. Those developments are designed to fill demand from last-mile, infill local distributors and third-party logistics firms.
Charlotte’s deep labor pool, expanding population and proximity to major East Coast transportation routes make it a prime market for not only industrial tenants, but also for investors.
Industrial building sales totaled $1.3 billion in 2019, following $1 billion in 2018. Institutional investors such as W. P. Carey Inc., Somerset Properties, Exeter Property Group, Dalfen Industrial and Dogwood Properties have become a larger presence in the market over the past several years.
Among the notable transactions in the fourth quarter were Black & Decker’s $94 million sale-leaseback to W. P. Carey; Somerset’s purchase of the 1.3 million-square-foot Premier Distribution Center; and Investcorp/Dalfen’s purchase of a 1.9 million-square-foot regional portfolio.
Rental rates, which have stayed near $9.45 per square foot for flex space and $4.80 per square foot for warehouse and distribution space, should remain steady in 2020. Landlord concessions have increased over the past 12 quarters.
The Charlotte market should continue to see strong leasing, development and investment activity this year, with further tightening of space in Cabarrus County and a rebounding of York County due to its operating climate and the availability of labor.
— By Chris Skibinski, Principal and Managing Director at Avison Young. This article originally appeared in the February 2020 issue of Southeast Real Estate Business.