Charlotte Industrial Sector Shows ‘Signs of Life’ as Market Adapts to COVID-19
Like many Southeastern markets, the Charlotte industrial market largely hit the pause button from mid-March until June due to COVID-19. While the impacts of the health crisis remain fluid, the market is showing some signs of life, and trends that have long been at play are not likely to be reversed.
For the past 90 days, the market has seen a significant drop in leasing and sales activity. The market was a bit sluggish in 2019, but experienced good activity in the first quarter prior to area shutdowns. Asking rents rose 5 percent year-over-year to $4.81 per square foot as new space is being added to the market at a higher price point. That rental rate is a record high for the Charlotte warehouse and distribution market.
Most of the recent growth has occurred in the Cabarrus County, Stateline and Airport/West submarkets. Developers continue to fill demand for modern e-commerce, third-party logistics and general distribution space. Additional deliveries will keep upward pressure on vacancy in the near-term, but overall conditions should remain healthy thanks to strong economic tailwinds and Charlotte’s proximity to key East Coast transportation corridors and population centers.
Absorption declined significantly over the past 12 months, from 5.3 million square feet in 2018 to 2.7 million square feet for 2019, due in part to external macroeconomic forces. This type of ebb and flow is common in Charlotte, as pent-up tenant demand gets absorbed and growth occurs in a more linear fashion verses exponential growth. Overall vacancy was 5.2 percent at year-end 2019 and increased to 6.4 percent at the end of the first quarter.
In Cabarrus County, vacancy declined from 15 percent to 5.9 percent, which is noteworthy given the 4 million square feet added in that submarket in the past two years. Cabarrus County landed two large deals totaling 800,000 square feet at the end in 2019. With few new projects planned in 2020, we expect the Cabarrus County market to tighten considerably.
Among the notable leases of the quarter were a 441,444-square-foot lease to Pactiv at RiverOaks Corporate Center in Cabarrus County; a 360,000-square-foot lease to Reynolds Advanced Materials at Afton Ridge I, also in Cabarrus County; a 197,000-square-foot lease to Power Distributors at Clarius Park in Charlotte; a 105,000-square-foot lease with Seko Logistics at the Charlotte Intermodal Logistics Center; a 168,480-square-foot lease to The Big Beverage Co. at Huntersville Business Park in the North submarket; and Printful’s 53,000-square-foot lease at Steele Point in the Southwest submarket.
Investors have been active in Charlotte, acquiring $354 million of industrial assets in the fourth quarter, bringing annual investment volume to $1.1 billion, which matched 2018’s record setting activity. The largest recent single-asset sale was a sale-leaseback of Stanley Black & Decker’s 1.2 million-square-foot building in York County to W.P. Carey for $94 million.
The relative resilience of the industrial sector in Charlotte and trend of investment in the area makes the market well-positioned to bounce back and adapt to the new normal. The overall operating climate is great for industrial companies. Low taxes, low utility costs, no unions and strong population growth figures will help the region get back on track.
However, there are unknowns. The levels of unemployment are unprecedented so it remains to be seen how long it will take for the Charlotte economy to recover.
— By Chris Skibinski, SIOR, Principal and Managing Director of Avison Young’s Charlotte office. The article was first published in the June 2020 issue of Southeast Real Estate Business.