REBusinessOnline

Market a healthy investment vehicle.

The Charlotte industrial market has continued to weather the global economic storm with relative stability. Experts in the market believe this is by design and is not just good fortune. A disciplined development community that did not over-build the city is the foundation for the stability.

The market size for institutional grade industrial product in Charlotte is approximately 30 million square feet. The entire market is well more than 100 million square feet, which comprises user-occupied and manufacturing product that institutional investors are not trading day-to-day. With 3.3 million square feet available, the institutional market stands at 11 percent vacant. Given the gloomy economic news that we have all grown accustomed to hearing, an 11 percent vacancy rate is not particularly unhealthy. The key statistic is this: in a 30 million-square-foot market, only 250,000 square feet is being constructed, representing less than 1 percent of the market. In addition, only 1.7 million square feet of product is in the planning stages, with no assurances that it will go vertical in the near future. If all 1.7 million square feet of product were to be built — which won’t happen — it would represent a 5.7 percent increase in inventory. There will not be any significant new product started until 2010, resulting in flat inventory levels for the next 18-24 months.

Charlotte has a terrific development community that includes Childress Klein Properties, Beacon Partners, Crescent Resources, The Keith Corporation, M. David Properties, American Asset Corporation and ProLogis. These organizations demonstrated a great deal of wisdom in not flooding the market with product during the strong years of 2005, 2006 and 2007. As a result, Charlotte will not have an overabundance of inventory. In an average year, Charlotte’s absorption rate is 1.5 million square feet. It is safe to say that we will fall short of that during the next 24 months. Some existing space that is currently under lease will come on the market through subleases and consolidations, but because there is not an abundance of excess inventory or additional inventory coming online, experts do not foresee significant compression of rental rates.

Due to Wells Fargo’s purchase of Wachovia, some of Charlotte’s 1.7 million people may lose their jobs. With that said, Charlotte has incredible leadership, infrastructure and a quality of life that is second to none. Strong institutional investors, such as DCT Industrial Trust, TA Associates, EastGroup Properties, RREEF and J.P. Morgan, all have quality product in this market. These companies will keep their inventory leased.

The future will not be easy. Experts agree that cap rates are rising and values will normalize. However, due to sound fundamentals and a disciplined development community, Charlotte’s industrial market will be a healthy investment vehicle for both private and institutional investors well into the future.

— Rob Speir is vice president and Pete Pittroff and Brad Cherry are partners at Charlotte-based Keystone Partners LLC.

Content Partners
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