CHARLOTTE, N.C. — Stretching from Alabama to Atlanta, through the Carolinas and into Virginia, the I-85 corridor has long been a backbone of industrial growth in the Southeastern United States. Once celebrated as a magnet for logistic hubs, manufacturing plants and warehouse developments, this valuable category of real estate is now showing signs of strain.
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During the COVID-19 pandemic, industrial real estate, especially warehouses and distribution centers, saw a dramatic surge in demand due to a rise in e-commerce, inventory stockpiling due to supply chain issues and lower interest rates. Fast forward five years later, the industrial market is now experiencing a slowdown due to new pressures that are reversing or slowing down many of those trends.
“People are concerned about making a decision today without knowing what’s going to happen tomorrow,” said John Coleman, senior vice president of Graham &. Co. Coleman specializes in representing both tenants and landlords across the Birmingham and Montgomery industrial markets in Alabama.
Coleman’s comments came while on stage during the closing panel at InterFace I-85 Industrial Corridor, a networking and information conference held at the Hilton Charlotte Uptown on May 19 and 20. Justin Parker, vice president and Triangle Market Leader across the Carolinas at Merus (formerly Al. Neyer), moderated the discussion, entitled “A Close-Up Look at Five Markets.”
Just as many industries have been affected by macroeconomic uncertainty, the I-85 corridor is no exception. Matt Roos, an associate at Lee & Associates, summarized his own takeaways that industrial developers in the Greenville-Spartanburg market are increasingly shifting construction from speculative development to build-to-suit projects as companies remain wary of oversupply.
The vacancy rate in his home market remains elevated at 9.28 percent in the first quarter, but it’s a nearly 150-basis-point improvement from first-quarter 2024, according to research from Colliers. Brockton Hall, vice president of Colliers’ Spartanburg office, predicted that strong demand will continue to push the Upstate market’s vacancy rate down to 7.5 percent in 2026.
Despite a pullback in speculative industrial development, land costs have continued to climb. Jim Anthony, CEO and founder of Raleigh-based APG Advisors, said the Raleigh-Durham region is experiencing significant population growth, resulting in an increase in demand for housing that is impeding industrial real estate development.
“With industrial, we’re really talking about an asset class in terms of land that is relatively low on the food chain,” said Anthony. “The dollars are just much, much higher for the residential developments.”
Anthony also emphasized that as more people migrate to metro areas in search of jobs and housing, residential development is rapidly sprouting into zones that are traditionally reserved for industrial use. As cities continue to grow outward, industrial developers are facing a more competitive and constrained land market, as well as public opposition to their projects.
“It’s just not a fair fight,” Anthony said.
Richmond is a ‘shining star’
While most of the corridor is suffering from weak absorption levels, slowdowns in rent growth and increases in vacancy rates, Bo McKown, senior vice president of Cushman & Wakefield | Thalhimer’s Capital Markets Group, pointed out that Richmond is currently a “shining star” in the industrial real estate market as demand continues to outpace supply. According to Thalhimer research, the Richmond market’s vacancy rate is currently at 3.3 percent.
Richmond’s market sits at nearly 130 million square feet, a relatively small size compared to its counterparts in the I-85 corridor. However, Richmond’s strategic location along the East Coast’s major transportation routes — namely I-85 and I-95 — as well as its proximity to the Port of Virginia, continues to drive demand for industrial space.
“Based on our construction pipeline and the massive amounts of new capital coming to our region, it’s an exciting time,” continued McKown.
Parker added that Richmond “enjoyed the party” during industrial’s nationwide emergence during the COVID-19 pandemic but that it “avoided the hangover” that many markets are now experiencing as they are seeking supply-demand equilibrium.
Like several markets in the corridor, development in Richmond is still becoming trickier to execute as data center manufacturers make their way to Richmond from Northern Virginia; however, according to a report released by Thalhimer, as land availability tightens, Richmond’s rental rates have still shown 90 percent overall growth since 2021, and 12 percent annually.
McKown shared an anecdote during the discussion about a 1 million-square-foot portfolio spanning several buildings in Richmond that is up for sale. The project includes multi-tenant, shallow bay and infill facilities ranging from 20,000 square feet to 150,000 square feet, which are considered desirable characteristics for acquisition criterion. He said that the portfolio had 15 written offers and that they were getting ready to accept a second wave of bidders’ final and best offers.
“From a capital standpoint and an exit standpoint, if you’re a developer or acquisition group, the liquidity of the Richmond market is extremely strong,” said McKown.
Help wanted
Panelists shared concern for the lack of skilled labor to keep up with various branches of industrial development, including electric vehicles (EV), advanced manufacturing and life sciences.
“There are a lot of different things drawing people in and giving them an opportunity to build lives,” said Roos. “The buildings are coming in and the companies are coming in, but you also need to have workforce support.”
Roos shared that private partnerships in the Greenville-Spartanburg region have addressed the skilled labor shortage by contributing roughly $100 million in educational outcomes for upskilling opportunities in the community. The initiative, titled Movement 2030, aims to enhance economic mobility in the impoverished areas of Spartanburg’s Northside and Highland neighborhoods by supporting all levels of education, from pre-K to the workforce.
“We need the people, and we need the jobs to keep this thing moving in the direction we need it to go,” Roos emphasized.
In response, Anthony included North Carolina’s similar efforts to acknowledge the market’s labor demands, as the state’s community college system has begun offering programs that incorporate critical skills and training for the industry.
“It’s still a huge challenge we have to face,” Anthony reiterated.
Nevertheless, despite shifting dynamics due to land and labor challenges, panelists remained mostly optimistic about the future.
“There’s going to be a lot of pain in the short term, but we’re very well-situated to weather the storm,” said Roos.
— Abby Cox