As port authorities around the country invest billions of dollars in infrastructural improvements, industrial users are taking notice and looking for sites near all the action. In the Southeast, the elevated demand for new industrial space near the Port of Savannah and Port of Charleston is pushing the boundaries as far as what’s considered normal levels for property performance indicators such as new construction, rent growth and leasing activity.
“It’s hard to say that anything is ‘normal’ right now — there are a lot of new phenomena out there,” says Robert Barrineau, senior vice president of CBRE’s Charleston office. “We are seeing nationally now that a tie to a seaport as being key for economic growth and for operational efficiencies for companies.”
In one of the bigger announcements in 2022, Hyundai Motor Group chose a 3,000-acre site in Bryan County, which is close to both the Port of Savannah and Interstate 95, for its $5.5 billion manufacturing plant. Construction is already underway, and the facility should be operating at full capacity, which entails production of 300,000 units annually, by the first half of 2025.
The South Korean automotive giant intends to use a combination of local labor and AI technology to manufacture its batteries and electric vehicles (EV) at the 16 million-square-foot campus.
“The entire site has been cleared and work is going on in earnest, to say the least,” says David Sink, principal of Colliers’ Savannah office. “We are already seeing a lot of activity from suppliers. We expect that to really ramp up this year as a lot of those suppliers are awarded business by Hyundai.”
Hyundai Mobis, an automotive supplier that serves as the “parts and services” arm of Hyundai, Genesis Motors and Kia, plans to invest $926 million for a new manufacturing facility near the new Hyundai plant. The new 1.2 million-square-foot facility will employ at least 1,500 people once fully operational and will supply parts to Hyundai’s plants in Georgia and Alabama, as well as the Kia plant in West Point, Georgia. Sink expects the Hyundai plant’s halo effect will support 15,000 to 20,000 new jobs in the greater Savannah area by the time it is all said and done.
“Hyundai and its suppliers will certainly employ a lot of people who are already here, but a lot of people will need to move here to fill those jobs,” says Sink.
In mid-December, Redwood Materials chose the Camp Hall commerce park near the Port of Charleston for its new mega battery recycling plant. The firm chose Charleston in part because of its strong presence of automotive manufacturing, with Volvo and Mercedes-Benz operating manufacturing plants in the area. The $3.5 billion development will span 600 acres and will create 1,500 new jobs once full operational. The company plans to recycle, refine and manufacture enough anode and cathode components to power 1 million EVs annually.
Together, the Hyundai and Redwood Materials campuses represent approximately $9 billion in investment alone near the Port of Savannah and Port of Charleston, not counting the expected bevy of suppliers set to come on line over the next few years. The total also doesn’t account for the dozens of industrial developers and hundreds of unrelated tenants looking for the same thing as Hyundai and Redwood Materials: proximity to two of the more active ports in the country, which are both growing by the day.
“The major U.S. ports, including the Port of Charleston and Port of Savannah, have far-reaching impacts connecting coastal hubs for imports and exports with inland population centers and manufacturing plants,” says Brandi Hanback, deputy head of development for Rockefeller Group, a New York City-based developer active in the Southeast’s top industrial markets. Hanback also leads the firm’s foreign trade zone (FTZ), trade and logistics division.
“Our supply chain network-driven industrial development strategy is informed by the movement of goods to and from these key nodes,” she says.
With so much activity and competition, the challenge for users looking to expand in the Savannah and Charleston markets extends beyond just finding available sites to access the ports. Today, the labor component is as big a factor as any in drawing in private investment in the port markets.
“What is really expensive for companies is turnover,” says Dillon Swayngim, vice president of Colliers’ Spartanburg office in Upstate South Carolina. “What users want to really chase at the end of the day is the labor set. There is a good workforce here, especially in what would maybe be considered a ‘rural’ or ‘under-employed’ community. Thousands are leaving county lines to go work every day. That’s what users are going to look for.”
Port of Charleston
After 12 long years, the South Carolina Ports Authority (SCPA) and U.S. Army Corps of Engineers (USACE) have finalized the dredging of the Charleston Harbor, which is now the deepest on the East Coast. The lower part of the harbor, which accommodates the Port of Charleston’s Wando Welch and Hugh K. Leatherman terminals, was deepened from 45 feet to 52 feet, and the upper harbor, which passes between the port’s Leatherman and North Charleston terminals, was deepened from 45 feet to 48 feet. The entrance channel that connects Charleston Harbor to the Atlantic Ocean was also dredged from 47 feet to 54 feet.
In March 2021, the SCPA opened the first phase of Leatherman Terminal in North Charleston, with future phases bringing the total investment of the terminal to $2 billion, according to local media reports. Additionally, the SCPA recently broke ground on the Navy Base Intermodal Facility about a mile from the Leatherman Terminal, which will provide near-dock rail and an inner-harbor operation to the Port of Charleston when it opens in 2025.
“The Leatherman Terminal is the first new terminal in the past 12 years,” says CBRE’s Barrineau. “That and the new rail yard have allowed the port to take on some projects and do some things for retail customers that they couldn’t at some of the other terminals. That shows flexibility and the desirability of the port, as well as the benefit of having this expansion room. It puts the port in the best light.”
“The Port of Charleston is consistently ranked as one of the most productive ports in the world,” adds Barrineau. “They are continuing to keep focused and stay ahead of the curve.”
The willingness to spend and productivity of the port are elevating the surrounding Charleston industrial markets to new levels. Through third-quarter 2022, net absorption was exceeding new deliveries, vacancy rates are at a record low (sub 1 percent) and asking rental rates are climbing to the tune of 12 percent year-over-year, according to research from CBRE and Cushman & Wakefield.
Interestingly there was 8.5 million square feet under construction as of the third quarter, about 54 percent of which was preleased.
“Tenants are forced to make decisions earlier in the cycle,” says Barrineau. “That’s not to say that most of these transactions were build-to-suits, these were just leased prior to completion.”
In addition to the Redwoods Materials announcement, the Charleston market has seen some notable projects recently, including TradePark East, an 837,400-square-foot development in Ladson, South Carolina, that was purchased recently by TPG Capital and Dogwood Industrial Properties; Shipyard Creek Logistics Center, a $250 million project in North Charleston near the Leatherman Terminal by Capital Development Partners; and Palmetto Trade Center II, SunCap Property Group’s new $90 million build-to-suit project in North Charleston for SHL Medical.
Garrett Scott, managing director of Colliers’ Spartanburg office, says his firm is also leasing Palmetto Logistics Center, a large-scale development off Palmetto Parkway, for Dallas-based Dalfen Industrial.
“Dalfen is building a 1.3 million-square-foot facility, which will be the most proximate large box in the Charleston market to all the port-related infrastructure,” says Scott.
According to JLL research, the bulk of the new development underway is in North Charleston, Jedburg, Ridgeville and Somerville, which are markets up I-26 from the port. Barrineau says that it’s not a coincidence that developments are migrating that way, given the barriers to entry in the Charleston market.
“With four major rivers, an ocean to the east, a historic city, two military bases and two barriers on each end of Highway 17 — the Francis Marion National Forest and the ACE Basin National Estuarine Research Reserve — developers don’t really any choice but to grow out I-26, and there are several wetlands scattered in between,” he says. “The good news is not only is that where economic growth is going, the population growth is going there as well.”
Port of Savannah
Similar to the Port of Charleston, the Georgia Ports Authority (GPA) and USACE earlier this year finished a nearly $1 billion dredging project at the Savannah River that took more than six years to complete. The shipping channel that connects the Port of Savannah to the Atlantic Ocean is now about 47 feet, a full 5 feet deeper than when the project began in September 2015.
The investment allows larger vessels to use the channel without having to wait for high tide, which is expected to be an efficiency home run for the port. The GPA is also renovating and realigning the docks at the Ocean Terminal in two phases, as well as expanding the Garden City Terminal to provide up to 1 million twenty-foot equivalent units (TEUs) by 2024. The Port of Savannah also delivered its Mason Mega Rail Terminal in late 2021, which brought on 18 new rail tracks across two phases.
Overall the GPA has approved nearly $1.7 billion in infrastructural advancements in the past 12 months. Sink of Colliers says that the innovation of the Port of Savannah is nothing new, it’s been a constant since he started working in the Savannah market in 1999.
“As far as the port authority’s foresight and the ongoing planning for more long-term growth and staying ahead of demand in terms of capacity, that’s been going on for years,” says Sink. “If you look at the growth of the port over since really 2000, it’s been a very solid upward trajectory year after year. One person at the port said they’re moving container volumes now that they did not expect to reach until 2025.”
The investment by GPA has had a direct impact on Savannah’s industrial market. Through the first three quarters of 2022, the Savannah market saw net absorption reach 11.3 million square feet, according to research from JLL. The three-quarter total already surpasses the market’s record high annual total of 10.5 million square feet, which was set in 2021.
“If you look at absorption as a percent of total inventory, Savannah is No. 1 in the entire country at 11 percent,” says Sink. “We haven’t run our numbers yet, but that will be closer to 14 to 15 percent at the end of 2022, which is off the charts.”
Notable lease deals in recent months include furniture giant Rooms To Go signing a full-building lease totaling 465,250 square feet at The Cubes at Interstate Centre II, CRG’s 300-acre development within the broader Interstate Centre industrial park in Bryan County. NFI Industries is also leasing more than 1 million square feet of space at Old Augusta Commerce Center from Becknell Industrial.
Other deals include DHL signing a 516,800-square-foot deal at the 2,600-acre Savannah Gateway Industrial Hub; Serena & Lily signing a 1.1 million-square-foot industrial lease at Stonemont Financial Group’s Georgia International Trade Center in Rincon; and Duke Realty inking a 113,400-square-foot industrial lease approximately two miles from the Port of Savannah with Newline Interactive, a manufacturer of touch display screens.
There was nearly 20 million square feet of industrial space under construction as of third-quarter 2022, nearly half of which was preleased. Additionally, the strong demand for space combined with a 0.5 percent vacancy rate have pushed rental rates by 25.3 percent year-over-year, according to JLL.
“Whether or not the rent growth will continue at that pace, we’ll have to see,” says Sink. “If demand holds up at its current pace, then there is a good chance that rent growth will continue. I don’t know if it will continue by double digits, but it’s certainly possible.”
On the development front, several developers are underway on mega sites near the Port of Savannah. Seefried Properties has begun site work at Live Oak Logistics Center, a 287-acre industrial park located within six miles of the port’s Garden City Terminal. The site is entitled for 4 million square feet of industrial space at full buildout. SJP Properties and Manulife Investment Management have begun construction on the first phase of Georgia International Commerce Centre, an 809-acre industrial park in Savannah. Capital Development Partners has also started construction of Central Port Logistics Center at Rockingham, a 5.4 million-square-foot speculative industrial development.
Rooker is building Seaport 16 Trade Center, a 797-acre industrial campus situated about 25 miles from the Port of Savannah in Black Creek, Georgia. The multi-phased project has the capacity for 7.1 million square feet of logistics space across 10 facilities at full buildout. CA Industrial, part of Chicago-based CA Ventures, and Barings LLC, a subsidiary of MassMutual, have broken ground on the first phase of the I-16 Port Logistics site in Bloomingdale. The nine-building industrial project totals nearly 4 million square feet.
“There is a lot of runway here, not only with the port itself in its current and future capacity, but also the surrounding industrial real estate market,” says Sink.
— By John Nelson
This article was originally published in the January 2023 issue of Southeast Real Estate Business.