The industrial market in Charlotte is healthy, with trends pointing to another solid year of net absorption and rent growth. The market continues to attract institutional capital, as cap rates hover slightly below 6 percent for Class A product in the metro’s primary submarkets.
Charlotte’s job growth continues to drive population migration into the market. More than 37,000 new jobs have been added in the past 12 months, dropping the unemployment rate from 5.2 percent to 4.9 percent. North Carolina has a young, educated workforce and boasts 53 universities and colleges. The state is nationally recognized for its labor climate.
Bryan Blythe, Liberty Property Trust
Major employers span the gamut of the business world, from financial and energy stalwarts such as Bank of America and Wells Fargo, Duke Energy and Siemen’s Energy Inc., to more industrial players such as Daimler Trucks North America, Lowe’s, FedEx and Snyder’s-Lance Inc.
Charlotte is a logistically sound market, with the city’s airport ranking as the eighth busiest in the U.S., according to the Federal Aviation Administration. A relatively new intermodal rail facility and continued investment in road infrastructure projects are also helping to foster an optimistic environment. The HB2 legislation, which proved a major obstacle to attracting new companies to the area in 2016, has been repealed by the state government and should help drive Charlotte forward.
With more than 3 million square feet of absorption in 2016, and projected absorption between 3 and 3.5 million square feet in 2017, the 3.4 million square feet of new construction remains in line with market conditions. Vacancy in the Charlotte market is approximately 4 percent, making it difficult for tenants to find the space they need. The lack of space has continued upward pressure on lease rates, with asking rates on new speculative product breaking the $5.00 per square foot barrier triple-net for the first time in Charlotte’s history.
Most of the new construction product is in the 125,000- to 350,000-square-foot range, giving developers the flexibility to accommodate multiple tenants. The typical deal size has increased over the past five years. Traditional tenant demand in Charlotte has been 40,000 to 80,000 square feet, but over the last year it has been evolving into the 65,000- to 150,000-square-foot range.
Development activity in the region includes projects from Liberty Property Trust (one building; 204,120 square feet), Beacon Partners (two buildings; 636,584 square feet), EastGroup (one building; 120,000 square feet), Scannell Properties (three buildings; 648,500 square feet), Silverman Group (one building; 316,465 square feet), Foundry Commercial (four buildings; 835,135 square feet), Crescent Resources (one building; 201,788 square feet) and Trinity Capital (five buildings; 249,425 square feet). In addition, Keith Corp. is also starting a 599,040-square-foot build-to-suit for an e-commerce tenant in the southwest Charlotte submarket.
Most of these projects are speculative and set to deliver in 2017, and there has been significant preleasing on many of these buildings.
The “Amazon effect” has certainly been felt in Charlotte with multiple e-commerce deals struck by various companies. The region is well placed with 60 percent of the population of the country within a two-hour flight or a one-day drive. There have also been large transactions with tenants from manufacturing, building products, automotive and food-related sectors that are actively taking space throughout the city and surrounding counties.
The three primary submarkets — Airport, Southwest and North — have seen the most activity, but the market continues to expand further into Concord, N.C., to the north and Rock Hill, S.C., to the south. Raw land in the Charlotte market (Mecklenburg County) is becoming increasingly more difficult to locate for industrial projects. This challenge has created new industrial submarkets over the past few years that continue to expand with speculative and build-to-suit projects.
Trends in the Charlotte market are similar to industrial trends across the country, with users seeking 32-foot clear heights — 36 feet in certain cases. Liberty Property Trust is developing the first speculative, rear loading, 36-foot clear heights project in the Charlotte market. The LEED-certified, 204,120-square-foot building is located in Shopton Ridge Business Park, just south of the Charlotte Douglas International Airport and Norfolk Southern’s new intermodal facility.
On the design front, warehouse lighting is beginning to move away from T5 fixtures, with LED lighting becoming more prevalent, and almost all of the new speculative projects are incorporating trailer parking into their plans.
The Charlotte industrial market is tracking to have another banner year in 2017, with continued market activity and significant net absorption. Supply of new product remains in line with demand. As the largest city between Atlanta and Washington, D.C., Charlotte’s strategic location along the Interstate 85 corridor should continue to attract new companies to the market, and the demographics of the region should lay the foundation for significant future opportunities in the industrial market.
— By Bryan Blythe, Vice President, Liberty Property Trust. This article was originally published in the June 2017 issue of Southeast Real Estate Business.