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New Development, Inland Port Drive Growth

The Upstate of South Carolina is home to 1.2 million people located on the Interstate 85 corridor between Atlanta and Charlotte. The population is clustered around the cities of Greenville, Spartanburg and Anderson. The epicenter of the industrial market is along the county line between Greenville and Spartanburg counties, where South Carolina Inland Port (SCIP) was recently completed. The region has a long legacy of manufacturing, but during the last 30 years, the type of manufacturing has shifted away from low-skill textile manufacturing to a more diverse economy built around the automobile, energy and chemical industries.

The Upstate is first and foremost an industrial market with approximately 150 million square feet of manufacturing, warehouse and flex space. At the close of the fourth quarter of 2013, vacancy reached 7.6 percent — its lowest point in the last 10 years. While this market vacancy pales in comparison to the sub-3 percent vacancy rates found routinely on the West Coast, given the amount of older textile-era warehouse facilities in the market inflating vacancy, the current rate is extremely low for our market. Eventually this low vacancy will hinder growth rates as tenants interested in a particular type of space are unable to find it and opt to locate in markets where the space is more readily available, unless developers are willing to begin speculative development.

Last year, our biggest concern was a lack of Class A product in the market and the potential for this lack of availability to place an artificial cap on economic development. Since then, more than 10 speculative developments have been announced, consisting of more than 1.2 million square feet of potential product in the pipeline. With the potential to deliver this much product to the market, there is naturally a concern about the potential for overbuilding. Keep in mind that there is a significant difference between a project’s announcement and its construction. While that amount of square footage may seem daunting, the immediate delivery of that much space would only push vacancy back to where it was four quarters ago. Given the high level of activity in the market and the projects that we may not be aware, there is an appetite for more product.

Many developers seem to be positioning themselves to respond to build-to-suit opportunities. While this mitigates the risk of waiting for an empty building to reach occupancy, it does shift some of the burden of risk back on the tenant. In today’s modern manufacturing and warehousing economy, speed-to-market is critical. We have witnessed Class A warehouse construction occur in our market in the incredibly short time frame of six months. The difference in a developer’s ability to deliver a building in six months is very different from their ability to deliver in nine to 12 months. In situations where a tenant places a high level of importance on a shorter development time frame, proven developers will have a perceived competitive advantage. This bodes well for developers like CenterPoint Properties and Johnson Development, both of whom have successfully constructed major warehouse facilities for Amazon and BMW in the last two years.

Inland Port
One of the long-term primary drivers of our economy going forward will be the SCIP, a facility designed to help reduce costs for importers and exporters of goods through the Port of Charleston. Operational in the fourth quarter of 2013, the SCIP will be a catalyst for market evolution. Unlike any other inland port in the country, SCIP is located in the heart of a manufacturing hub. This means the facility is positioned to be an asset to local manufacturers, not simply a staging area for manufacturers in other areas of the country. Along with low unionization rates, low cost of living and high quality of life, the SCIP will be one more magnet to help attract companies to the region.

That is not to say the benefits of the facility will be limited to exporters of goods. Importers of goods are likely to use the facility as a staging area for operations up and down the East Coast. As such, we envision a robust warehouse market blossoming as a result of activity at the SCIP over the next decade, although the pace of that change may not accelerate much until after post-Panamax ships arrive at the Port of Charleston with regularity.

Outlook
During the next 24 months, the Upstate industrial market is expected to remain highly active with more than 4 million square feet of market absorption and vacancy rates declining to even lower levels. The manufacturing and warehouse sectors are both poised for growth as a result of activity related to the development of SCIP.

— By Brian Reed, Research Manager, CBRE Greenville. This article originally appeared in the March issue of Southeast Real Estate Business magazine.

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