Advanced Manufacturing, Logistics Activity Accelerate Upstate’s Industrial Growth
The Greenville-Spartanburg economy has a long legacy of being fueled by industrial activity. Today, the whole Upstate market continues to experience record levels of growth as it evolves into advanced manufacturing, automotive and distribution related activities.
South Carolina is the largest exporter of goods on a per capita basis in the Southeast and has one of the highest densities of foreign direct investment per capita in the United States. The Upstate is the manufacturing center of South Carolina, with approximately 55 percent of the market’s 177 million square feet of industrial space classified as manufacturing. Due to the strong fundamentals of the market, manufacturing is expected to continue to grow. The metro offers manufacturers a pro-business environment, with skilled and affordable labor, a critical mass of industry and a solid transportation infrastructure with access to high population bases.
The region is also becoming increasingly crucial to supply chains serving the East Coast and Southeast. The Upstate can reach over 95 million people within a day’s truck drive. With the continued proliferation of e-commerce, the Greenville-Spartanburg market provides an opportunity to mitigate transportation costs by allowing companies to leverage Inland Port Greer, which provides overnight service to and from the Port of Charleston. The inland port also provides risk mitigation for manufacturers and logistics operators, which has increased the area’s attractiveness for distribution facilities.
Since the development of the Inland Port in 2013, Dollar Tree, Rite Aid, Techtronic Industries and Michelin North America have all constructed 1 million-square-foot distribution centers or larger nearby, with Michelin’s project spanning approximately 3.2 million square feet. More companies are realizing the Upstate’s potential for major distribution centers, which has led to more interest from investors and speculative development.
The capacity for growth at Inland Port Greer in relation to distribution activity is significant. Whereas many inland ports in the country are primarily focused on transporting goods into the country quickly from nearby ports, the Inland Port Greer has been able to surpass projected volumes by relying heavily on export activity due to the heavy manufacturing infrastructure. There is significant capacity for inbound traffic, which will attract larger tenants to the market.
During the last two years, the market absorbed 13.4 million square feet, the highest rate of growth of any two-year period in its history, prompting a record low vacancy rate of 6.7 percent during 2017.
Developers have noticed and continued to enter the market for speculative development, which is much-needed product. In the last three years, more than 2.9 million square feet of speculative development has been absorbed. An additional 3.1 million square feet is either under construction or in the planning stages. Historically, this has occurred in singular projects, typically constructed by local or regional developers.
The current round of development is being pursued largely by out-of-market developers that are bullish on the market’s long-term fundamentals. However, there is still more opportunity in the Greenville-Spartanburg area since the market is still underserved with modern Class A industrial space. There is only 16.4 million square feet of institutional-grade industrial product in the market (i.e. 9.3 percent of the 177 million-square-foot total). This lack of product is driving up lease rates and signaling continued demand.
It is still imperative that developers be strategic with the size, location and timing of their projects. Location is a critical determinant in the success of a speculative development, and the market has rewarded those that recognize this trend. Speculative developments constructed in the highly sought-after Spartanburg West and I-385 South submarkets typically experience shorter lease-up periods than those built in other submarkets.
While there is a large amount of active development occurring, most projects offer one to two buildings on a single tract of land, versus establishing larger industrial parks. One of the key differentiators between Upstate and major distribution markets is the limited number of strategically developed industrial parks with the ability to accommodate growth over a period of five to 10 years. This lack of long-term competition is considered positive for active developers in the market, allowing them to more easily underwrite new development.
Some of the significant speculative developments currently being added to the market include 559,000 square feet of space by Rooker Cos.; a 408,000-square-foot facility by Scannell Properties; 453,400 square feet by McDonald Development; 370,000 square feet of space by Panattoni Development; 297,000 square feet by Childress Klein; and 217,000 square feet by TPA Group/Appian Investments.
The Upstate industrial market is continuing to grow and its strong fundamentals will not limit the growth to only this cycle. Long-term viability and the fundamental need for additional, modern industrial space will fuel sustained growth into the foreseeable future.
— By Trey Pennington, Senior Vice President, CBRE. This article was originally published in the March 2018 issue of Southeast Real Estate Business.