Over the course of this year, Greenville-Spartanburg’s industrial market is expected to continue its overall upward trajectory with increasing rental rates, record-low vacancy rates and ongoing tenant demand.
The fundamentals of Upstate South Carolina’s industrial market are among the strongest anywhere in the country right now due to a myriad of cylinders on which it is simultaneously firing. The market’s plethora of demand drivers include e-commerce users, manufacturing, the automotive industry and the draw of the Inland Port located in Greer.
To understand the full picture, however, it’s important to also consider what the Greenville- Spartanburg market is not firing on. The market is not stifled by unions, high regulation or the lack of viable sites, available buildings and utility infrastructure some other markets have to contend with.
An important factor affecting current absorption is multiple fourth-quarter tenant occupancy dates being pushed from fourth quarter of 2022 to first quarter of 2023. There was 17.9 million square feet of industrial space under construction at year-end 2022, with approximately 4 million square feet of that already preleased but not yet delivered. Those deliveries in early 2023 will naturally lead to positive absorption and help rebalance the market.
A variety of industrial users and demand drivers also help smooth out the peaks and valleys of absorption in this market because when one industry is not absorbing space as readily, the others are still driving space needs.
Another major influence on the Upstate market is the symbiotic nature it has with the industrial ecosystem of Charleston just a few hours away, which is obviously bolstered by access to the Port of Charleston. But another example is United Airlines’ recent order of 200 planes from Boeing in Charleston. What is great for the coastal market is also beneficial for the Upstate, as all carbon fiber parts needed for wings and fuselages are being generated by Toray Industries here in Spartanburg and shipped to Charleston for assembly.
Companies in the Upstate market, especially automotive suppliers, are finding that they can leverage the Inland Port in Greer to help offset their carbon footprint targets. The inland port’s presence helps companies meet their ESG (environmental social governance) protocols by transporting their boxes cheaper, with a lower carbon footprint and in a more timely manner than trucking.
Of course, all industries are impacted by today’s rising interest rate environment due to inflation. These global and regional users have financial departments of their own, so they understand the dynamics at play. Development-ready land is getting scarcer and it’s increasingly more expensive to construct new facilities. Companies know when a good opportunity is presented that they’re going to pounce because the opportunity costs are too great to pass on.
That’s proving true despite the increase in rental rates, which is about 12.5 percent year-over-year. What’s often forgotten is that the real estate considerations for these companies typically only represent 4 to 6 percent of their total operating costs, so those users are more interested in securing a good position near a robust infrastructure system than saving a very small percentage by building further away at a cheaper basis.
The Upstate infrastructure system is vital because all eyes are on supply chain efficiency, with companies readjusting their supply chains away from overseas in favor of operating domestically. These are not short-term business plans being put into place, companies are planning long-term (10 to 20 years), which long outlives any shorter, typically 18 months or less, recession period. Even if we have headwinds coming at us in this current economic cycle, these companies are making decisions for the future, and we’re seeing the positive effects of companies thinking big picture during site selection.
What we are seeing now are the type of investments that are highly attractive to economic development teams both at the county and state levels, bringing in investment and jobs. About 60 percent of the deals circling right now are manufacturing-based and have a ripple effect of positive regional growth when it comes to building a supplier base.
Our team has the honor of representing some of the most active and prolific developers in the country, all of which have entered into or ramped up activity in the Upstate market in recent years. As industrial development becomes more complicated to execute due to diminishing viable sites in major markets, nationwide economic trends and supply chain dynamics, we’re monitoring the Upstate’s 17.9 million-square-foot pipeline and helping determine the strategic moves needed to ensure we are ready for the market’s next cycle and phase of development. In the current environment, some product may sit a little longer on the market, but inevitably all of that space will be absorbed in a timely manner.
The Upstate industrial market is in a fantastic position to maintain its upward trajectory with a myriad of external and internal forces contributing to its success. That trajectory may slightly slow with the natural ebb and flow of real estate, but we see this region becoming more and more important to industrial users and developers over time as we maintain the steady course and provide a necessary haven for successful development and operations.
— By Garrett Scott, SIOR, managing director, and Dillon Swayngim, SIOR, vice president of Colliers. This article was originally published in the March 2023 issue of Southeast Real Estate Business.